German drugmaker Bayer said more joint ventures in India could be the way forward to tap into a growing market where rivals are willing to pay far higher premiums in take-over auctions. In January, Bayer signed an agreement with unlisted Indian pharmaceutical company Zydus Cadila to form a venture to jointly market pharmaceuticals. It did not disclose financial terms.
"You have to be sure that the money you're willing to spend on external growth has a business rationale. There is no question that India is a strategic market for us. Are we willing to pay any price that can be fetched these days. Clearly no," Bayer's Chief Financial Officer Werner Baumann said on the sidelines of the group's fourth-quarter press conference. British consumer goods maker Reckitt Benckiser in December agreed to buy privately held Indian ointments and personal care company Paras Pharmaceuticals for about $726 million.
The take-over price including assumed debt was equivalent to about 30 times earnings before interest, taxes, depreciation and amortisation (EBITDA), showing that Reckitt was placing a bet on massive growth of the new unit.
"We are very comfortable with the joint venture agreement we have struck (with Zydus Cadila)," said Baumann. "I can't imagine us entering into deals in emerging markets with more than 30 times EBITDA in enterprise value."
He added that Bayer's healthcare sales figures in India are far below where they should be for a company with Bayer's global presence.
Business consultancy McKinsey expects the Indian healthcare market to reach an annual volume of $20 billion, up from $11 billion in 2009, as chronic diseases brought about by a Western lifestyle, such as diabetes, take hold.
Growth in global pharmaceuticals market in the mid-single digit percentage range this year will be driven by emerging markets such China, Brazil, Mexico, South Korea, India and Russia, Bayer said.
Bayer's growth aspirations in emerging markets "go far beyond Asia," Baumann said.
M&A deals in these markets are likely to be small to medium-sized with the aim of winning a larger marketing footprint rather than broadening the drug development pipeline. The Indian pharmaceuticals market, as many others emerging economies, is dominated by households without medical insurance.