pharma & healthcare sector - mosaiccap.com Healthcare Opportunities - India.… ·...

pharma & healthcare sector

India – a destination for cross-border m&a opportunities

feb 2008, Quarter - 1private and confidential

2private and confidential

the india proposition – select economic criteria

4th largest economy in the world; 2nd largest GDP among the developing countries (based on purchasingpower parity)

over the past 15 years, has been the second fastest growing economy in the world, after China, with an average annual growth rate exceeding 6.5%

displaced the US as the second-most favoured destination for foreign direct investment (FDI) in the world after China. (source: AT Kearney's FDI Confidence Index)

key metrics probably the most preferred country for future R&D investments, with slightly more than 40 percent of CEOs indicating they will likely make such investments over the next three years

most mature and well developed capital markets amongst developing countries

3-4 years of unabated “bull-run” based on record corporate growth & earnings have provided Indian companies the necessary foundation for expansion with minimal leverage

modest inflation despite spiraling crude prices

2005 2006 2007Real GDP (% change) 9.2 8.6 7.9

Nominal GDP (US$ bil.) 808.9 897.8 1035

Nominal GDP Per Capita (US$) 738 808 918

Consumer Price Index (% change) 4.2 5.8 5.7

Wholesale-Producer Price Index (% change) 4.7 4.9 5.4

Policy Interest Rate (%) 6 6 7.25

Short-term Interest Rate (%) 10.75 10.94 10.82

Broad Money Supply (LCU bil.) 25291.9 29424.2 37114.7

Fiscal Balance (% of GDP) -4.1 -3.7 -3.6

Unemployment Rate (%) 12.8 12.2 11.9

Current Account Balance (US$ bil.) -9.2 -15.6 -22.4

Current Account Balance (% of GDP) -1.1 -1.7 -2.2

Trade Balance (US$ bil.) -40.2 -53.9 -65.7

Trade Balance (% of GDP) -5 -6 -6.3

Exchange Rate (LCU/US$, end of period) 45.06 44.24 45.12

Exchange Rate (LCU/Euro, end of period) 53.16 58.27 62.26


the india proposition – availability of funds

FDI Inf lows

21674031

6125 5036 4322 5987 7661

19000

0

5000

10000

15000

20000

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

US$

Mill

ion

Foreign Capital Inf low (net )

10184 8814 855110840

16736

2802223400

05000

1000015000200002500030000

1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

US$

Mill

ion


the india proposition – availability of funds

Acquirer Target Sector % Stake Value - USD M nTemasek Holdings Bhart i Airtel Telecom 4.99% 1,906.74 Consort ium GMR Inf rast ructure Real Estate & Infast ructure Mgt 9.00% 1,000.00 Consort ium Bhart i Inf ratel Telecom 10.00% 1,000.00 ICICI Venture Funds Jaypee Inf ratech Real Estate & Infast ructure Mgt N.A. 800.00 Carlyle Group HDFC Banking & Financial Services 5.60% 650.00 Avenue Capital SKIL Inf rast ructure Real Estate & Infast ructure Mgt 26.00% 500.00

USD 500 M n Plus PE Deals - India

Sector Wise Break-up - Value

17%4%5%

2%

36%

36%

Banking & Financial Services

IT & ITES

Media, Ent ert ainment & Publishing

Pharma, Healt hcare & Biot ech

Real Est at e & Inf rast ructure Management

Others

Sector Wise Break-up - Volume

6067

31 35

61

151

0

40

80

120

160

Banking &FinancialServices

IT & ITES Media,Entertainment &

Publishing

Pharma,Healthcare &

Biotech

Real Estate &InfrastructureManagement

Others

No

. o

f D

eals


the india proposition – pharmaceutical sector

the Indian pharmaceutical sector is currently the largest amongst the developing nations. Given its current momentum of growth the Indian pharmaceuticals market is expected to expand to US$ 25 billion by 2010. It is rightly considered to be one of the flagship sectors of the Indian economy, as Indian pharmaceutical companies continue to move to the center stage of the global pharmaceutical market. There is a worldwide structural trend evolving in pharmaceuticals and Indian companies play a key role in this framework, driven by their superior biotech and drug synthesis skills, high quality and vertically integrated manufacturing assets, differentiated business models and significant cost advantages.

Even at home, Indian pharmaceutical companies reign supreme compared to their multinational counterparts. Profit margins of Indian companies are consistently on the rise and the recent trend of mergers and acquisitions by Indian pharmaceuticals are likely to provide an upside to the growth numbers. Total Indian Pharmaceutical Market is valued at US$ 8790 million with a growth rate of exceeding 8%

Indian pharmaceutical companies have adapted to the changing industry dynamics and increasing regulatory and competitive pressures and have evolved distinctive business models to take advantage of their core competencies in R&D, Manufacturing, Marketing and the niche opportunities offered by the changing global pharmaceutical environment. These differentiated business models provide the pharmaceutical companies the necessary competitive edge for consolidation and growth


the india proposition – the global indian: cross border acquisitions

Acquirer Target Sector Value - USD M n Deal TypeTata Steel Corus Steel 12,201.60 Acquisit ionVodafone Hutchison Essar Telecom 10,830.00 MajorityHindalco Indust ries Novelis Inc Aluminium 6,000.00 Acquisit ionSuzlon Energy REpower Power & Energy 1,700.93 Cont rolling StakrEssar Steel Holdings Algoma Steel Inc Steel 1,580.00 Acquisit ionUnited Spirit s Whyte & Mackay Breweries & Dist illeries 1,112.99 Acquisit ionTata Power PT Kalt im Prima Coal Power & Energy 1,100.00 Signif icant Stake

Billion Dollar Plus M &A Deals

China 38,406.40 1,913.00 Hong Kong 26,930.20 765.00 India 26,676.80 1,141.00 Malaysia 25,956.60 873.00 South Korea 24,493.80 255.00 Taiwan 21,396.30 175.00 Singapore 15,713.80 465.00 Philippines 7,754.50 128.00 Thailand 7,555.10 268.00 Indonesia 5,117.70 117.00 Industry Total 201,531.40 6,216.00

Any Involvement Asia M &A By Target Nation - CY 2006

Target Nation Deal Value (US$ M il) Number of Deals

* list excludes the take-over of Arcelor by Mittal Steel (essentially Indian promoter and management team)


the india proposition – the global indian: cross border acquisitionsAmtek Auto Zelter GmbH, Germany, GWK Group, UK, Lloyds (Brierly Hill), UK,

Midwest Mfg. Co., USA, Tiplex-Kelton Group, JL French’s (Witham) Limited

Asian Paints Delmege Forsyth (Sri Lanka), Pacific Paints (Australia), Berger International,SCIB Chemical (Egypt), Taubmans Paints (Fiji)

Marico Sundari LLC, USA, consumer division of Enaleni Pharmaceuticals

MindTreeConsulting

TES-PV Electronic Solutions

Reliance Communications

Yipes Holding Inc, acquisition price USD 300 million

Reliance Life Science

GeneMedix Plc, acquisition price USD 28.80 million for a 74% stake

Sterlite Monte Cello Corporation, Netherlands, the holding company of copper mines in Australia

Tata Tea Tetley, Good Earth, JEM_A, Glaceau

Sundaram Fastners

Dana Spicer, UK, Peiner Umformtechnik GmbH, Germany, PUT Grundstucks GmbH

VSNL Teleglobe International Holdings, Tyco Global Network

Wipro Spectramind, GE’s healthcare software arm, global Energy practice of American Management Systems, Nervewire, US, Ericsson's Indian R&D arm, OkI Techno Centre Singapore

Reliance Industries

Gulf Africa Petroleum Corporation (GAPCO)

Motherson Sumi Reiner Präzision GmbH and G+S Kunststofftechnik GmbH in Germany, Empire Rubber

Bharat Forge CDP Aluminiumtechnik, Germany, Federal Forge, USA, Imatra Forging Group,Sweden and Scotland

Havell’s India Ltd

SLI Sylvania lighting business, acquisition price USD 300 million

Indian Hotels Hotels in Zambia and Australia


the india proposition – the global indian: cross border pharma acquisitions

why indian companies acquire ?build critical mass in terms of marketing, manufacturing and research infrastructureestablish front end presencetap other geographies / therapeutic segments / customersenhance product, technology and intellectual property portfolio catapulting market sharebarrier to entryIndian pharmaceutical companies have now moved up a step in the value chain and are looking at inorganic route to growth through acquisitions. Many top and mid tier Indian companies have gone on a global "shopping spree" to build up critical mass international markets

Indian pharmaceutical companies, given their reverse engineering skills have evolved superior chemistry, regulatory and manufacturing skills at low cost

Availability of skilled labor at low cost(labor costs in India are around 1/7th the levels in developed countries)

Capital efficiency: Indian companies are able to reduce the upfront capital cost of setting up a project by 25-50% due to access to locally fabricated equipment and high quality local technology/engineering skills. This benefit can be passed on to customers

Regulatory expertise: India has around 75 plants approved by the US-FDA (the highest in any country outside USA)

the India advantage

The total value of merger & acquisitions transactions done by the Indian pharma companies exceeds US$4 billion in value terms (last 24-30 months)



industry dynamics and deal preferences – innovation vs. generics / commodity products –the company group has products ranging across the spectrum (and the geographical reach); thus would be a suitable investment target for a number of Indian pharma product companies



Target Acquirer Deal Size StakeGeneMedix Plc Reliance Life Science 28.80 74%Medicamenta Glenmark Pharmaceut icals N.A. 90%Hollister-St ier Laboratories Jubliant Organosys 122.50 100%Nippon Universal Cadila Healthcare N.A. 100%Taro Pharma Sun Pharmaceut icals 454.00 100%BMS Ranbaxy Laboratories 26.00 100%Diaspa SpA fermentat ion assets St rides Arcolabs N.A. 100%Negma Lerads Wockhardt 253.49 100%CBK-MPR Pharma Lambda Therapeut ics 6.50 76%Biosciences Co Ltd Dabur Pharma Ltd N.A. 100%Undisclosed Avesthagen 11.00 100%Nikkho Pharma Cadila Healthcare 25.00 100%GSR Systems Accent ia Technologies N.A. 100%Neutra Health Plc Elder Pharmaceut icals 10.93 20%Solvay Pharmaceut icals Dishman Pharmaceut icals N.A. 100%New Biological Ent it ies Glenmark Pharmaceut icals N.A. 100%SaveMart Pharmacy Natco Pharma N.A. 100%Biomeda Group Elder Pharmaceut icals 6.51 51%Formulat ion manufacturer Ipca Laboratories N.A. 100%Morton Grove Pharmaceut icals Wockhardt N.A. 100%Kyowa Pharmaceut icals Lupin Ltd N.A. 80%Siegf ried Biologics Avesta Biotherapeut ics N.A. 100%Lukaps ACG Worldwide N.A. 100%Gene Logic Ocimum Biosolut ions 10.00 100%CMS-Kat ra Kerala Ayurveda Ltd N.A. 51%ECRON GmbH Manipal AcuNova N.A. 100%Nat rol Plethico Pharmaceut icals 80.80 100%Enaleni Pharmaceut icals Marico Ltd 12.09 100%Hale Group Marksans Pharma N.A. 100%

Indian Cross Border Pharma Deals - CY 2007 (USD M n)



sample mergers & acquisitions inked by the Indian industry participants in 2005-06 in the pharma sector



mergers & acquisitions inked by the Indian industry participants in 2005 in the pharma / biotech sectors


the india proposition – the global indian: management philosophy

apart from the “generic products space”, the innovation space acquisitions would be an optimal tool for Indian companies while building on their capabilities given the industry’s relative inexperience with basic & applied research and product development. The advantages of acquiring a company strong in research & development for innovation are many and obvious; a few broad ones include:

• fewer challenges in turning around the acquisition considering the scale of operations of an R&D driven service provider in comparison to a marketing and sales driven “generic products” company

• fewer challenges in merging acquired research projects or capabilities in the absence of multiple well established in-house research programs and capabilities

• gaining an existing alliance portfolio of the acquired company thereby creating an immediate entry into the innovation and its related space to be consolidated further

• ability to synergize existing and acquired capabilities to seek new vistas of opportunity

the bottom line – since M&A provides a potential advantage to succeed for Indian companies on their way to harness external capabilities in the absence of existing competencies and strengths of in-house research projects and many untapped geographies – the key elements of the incumbent management team essentially be integrated into a bigger roles, in a larger organisation with larger budgets and targets


the india proposition – the global indian: a case study

Wockhardt is a global, pharmaceutical and biotechnology company that has grown by leveraging two powerful trends in the world healthcare market - globalization and biotechnology.

has a market capitalization of US$ 1.3 billion and an annual turnover of US$ 285 million (Rs. 12.39 billion). Wockhardt has a strong and growing presence in the world’s leading markets, with half of its revenue coming from Europe and the United States.

key strengths• manufacturing capabilities: manufacturing facilities in India and UK have the approval of major regulatory

bodies, including US FDA and UK's MHRA, with capabilities for both Finished Dosage Formulations and APIs• biotechnology: Wockhardt has developed comprehensive ‘concept-to-market’ strengths in all facets of

recombinant biotechnology. These include gene-cloning, development of production strains, expertise in all three major expression systems, purification, downstream processing and testing

• set up the Wockhardt Biotech Park, amongst India’s largest biopharmaceuticals complex, with six dedicated plants built to international standards with capacities to meet 10-15% of global demand for important biopharmaceuticals

• sound regulatory infrastructure has been set up for its biogenerics pipeline with registrations in developing markets. The company has also set up front-end offices in the identified markets - either owned organizations, strategic joint ventures or distribution arrangements

acquisition managementthe company has a strong track record in acquisition management, with three successful acquisitions in the European market and two in the domestic space. the acquisitions in Europe and the subsequent integration of their operations have strengthened Wockhardt’s position in the high-potential markets of UK and Germany, and have expanded the global reach of the organizationthe growth drivers for Wockhardt’s European business include exports, new product launches, penetration in the European Union through mutual recognition, and strategic acquisitions



…continued

Wockhardt UK Limited: (Erstwhile CP pharmaceuticals) is amongst the 10 largest generics companies in UK and the second largest hospital generics supplier. The Company has a comprehensive, FDA-approved manufacturing facility. Wockhardt UK has built up a critical mass in the segments of Retail Generics, Hospital Generics, Private Label GSL / OTC Pharmaceuticals, etc

Esparma GmbH: The acquisition of Esparma GmbH in 2004, has given Wockhardt a strategic entry point into Germany, the largest generics market in Europe. Esparma has a strong presence in the high-potential segments of urology, neurology and diabetology, assisted by a dedicated sales & marketing infrastructure

key to Wockhardt’s successful acquisition management is the management’s ability to turnaround the acquired company, in active participation with the incumbent management team, in record time and thus create value out of the acquisition.

the company believes in value buys that would have a tactical fit with its core competencies and key strategic objectives

the company has plans for further acquisitions in the developed markets of Europe and US to further consolidate and strengthen their positions in these geographies


the india proposition – healthcare sector

the Indian healthcare sector has been growing at a frenetic pace and is undergoing phenomenal expansion. Private hospitals and continued investment in the public health programmes are driving the boom

healthcare industry includes different segments: healthcare delivery, medical equipment and diagnostics, medical outsourcing and medical education

revenues from the healthcare sector account for 5.2 per cent of the GDP and it employs over 4 million people (source: CII-Mckinsey study on 'Health in India' ). By 2012, revenues can reach 6.5 to 7.2 per cent of GDP and direct and indirect employment can double

India will spend US$ 45.76 billion on healthcare in the next five years as the country, on an economic upsurge, is witnessing changes in its demographic profile accompanied with lifestyle diseases and increasing medical expenses (source: CII-Mckinsey study on 'Health in India' )

• private healthcare will continue to be the largest component in 2012 and is likely to double to US$ 35.7 billion • could rise by an additional US$ 8.9 billion if health insurance cover is extended to the rich and middle class • coupled with the expected increase in the pharmaceutical sector, the total healthcare market in the country

could increase to US$ 53-73 billion (6.2-8.5 per cent of GDP) in the next five years


the india proposition – healthcare sector: key drivers & trends

changing demographic and socio-economic profile• proportion of the country's population in the 15-54 and the 55 and above

age groups is increasing owing to improvement in life expectancy levels • large geriatric population (55 and above), estimated to be the largest in

the world, will form a major consumer segment in the near future

rising demand for quality health care• growth in affluence of over 300 million strong middle-income consumers

is creating demand for higher standards of healthcare • between 1993-94 and 2001-02, aggregate household expenditure on

health services increased at an annual compounded rate of 9.3%• multi-specialty private hospitals are preferred even if the consumers bear

this expense personally increasing penetration of private health insurance

• with growing awareness levels and increasing affordability arising out of the growth of private health insurance, the demand for quality healthcare services in India is growing faster than ever before

• estimates project an insured base of 160 million by 2010• institutional customers have emerged as an important customer segment

for private health insurers• changing lifestyle patterns

• incidence of lifestyle diseases such as diabetes and cardio-vascular diseases is on the rise

• trend is driving the demand for multi-specialty and super-specialty healthcare services, covering key therapeutic areas like cardiology, nephrology, oncology, orthopedics, geriatrics, maternity and critical care

Age wise population distribution

1991 (%) 2001 (%) 2010 (%) 0-14 36 35 29 15-54 55 55 59 55 & above 9 10 12


the india proposition – healthcare sector: key drivers & trends

healthcare sector posted a 42% rise in earnings in the year to March 2007 (source: Reuters)

at the current pace of growth, medical tourism, currently pegged at US$ 350 million, has the potential to grow into a US$ 2 billion industry by 2012 private healthcare will form a large chunk of this spending, rising from US$ 14.8 billion to US$ 33.6 billion in 2012. This figure could rise by an additional US$ 8.4 billion, if health insurance cover is available to the rich and the middle classthe voluntary health insurance market, which is estimated at US$ 86.3 million currently, is growing fast. Industry estimates put the figure at US$ 2.8 billion by 2005 with the expected increase in the pharmaceutical market, the total healthcare market could rise from US$ 22.2 billion, currently (5.2 per cent of GDP) to US$ 50 billion - 69 billion) (6.2-8.5 per cent of GDP) by 2012

the sector is providing a host of opportunities includingmedical tourismpreventive health carehealth care BPOtele-medicinelaboratory and diagnostic servicesmedical devices


the india proposition – the global indian: cross border healthcare acquisitions

Indian healthcare is all set to go global with a host of domestic hospital chains busy scripting overseas expansion plans

• Apollo Hospitals has drawn up plans to set up or manage hospital projects in Mauritius and Fiji. Besides, it is bidding for a diagnostic facility in the UK and plans to try for a hospital project in that country later. These would be in addition to the group's existing overseas facilities in Colombo, Bangladesh, Nigeria and the Middle East

• Max Healthcare, another leading hospital chain, is trying to enter the US, UK and far-east markets. This is besides the expansion of its operations in neighbourhood countries like Bangladesh and Afghanistan

• Wockhardt is also eyeing markets in Europe, particularly the UK, as part of its growth strategy. The company is already building its brand presence through tie-ups with leading healthcare insurance providers in the US, UK and Singapore

the government is also providing able support to help promote smaller health care providers• till now, only a few big private healthcare providers such as Apollo, Fortis, Wockhardt and Max were creating

their individual brand awareness in overseas markets through tie-ups with insurance companies and patient facilitation centres

• the government is launching a comprehensive programme to promote medical tourism• putting in place an accreditation system for domestic hospitals and healthcare providers, drawing up a price

band for superspeciality services offered by Indian hospitals, adoption of country-specific marketing strategies, opening of overseas facilitation centres and tie-ups with overseas insurance companies

• the National Accreditation Board for Hospitals and Healthcare Providers (NABH) set up by the Ministry of Health under the aegis of the Quality Council of India is currently finalising the guidelines for accreditation of hospitals and other healthcare service providers


the india proposition – medical devices sector

the biomedical devices market in India is unofficially estimated at around US$ 2 billion and of which about 80-85% is met through importsdriving forces that are creating the demand for medical equipment include:

• establishment of a number of super-specialty hospitals and specific diagnostic centres• urban private sector hospitals upgrading their equipment and instruments to remain competitive • favourable government policies such as a reduction in import duties on medical equipment

off-shoring medical devicesas an example: the US market for medical devices is expected to reach $89 billion in 2007, representing a promising opportunity for manufacturers and service providers (source: Medical Device & Diagnostic Industry –"Opening the doors to India: Off-shoring Medical Devices)with this opportunity comes the added pressure for medical device companies to stay ahead of the competitionto compete in this attractive market, many medical device makers are successfully partnering with offshore outsourcing firms and collaborating on device development and manufacturing they are off-shoring processes such as application development, systems engineering, hardware design, software solutions, and manufacturing

benefits of outsourcing to IndiaImpressive pool of well educated, highly qualified, english speaking professionalsWith more than 380 universities, 11,200 colleges, and 1500 research institutions, India has the second-largest pool of scientists and engineers in the world; more than 2.5 million graduates are added to the workforce every year, including 300,000 engineers and 150,000 technology professionalsamong Brazil, Russia, India, and China, India is expected to stay the youngest; its working-age population is estimated to represent 70% of the total population by 2030 – the largest in the worldeconomic & political stabilitypartners that specialize in finished-device manufacturing, can help a company improve quality while shortening the product development cycle and reducing time-to-market and reducing the lifecycle costs by as much as 40-50%



Opto Ciruits (BSE Code: 532391; NSE Symbol: OPTOCIRCUI) is a leading manufacturer of non-invasive healthcare equipments headquartered in Bangalore, India. The product profile includes digital thermometers, sensors, probes, pulse oxymeters, patient monitoring systems and innovative products in the pipeline. OCIL has two lines of businesses

(a) OEMs – direct supplier to GE and other large MNCs (b) MediAid (100% US-based subsidiary) – markets OCIL’s brands

grown in-organically over the past few years:Advanced Micronic Devices, a listed company engaged in manufacturing and marketing of health care equipments in India :2001Digital Clinical Thermometer division from Unilever in India : 2002Acquisition of the patient monitoring division of Palco Labs, USA : 2003

continuing its goal of aggressive growth and diversification in the healthcare segment recently (Dec 2005) completed its acquisition of EuroCOR GmbH

transaction valued at €11 millionEuroCOR manufactures Cardiac and Peripheral Stents of various types, including Drug Eluting Coronary Stents used in Critical Cardiac Care. It is one of the largest manufacturers of Stents. By acquiring EuroCOR, OCIL gets to access the existing as well as potential market for Stents globally

strong foothold in the global arena for Stents (total global market for Stents expected to be US$10billion by 2008)

strong R&D base of EuroCOR will lead us in the direction of greater market share and also better margin business

help improve shareholder value

Why OCIL acquired EuroCor ..

though present in more than 26 countries worldwide including in India, this acquisition by Opto Circuits gives

a great opportunity to access the vast potential offered by India

excited by the prospect of tapping latent potential in developing countries

What EuroCor had to say ..


key contact information

Sanjay [email protected] phone: +44 (0) 7738321449facsimile: +44 (0) 208 711 3943

Vinay [email protected] phone: +91 (0) 9967642785facsimile: +44 (0) 20 66325631

Vikram [email protected] phone: +44 (0) 9886409387facsimile: +44 (0) 80 25091532

mailto:[email protected]



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