ImageA host of global pharmaceutical companies including the world's largest drugmaker Pfizer, GlaxoSmithKline (GSK) and Sanofi Aventis are scouting to buy Indian drug firms in a bid to expand into generics market and boost flagging sales. The trend which started in 2008 is now poised to take wings because global innovator companies are looking at alternative revenue streams as their patent pipeline for drugs dries up.

Global drug majors have only few patented drugs in the market and in a majority of cases their marketing exclusivity for the drugs will expire in the next 2-3 years.

Although the opening of Indian economy to foreign investment in early 90s saw multinational firms buying Indian firms across sectors, pharma was an exception. Says private equity firm ChrysCapital MD and leading pharma expert Sanjiv Kaul, "Global pharma majors entered into research collaborations with Indian companies to reduce cost and continue with their innovative research. But it didn't deliver the desired results."

He added, "MNCs have now reconciled to the new reality that they need to build a bigger presence in the $140 billion global generic market. This is a good time for Indian companies who want to sell because the buyers are desperate, given the paucity of their product pipeline."

Pfizer is in talks with Wockhardt to buy the Indian company's animal healthcare business besides some other local companies. GSK and Sanofi Aventis are reportedly looking to buy Piramal Lifesciences even as the promoters have denied any possible stake sale. Other potential target companies for MNC drug firms include Aurobindo Pharma, Divi Laboratories, Cipla, Shasun Chemicals and Torrent Pharma.

This comes as a sharp contrast to the trend over the last three years when Indian pharma companies were aggressively buying small and mid-size companies globally. Between 2006-08, Indian companies acquired 95 companies in the pharma and healthcare space spending more than $3.5 billion, as per data compiled by advisory firm Grant Thornton.

This got reversed last year with Germany's Fresenius Kabi buying out Dabur Pharma and Japan's Daiichi Sankyo acquiring India's largest drugmaker Ranbaxy Laboratories.

Says brokerage firm Prabhudas Lilladher's head of research (PCG) Ranjit Kapadia, "Global pharma companies are looking at overnight presence in generic space which is possible only through acquisitions. Indian companies provide labour, manufacturing and bulk drugs at a significantly lower cost. While China is better positioned than india in costs, they don't have capabilities to make high quality finished drugs."

Indian companies are the largest exporters of low-cost generic medicines. The country has about 100 drug manufacturing units approved by US regulator USFDA, the highest outside the US. Besides, Japan, the world's second largest drug market and several European countries are also making regulatory changes to promote low-cost drugs to cut healthcare cost.

The US government under the New President Barack Obama has said they will buy more generic drugs and take on innovators companies who try to block the entry of low-cost competitors.