Nath Balakrishnan

Ranbaxy's latest acquisition, close on the heels of its buy out of GSK's generic unit in Italy, is reaffirmation of the view that big Indian pharma is increasingly viewing Europe as a counterweight to the high-risk, high-return potential of the lucrative US market for generics.

Attempts to make inroads into the US market have been punctuated by setbacks, as has been borne out in Ranbaxy's recent case against global major Pfizer in an endeavour to launch a low-cost version of the latter's blockbuster cholesterol-lowering drug, Lipitor. Further, the launch of authorised generics at the behest of innovator companies has dampened the financial opportunity for patent-busters from the Indian pharma space.

In such an environment, Ranbaxy's intention to expand its footprint in Europe could be construed as a move to bolster its presence in the generics space, which, though, is not as attractive as a patent-challenge opportunity, provides stability of revenues, albeit at lower margins. Though Romania does not figure among the top five generic markets in Europe, its market is among the faster growing in Central and Eastern Europe.

However, valuation metrics suggest that the acquisition has not come cheap, at a multiple in excess of four times sales and 11 times Terapia's trailing 12-month EBITDA. Reckoned as an index, this acquisition implies that Indian pharma companies will need to rustle up sizeable funds to pursue their global ambitions. Success, it appears, does come at a price.

(This article was published in the Business Line print edition dated March 30, 2006)
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