PE/VC investments in pharma companies grow 3.5X in 2020, cross $1 bn mark

Private Equity (PE)/Venture Capital (VC) investments in pharmaceutical companies have grown by more than 3.5 times in 2020 and for the first time crossed $1 billion to touch $1.69 billion during January to September 2020. 

According to experts, the industry enjoys respect and enduring relationships among investors on the back of good exits. Fund managers said investors remained positive on the pharma manufacturing activity in India, which further strengthened during the Covid-19 period, on account of restrictions imposed on pharma imports from China.

During January to September 2020, the sector attracted $1.69 billion (in 19 deals) as compared to $368 million, a year ago. Last year, as a whole, the sector attracted $825 million across 18 deals, according to Venture Intelligence data.  It may be noted, 2020 is a year in which healthcare & life sciences has taken centrestage due to the coronavirus (Covid-19) pandemic.

Some of the major deals reported in 2020 include Carlyle's $490 million investment in Piramal Phara, KKR's $414 million investment in JB Chemicals, Carlyle's $210 million investment in SeQuent Scientific, ChrysCapital's $132 million investment in Intas Pharmaceuticals, Advent International's $128 million in RA Chem Pharma, among others.

Arun Natarajan, founder, Venture Intelligence said that the pharma sector has produced successful exits, on a consistent basis, for PE investors in India. On the back of these exits, the industry enjoys high respect and enduring relationships among investors. The examples of enduring partnerships include Biocon-TrueNorth and Intas Pharma-ChrysCapital.

The reputation and relationships have helped pharma industry raise huge amounts of PE capital in 2020.

Over the past three decades India’s manufacturing has had a phenomenal journey establishing it as the world’s third largest manufacturer of drugs by volume. India presently accounts for around 40% of generic drug approvals in the US (drug master filings) and one in three pills consumed in the US is produced by the Indian generics industry.

PE-VC Investments in Pharmaceutical Companies (2017 - 2020 YTD)

The tight scrutiny that India has faced from  US Food and Drug Administration (USFDA) inspections since 2009 has played a major role in pushing the industry to continuously invest in upgrading quality standards on US generics compliance to keep its promise of a 'high quality reliable‘ supplier of medicines to the world. 

"The big opportunity we see is the ability of the industry to leverage its chemistry leadership for direct exports of formulations/APIs to global markets as well as custom manufacturing of drugs and intermediates," said Visalakshi Chandramouli, partner - Private Equity, Tata Capital Healthcare Fund.

Chandramouli added that the specialised segment of pharma manufacturing services accounts for about 10% of the listed sector universe (in terms of market cap).

Valuations in this segment are seen to be quite resilient even during the present crisis. This segment presently trades at the 10-year median value in terms of both EBITDA and revenue multiples. This is a reflection of the continuing positive investor sentiment in pharma manufacturing activity, which has further strengthened during the Covid-19 period, on account of the restrictions imposed on Chinese pharma imports among other company specific factors, said Chandramouli.

Top PE-VC Investments in Pharmaceutical Companies (2017 - 2020 YTD)

Source: Venture Intelligence

Note: Pharmaceutical companies includes drug/API manufacturing & research companies, CROs and CRAMS