Is it strategic investment, a white-knight or initial tremors of local consolidation in the domestic pharmaceutical industry?

The question does its rounds every time a drug company or promoter picks up equity in another drug company. And such instances there have been aplenty over the last few years – leading industry representatives to observe that the answer is: all of the above.

Ranbaxy, before it was acquired by Japanese drug-maker Daiichi Sankyo, had come close to the open-offer trigger point in Orchid Pharma in 2008. Later, Serum Institute's promoter picked up equity in Orchid Pharma, and still holds about 10 per cent in the company. Serum also holds close to 12 per cent in fellow vaccine-maker Panacea Biotech.

Dr Reddy's Laboratories' Dr K. Anji Reddy holds close to two per cent in Krebs Biochemical, where Ranbaxy continues to hold about 11 per cent. Sun Pharma, through its subsidiary Sun Pharma Global, holds about 20 per cent of Wockhardt's $110-million foreign currency convertible bonds (FCCBs).

And last week, Sun Pharma promoter Mr Dilip Shanghvi picked up 3.5 per cent in Hyderabad-based company Natco for about Rs 25 crore, an official said.

Serum's Executive Director Mr Adar C. Poonawalla, has in the past told Business Line that they would pick up stake in healthcare companies as long-term investments, and this had no acquisitory overtones. Sun Pharma officials too mirror similar views on its investment in Wockhardt, and Natco – where the investment is in the promoter's personal capacity.

In the past, Ranbaxy too have made similar statements. Ranbaxy, in its earlier avatar, had invested in Zenotech and Jupiter Biosciences, as well. It has exited Jupiter, but Ranbaxy-Daiichi hold about 67 per cent in Zenotech.

Positive outlook

Investment by promoters in the same sector consolidates the belief that they are positive about the sector, says a pharma analyst. Consolidation in the domestic sector, the analyst says, is more likely in the unlisted and privately held space. Cash-rich promoters will invest in other companies, as opportunities emerge, she adds.

While Sun Pharma's Chief Executive took a stake in Natco in his personal capacity, Sun's FCCBs in Wockhardt were giving good returns, a good yield, it was a secured instrument, says Mr Rahul Sharma, with Karvy Stock Broking.

But the insight from industry representatives is that companies and promoters are indeed testing the waters.

Research and financial challenges ahead for the industry are laying the foundation for local consolidation. The valuations in local buyouts, though, will be more realistic than that is being offered by foreign companies for local firms, they add.

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