Ranbaxy drug buy a sign India predators may now be prey

By Hiral Vora and Bharghavi Nagaraju

MUMBAI (Reuters) - Daiichi Sankyo's $4.6 billion bid for control of India's Ranbaxy Laboratories Ltd could be the trigger for foreign pharmaceutical companies to step up the hunt for low-cost Indian drug makers for fear of being left behind.

Global demand for cheaper generic medicines produced by firms such as Ranbaxy is booming as countries battle rising healthcare costs. Diversifying into the business would boost revenues for bigger firms, helping them to offset the growing cost of developing new drugs and fend off rivals.

Indian drug makers, who until recently were on an acquisition spree of their own, are now seen as attractive targets by foreign firms seeking entry to the fast-growing market, their research and development expertise and a low-cost manufacturing base.

Ranbaxy's larger, family-controlled rivals such as Cipla Ltd, Dr Reddy's Laboratories Ltd and mid-sized Aurobindo Pharma could be potential targets.

"Cipla has been a target for some time," said an investment banker, who asked not to be identified for commercial reasons.

"The promoter holding in Dr. Reddy's is quite low," the banker said, referring to the founder or controlling family stake.

Unlike sectors such as telecoms and banking, India does not cap foreign investment in pharmaceuticals firms, removing another potential hurdle for foreign takeovers.

The Indian pharmaceutical market is dominated by small- and medium-sized family-run firms which prefer to function independently, making a mix of generics -- cheaper off-patent drugs -- as well are more common medicines and health products such as aspirins and vitamins.