Private Equity (PE) investments in the domestic healthcare and pharma industry have touched around $400 million during the first nine months of the year. This trend is set to accelerate as companies go for overseas acquisitions, hive off their R&D units, and Foreign Currency Convertible Bonds (FCCB) lose their sheen.
The PE investment include Apax Partners’ $104 million fund infusion in Apollo Hospitals, IFC’s $67 million in Max Healthcare, Trinity Capital’s $31.4 million in Fortis Healthcare, ChrysCapital’s $24 million in Mankind Pharma and Kotak $10 million in Intas Biopharmaceuticals.
Says Apollo Health Street MD Sangita Reddy: “We had two investments from foreign investors recently and we are being continuously approached by financial institutions. The lack of investment in the healthcare sector so far may be because there are few players, and the capability of the sector has not be fully highlighted. But we see the number of investment from PE firms to increase soon.” (Apollo Health Street is part of the Apollo Hospitals group.)
Within the pharma sector, the companies which are into formulation and have strong R&D are likely to get the preference. ChrysCapital MD Sanjeev Kaul said: “We are looking at investing in companies which have R&D potential.” Adds Avendus Advisors executive director Rajiv Shukla: “Some generic formulation companies are registering a growth rate of 50% and in some cases around 100%. We are looking at investing in such companies. The number of deals will go up to 3-4 per month in coming months.”
But it might not be all that easy for drug companies to attract PE investment. Says Mankind MD RC Juneja, who recently received $24 million funding from ChrysCapital, “Unlike other sectors such as hospitality, real estates, telecom or IT, the fund requirement in pharma sector is not very high and the returns are not quick. Also, the profitability can be less in the sector due to stiff competition and uncertainty in policy of prices.” However, as pharma companies begin trend of hiving off their new drug discovery into separate companies, industry experts expect a slew a PE investment in these new units. Nicholas Piramal India director Swati Piramal estimates that the valuations of the hived off R&D units is around $20 billion and this could rise to as high as $120 billion.
Source: Economic Times