Ranbaxy acquires Romanian drug firm for $324 million

Ranbaxy Laboratories said it has signed a definitive agreement to acquire 96.7 per cent of Romanian generic drug manufacturer Terapia SA for $324 million. The acquisition would be funded from the proceeds of the recently concluded $400-million FCCB issue.

This is the second acquisition by Ranbaxy in two days. The company had announced the acquisition of the generic arm of Glaxo in Italy for an undisclosed amount yesterday.

Terapia is the largest independent generic drug company in Romania with a strong product pipeline, R&D facilities and low-cost production facilities, according to the release from Ranbaxy. The company also has a large marketing and distribution network.

Together with Ranbaxy's existing operations in Romania, the combine would emerge as the largest generic pharma player in that country. Ranbaxy said the acquisition provides a platform to further leverage the company's presence across the European Union and CIS countries. The company said the product pipeline of Terapia is complementary to its own.

Terapia had pro-forma sales of $80 million for the year 2005 with EBITDA margins of over 35 per cent. The company has a basket of 157 products with 70 per cent of revenues coming in from some fast growing therapeutic segments.

Terapia has two manufacturing locations in Romania producing tablets, capsules, sterile ampoules and liquids. Ranbaxy said these facilities would continue to cater to the domestic Romanian market besides other international locations where the company has a presence. Romania would become the second manufacturing location in Europe for Ranbaxy after Ireland.

The deal is valued at more than four times its 2005 sales and 11.6 times trailing 12-month EBITDA. In comparison, Dr Reddy's had paid 3.4 times revenues for the acquisition of German generic company Betapharm last month. Betapharm is more than twice the size of Terapia with a presence in the much larger German market.

Indian generic companies, especially Ranbaxy, are following the strategy of aggressive overseas acquisitions to expand their reach. The decline in prices of generic drugs in key markets like the US and aggressive patent defence by major pharma companies are forcing generic companies to seek growth through acquisitions.

In their quest for acquisitions, major Indian companies are competing against each other as well as other large global generic players. This is pushing up the valuation of possible acquisition targets considerably, raising questions about the desirability of such acquisitions.

Betapharm acquisition by Dr Reddy's happened after a bidding war between Dr Reddy's and Ranbaxy. Similarly, the initial price quoted by Ranbaxy for Terpia was reportedly much lower at $200 million, which was raised substantially after aggressive bidding by other companies.

Ranbaxy is trading at Rs411.5 (up 3.57 per cent) at 12.46 PM on the NSE today.