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Every large international deal leaves behind it a trail of speculation. After Pfizer declared its plans to acquire Wyeth that will swell its topline to $70 billion, the most obvious question was when Pfizer’s peers will react to these moves. Among those prolific in clinching deals in recent months has been GlaxoSmithKline.

So late last week, media deduced quoting “people familiar with the issue” that GSK and Sanofi Aventis are in talks to buyout Indian drug maker Piramal Healthcare for a deal value of $1.5 billion.

While every deal that looks odd on the face of it has a definite corporate rationale, this one did not quite tickle the brain.

Sanofi-Aventis has largely stayed low in deal-making (excepting for its long fight to control Czech firm Zentiva), a glimpse into GSK’s future roadmap and ambitions is germane to know why buying out Piramal may not be the best deal for it.

Led by Andrew Witty, who announced several plans to bolster GSK’s growth since taking over reins from Jean Pierre Garnier just over a year back, the company has chased two distinct types of deals. First, strengthening GSK’s pipeline of new molecules and second, to expand into emerging markets to accelerate growth.

For its new research pipeline, GSK has indeed taken path-breaking steps to gobble up small companies with a potential to churn out blockbusters.

Among the best known is its $720 million deal for Sirtris Pharmaceuticals, which is expected to significantly enhance its metabolic, neurology, immunology and inflammation-research efforts.

With a clear mind to sharpen and broaden its base in emerging markets, GSK has snapped up two companies in recent times.
One is to buy Bristol Myers Squibb’s Egyptian and Pakistani operations for $210 million and two, buy the Belgium-headquartered UCB’s businesses in 50 countries for $667 million.

UCB, however, did not give away its Indian businesses underscoring the potential here.

That being its mindset, it would be par for course if GSK thought of a meaningful deal in India.

But that postulate flies in the face of the fact that GSK has had a rock solid presence in India for many decades now.
It is the top drug company here with over 4% share of the hugely fragmented formulations segment. Besides, for many years now, GSK’s Indian operation has been given a near-autonomy by its British parent unlike most other multinational drug companies.

There are, of course, product pipeline gaps that GSK India is looking at filling up, but that may not end by acquiring a company the size of Piramal Healthcare.

Also, for the last six years, Piramal has gradually shifted to contract research and manufacturing from its predominant focus on domestic formulations.

GSK may not want to do contract research and manufacturing work for its global rivals like Pfizer or Allergan, unless Witty sees that segment too as an emerging opportunity!

From Piramal Healthcare’s angle, a deal may have looked doable. For the past many years, Ajay Piramal has been building the company block by block. His detractors have for decades kept the buzz floating about an impending sale but that has not stopped him from pursuing his ambitions to go big into pharmaceuticals. By all means, there is still a big growth curve left for him. Who knows, Ajay Piramal may still look at a bigger transformation if a price is paid. In that case, Sanofi Aventis looks to be a better candidate to pick up Piramal Healthcare.

Pillman is an executive closely linked to the global pharma industry