When Ranbaxy agreed to sell off its pharmaceutical business to Daiichi-Sankyo of Japan in 2008, Ajay Piramal, the chairman of India Piramal group, said he had not expected such a sell-out from the largest domestic player. Less than two years later, Mr. Piramal himself has sold the entire formulations business of Piramal Healthcare to Abbott. The Piramal-Abbott deal also appeared highly unexpected to many.

But even more such unexpected, high-decibel transactions are on the horizon for India’s fast-growing pharma market, as multi-national corporations (MNCs) suddenly go all out to pay hefty premiums – as much as 8 to 10 times the annual sales turnover – to acquire Indian generic firms.

By combining Piramal’s 350 branded generic formulations, manufacturing facilities and 5,000+ sales force, Abbott expects to leap-frog to the No.1 slot in the $8 billion Indian pharmaceutical market, a region expected to increase as much as 16% a year through 2014, according to IMS Health Inc. Currently, Abbott doesn’t even figure among the top 25 players’ list in India, although the U.S. drug maker has been present in India for a century.

Piramal’s branded generics portfolio, which includes antibiotics, respiratory, cardiovascular, pain and neuro products, could also give a big boost to Abbott’s Established Product Division, set up to focus on expanding global markets.

Big Pharma Vie for Indian Market Pie

Before acquiring Piramal’s formulations business, Abbott had forged a supply deal with another Indian major, Zydus Cadila, in branded generics for 15 emerging markets.

MNCs see pharmaceutical sales in emerging markets growing at three times the rate of developed markets and accounting for 70% of pharmaceutical growth during the next several years. Growing at 12% yearly, the $165 billion generic segment occupies more than 20% of the global pharma market and thus is a very attractive opportunity for MNCs that have been hitherto either absent or had a lukewarm approach to it.

India today accounts for 11% of the global market of the branded generics and pure generics.

“If MNCs can learn and master the art of branded generic marketing in a highly competitive environment like India, it will stand them in good stead elsewhere in those markets that have a similar profile,” said Sanjiv Kaul managing director, ChrysCapital, an investment firm focused on India.

According to him, more Big Pharma MNCs will be tempted to acquire other large generic assets in India to grab market share, “so that their pecking order in India is in sync with that of MNCs globally.”

Since the June 2008 sale of Ranbaxy, Dabur Pharma and Shantha Biotechnics have been bought by Germany’s Fresen-ius-Kabi and France’s Sanofi-Aventis, respectively. While Sanofi gained access to Shantha’s vaccine pipeline for emerging markets, Fresenius won the Dabur’s branded oncology generics lineup.

Pfizer, GSK and AstraZeneca have already tied up with Indian CMOs like Aurobindo Pharma, Strides Arcolabs, Dr. Reddy’s and Torrent Pharma to source branded generics for emerging markets.

MNC Offers: Too Tempting To Say No?

Even as Big Pharma vies to maximize market share, the Indian players with generic competencies find the high-premium MNC offers too enticing to resist.

Many companies in the Indian pharma market want to sell, but they may not admit it in public, Ranbaxy’s Malvinder Singh recently commented. He sold his family stake to Daiichi-Sankyo for $4.6 billion, at a premium of almost four times the company’s annual sales.

Lucrative business prospects compel Indian CMOs to turn their antennae closer towards emerging markets. Mumbai-based Lupin Ltd. has reportedly set up an R&D center dedicated to develop generic drug products for emerging markets in Latin America, Africa and Australia, recently.

It won’t be a surprise if other larger Indian players may be tempted to sell-out in response to lucrative offers by MNCs. The huge valuations, however, could “drop steeply once the dust settles,” according to Mr. Kaul.

India seems to offer a great strategic platform for Big Pharma to launch themselves into up-and-coming markets. Pharma giants discern prices of generic formulations remain more or less stable in emerging markets compared to the continuously eroding value realizations in U.S. or EU markets. And for every successful foray, the role of Indian CMOs look indispensable.

The USP of Indian manufacturers has been cost-effective production technologies. India’s cGMP-compliant factories are growing in number by the day. Experts wonder, if quality of a generic can be ensured in a low-cost location, what reason is there to look back?

But does that justify astoundingly high premiums? “If you want the best companies, you will pay a premium,” commented Michael Warmuth, Abbott’s senior vice-president, Established Products, in regards to the Piramal acquisition.

No MNC that wants to expand to emerging markets, Mr. Warmuth added, can be taken seriously unless it has a strong presence in India.

S. Harachand is a pharmaceutical journalist based in Mumbai. He can be reached at harachand@gmail.com.