Sun Pharma's sharpens emerging market focus with $60 mn acquisition in Russia

Sun Pharma will pay $24 mn for 85% equity and will assume $36 mn debt as part of the transaction

Sun Pharma is expanding its footprint in Russia which aims to increase local production of generics and reduce dependence on imports as part of government-led Pharma 2020 strategy.

On Tuesday, Sun Pharma has acquired Russian drug maker Biosintez in a $60-million deal (about Rs 400 crore ) as it steps up focus on emerging markets.

The current size of pharmaceutical market in Russia is around $17 billion and is poised to grow to around $ 30 billion by 2020. However, growth in recent years has been impacted due to currency depreciation.

Sun Pharma earned about half of its consolidated revenue from the US market while emerging markets including Russia contributed about 13 per cent of its revenue in the last fiscal year. The company did not give a break up of its Russia market sales.

Sun Pharma's Russia business has expanded following its acquisition of Ranbaxy in 2014. Ranbaxy entered the Russian market in 1993 and had a established market presence in the country.

Peers like Dr Reddy's Laboratories and Glenmark earned about 7 per cent and about 5-6 per cent of their sales in FY 2016 from Russia.

The acquisition is also significant in the backdrop of recent changes in norms in the country. Last November the Russian government issued a resolution limiting procurement of foreign medicines included on the list of the most important and essential drugs, known as the EDL list.

Several multi-national drugmakers are setting up plants in Russia or forming joint ventures with local companies to tap opportunities in Russia and adjust to the government policies. In July US drug maker Pfizer tied up with a local firm to localise its production in Russia.

According to Aalok Shanghvi, head of emerging markets, Sun Pharma, "The acquisition is consistent with Sun Pharma's philosophy to invest in strategic emerging markets. This transaction gives us access to local manufacturing capability across multiple dosage forms in Russia."

Sun Pharma will pay $24 million for 85 per cent equity and will assume $36 million debt as part of the transaction. Biosintez had annual sales of $52 million in 2015 and is focused on hospital segment.

"The acquisition signifies Sun Pharma's commitment to Russia and the Russian 2020 plan for localisation," said Artur Valiev, country head, Sun Pharma, Russia.

" It is necessary for Sun Pharma to have a market penetration in emerging markets as it wants to be counted amongst the top five generic companies. Traditionally the company's focus has been on the US market. Russia is a large market and recent laws require companies to have local production," said a pharma practice head of a large consulting firm.

"On the emerging markets front, there has been a fair bit of stabilisation in the macro situation. Crude is more stable and so is the impact on major EM currencies. Russia business in Rouble terms grew by 23% year-on-year (Q1FY17) and was stable sequentially," said a Dr Reddy's Laboratories spokesperson.

Glenmark too has seen a rebound in its Russia business with 25 per cent sales growth in constant currency and improved profitability in FY17.