Piramal Healthcare Over the last few days, news about Piramal Healthcare being acquired by British pharma giant, GlaxoSmithkline and French major, Sanofi Aventis has continued unabated. The number doing the rounds is $1.5 billion and that investment bank, Credit Suisse has been mandated by Piramal Healthcare.

Though the Piramal have strongly denied that anything close to a sale is even being contemplated and have sent out an official communique in this regard to the stock exchanges. It is still worth taking a look at what a potential deal could mean.

The Business

Started by Swati Pirmal, a doctor married into a textile family of Ajay Pirmal, Piramal Healthcare is today ranked at the fourth position in the pecking order of Indian pharma companies. It has a market share of 5% and covers 10 therapeutic segments.

With the objective of increasing margins, the R&D business was hived off into a separate company called Piramal Life Science, which too is listed on the bourses. Contract manufacturing, which accounts for about one-third of the total business of Piramal Healthcare, has been identified as an area of growth.

This is being viewed as a key reason for someone like Glaxo to take a good look at it. Here’s another reason – custom manufacturing agreements take a minimum of 18 months before they start generating revenues and with Piramal Healthcare well versed with the business it logically becomes a good target for any potential acquirer.

Over the last two years, large clients like Astra Zeneca have been added making the roster that much stronger. Piramal Healthcare also acquired the contract manufacturing organisation Avecia Pharmaceuticals, UK in November 2005, which has given it an important entry into the global custom manufacturing space.

“Buying distressed (Avecia) or sub-optimal (Morpeth) assets at low valuations and turning them around has helped Piramal Healthcare,” says a report from brokerage house Citi Investment Research. In fact, Avecia made operating losses, when Piramal acquired it. Since then, it has recorded operating profit margins of 4-5%.

A report from Equitymaster says, “Custom manufacturing from Indian assets enjoy high margins of 25% and given that this business is likely to gain traction significantly going forward, we expect margins to expand.” That’s not all. Piramal Healthcare is looking to also launch new products in India courtesy in-licensing deals and has entered into agreements with seven global companies including Biogen Idec, Genzyme, Gilead Sciences and Pierre Fibre.

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