Torrent buys Elder's domestic business, keeping it Indian controlled

India's Elder Pharmaceuticals, which a host of Western drugmakers were rumored to be interested in, will remain Indian owned. Torrent Pharmaceuticals will acquire the domestic business of Elder, relieving its debt situation and satisfying critics of growing foreign ownership of Indian drugmakers.

Torrent will pay 2,000 crore ($321.7 million) for 30 Indian brands spanning treatment categories that include women's healthcare, pain management, wound care and nutraceuticals, The Economic Times reports. Torrent also will take on Elder's employees in sales, marketing and operations, while Elder will keep its manufacturing operations and produce the drugs for Torrent for the next three years. The boards of the two companies like the terms, but shareholders will have to vote, which is expected in the first half of next year.

"This path breaking domestic consolidation by Torrent addresses our recent challenges and will significantly help Elder de-leverage its balance sheet," Elder CEO Alok Saxena said. "We will now focus and grow our in-licensing, antiinfectives and exports business," he said.

Elder in June said it was evaluating its strategic options, opening the door to potential buyers. There were reports that Sanofi ($SNY), Novartis ($NVS) and GlaxoSmithKline ($GSK) were all looking at the domestic drug business, in parts or total, as a way of growing their emerging market business. Private equity investors, which have been investing in Indian drugmakers, also were said to be giving Elder a look.

GSK, Sanofi, Abbott Laboratories ($ABT), Roche ($RHHBY), Mylan ($MYL) and other global drugmakers have picked up Indian pharma companies or set up alliances to roll out their drugs in that market. Mylan just completed the acquisition of the sterile injectable business of Strides Arcolab for about $1.75 billion. Investment group KKR just put out $200 million for a minority stake in Gland Pharma.

But there has been an internal struggle between opposing government forces over whether to limit foreign ownership. The Department of Industrial Policy & Promotion (DIPP) proposed capping foreign ownership of critical drug producers at 49% and forcing buyers to comply with certain restrictions. It was concerned that outside buyers would take low-cost plants to make expensive patented drugs instead of cheaper generics that poor Indians need. But pushback from the Finance Ministry recently overcame that effort, and the proposal was dropped. "It's a big positive. India is a big enough market for multinational companies coming in as investors," Kapil Bhatia, head of healthcare at investment bank Systematix Capital Services, told The Wall Street Journal recently when the decision was made.

- read the Economic Times story