India’s CMO market emerges as hotbed for global private equity investment, says GlobalData

India’s contract manufacturing organization (CMO) and pharma market has strongly attracted investment from global private equity firms in recent times, driven by favorable government policies and a thriving generic drugs market, says GlobalData, a leading data and analytics company.

In July 2020, US-based Advent International agreed to acquire a controlling stake in RA Chem Pharma from its parent Micro Labs for an undisclosed sum and US-based KKR agreed to acquire 54% stake in JB Chemicals & Pharmaceuticals for US$611m. In June 2020, US private equity major Carlyle acquired 20% stake in Piramal Pharma for US$490m. Earlier this year, True North invested US$100m to acquire 2.44% stake in Biocon Biologics.

Piramal previously sold several assets including its healthcare insights and analytics business due to debt issues. With Piramal reporting a consolidated pre-tax loss because of COVID-19, it triggered incremental provisioning in its financial services business in the first quarter of 2020.

Bhavani Nelavelly, Pharma Analyst at GlobalData, comments: “Both Advent and KKR have a well-established investment history in India and the recent deals reaffirm the growing interest of private equity firms in the Indian pharmaceutical industry. From the Piramal, JB Chemicals and RA Chem deals, it is evident that there are growing opportunities in CMO, complex generics and bulk drug manufacturers.”

According to GlobalData’s Pharma Intelligence Center Contract Service Provider database, there are over 1,600 contract manufacturing facilities (across almost one thousand companies) in India, and there is a great deal of potential for PE investment in the CMO industry.

There are over 700 contract facilities with API-Chemical manufacturing capabilities, which account for almost half of all Indian contract manufacturing facilities. Despite this capability being the most established in drug manufacturing, it is still attractive to investors considering the rise of private equity deals year-on-year between 2016 and 2018 in both deal number and combined value for chemical APIs.

India has the largest number of public dedicated CMOs with small molecule API manufacturing facilities by a considerable margin, highlighting its particular importance to the small molecule API manufacturing industry.

GlobalData’s research reveals that Indian pharma companies are more likely to engage in contract/excess capacity API manufacture than companies in the other small molecule API hotspots such as in the US and China.

Ms Nelavelly concludes: “Over the past three years, India has witnessed growth in private equity investments as a result of relaxations offered by the government such as increasing the FDI limit from 49% to 74% in brownfield pharma ventures. Despite the significant growth in investments, there is still scope for improved pharma regulatory framework in terms of investments and high tax incentives to further attract the investors.”

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