Japan's Mitsui raises stake in Indian API maker Arch

A Japanese conglomerate whose investments run from steel to luxury goods has upped its stake in an Indian API maker, saying it likes the future of drugmaking.

Mitsui has paid about ¥5.9 billion ($68 million) for another 27.29% of Arch Pharmalabs, giving it a total investment of nearly 32%.

"As the development of new drugs becomes increasingly difficult and ever more costly, the global pharmaceutical industry is in the throes of an environmental change with low-priced generic drugs assuming greater prominence as countries seek to reduce the cost of healthcare," Mitsui said in a statement. "Furthermore, as demand for generic drugs grows, there is a pronounced trend among generic drug manufacturers to use CMOs in India."

The Japanese investment group said Arch has several plants serving both generic and branded drug clients. Mitsui intends to use its own global sales network to tap into the demand it sees, targeting the U.S. and Europe as well as emerging markets.

The Competition Commission of India (CCI) said in September that the transaction could go forward. The country has been debating whether to regulate foreign investments in domestic pharma companies and last month decided the CCI would have to sign off on all deals. Government officials earlier grew alarmed after a series of high-profile pharma buyouts--Daiichi Sankyo's majority-control stake in Ranbaxy Laboratories and Abbott Laboratories' ($ABT) Piramal buyout in particular. They feared that small domestic businesses would be unable to compete with foreign buyers with deep pockets. The new rule is not universally liked by the local market because some API and drugmakers there don't want to lose a chance of attracting investors.

Some much larger deals have been approved, however. Hospira ($HSP) last year agreed to buy an FDA-approved integrated API plant from Orchid Chemicals & Pharmaceuticals for $200 million.

- here's the release