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Investment

Why are PE Fund suddenly getting interested in Indian Pharma?

Pharmaceuticals contract manufacturing is emerging as the next big story in the Indian context. At least, if you look at the slew of PE deals in the last few months, there seems to be a surge in interest in this business from global PE funds. What explains this recent surge in private equity interest in specific pharma names? More importantly, can this trend sustain in the coming years?

5 mins read   |   26 Sept.2020   |  
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Written By: Bani Thakkar

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Slew of PE deals in pharma

If you look at the surge in PE deals in the pharma sector, it is dominated by the active pharma ingredients (API) space and the contract research and manufacturing services (CRAMS) space. Just look at the kind of deals that have happened in the last few months. Advent International bought controlling stake in RA Chem Pharma for a sum that was undisclosed. In other deals, Carlyle paid $490 million for a 20% stake in Piramal Pharma and another $210 million for a controlling stake in Sequent Scientific. In a major deal, KKR recently infused $611 million to take a 54% stake in JB Chemicals. Above all, there was also a small investment of $100 million in Biocon Biologicals by True North. The Indian strength in APIs and CRAMS has suddenly caught global attention in the light of the COVID-19 pandemic. Nearly 50% of the contract manufacturing operations (CMO) in India pertain to APIs. PE funds are looking at it as the next big opportunity in bulk drugs and complex generics.

After COVID it’s different

To be fair the interest of PE funds in Indian CMO players started well before COVID-19. As soon as Chinese chemical manufacturers faced pressure over environment violations, the supply of APIs from China got disrupted in 2018. That was the beginning of the interest in Indian API makers. After COVID happened, the stakes changed in a big way. Global pharma companies wanted to de-risk their supply chains as they could not afford the risk of being too reliant on China. That left only India with the necessary scale and ability to deliver the APIs globally. That, in a way, explains the surge in interest in the India API and CRAMS story. COVID-19 has only provided the added impetus. 

Is it the next big thing?

India managed to milk the IT and digital story in a big way since 2000 and the generic pharma exports before that. Both these stories have lived their lives and India needs a new story to fall back upon. If India is serious about giving the big boost to exports, then the real big opportunity could lie in the CRAMS and API story. Indian API and CRAMS is still small by Chinese standards and the post-COVID scenario provides the right opportunity for India to move in. Most API and CRAMS companies may be already steeply valued but we are sitting on the cusp of exponential growth. That could be the next big story!