Ranbaxy deal: a view of things to come?

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The Ranbaxy buy out by Daiichi Sankyo has not surprised private equity (PE) companies. It has increasingly been seen in 2008 that PE players are shying away from funding startups and early stage companies engaged in drug discovery and new drug delivery systems.

Instead, they are betting their money on consumer-oriented businesses in the Indian pharmaceutical and healthcare sectors. Such businesses garnered $450 million worth of PE investments. So do not be surprised on your visit to a multi-specialty hospital or the medical retail chain outlet located in your city, and finding out that it is a PE-funded facility. Of late, Indian companies, which have a direct interface with the consumer, have been getting attention from PE players including ICICI Ventures, ChrysCapital, IFC, Apax Partners. Not surprising, health and wellness centres, spas, ayurvedic and herbal skin, slimming and beauty centres are finding favours with them.

Multi-specialty hospitals chains such as Apollo Hospitals, Max Healthcare and Fortis Healthcare have been the key beneficiaries of this trend in recent times. Companies with strong domestic sales such as Mankind Pharma, in which ChrysCapital invested $25 million, are on their wish-list. Also, contract research organisations (CRO) like Radiant Research and SIRO Clinpharm have benefited from the PE players’ generosity.

Explaining the change in mindset of the PE players, Nitin Deshmukh, CEO, Kotak Private Equity, says, “Investments are happening in more established business models because these have profitable cash flows and there are lower gestation periods on scale up. Startups and early stage companies in drug discovery, new drug delivery systems, bio-therapeutic agents, etc have negative cash flows for long periods. Hence, PE players are lukewarm to them.”

Evolvence India is slated to make its first investment of the year in a mid-size Indian generic drugs company later this month. In the past too, players like ICICI Ventures, ChrysCapital, IFC, Apax Partners, Kotak Private Equity, JP Morgan Private Equity Fund, American International Group, among others, have placed their investments in pharmacy retail chains, hospitals and clinical research and medical devices manufacturing firms.