Domestic pharmaceutical major Cipla has dropped out of the race to acquire Merck's generics business citing expensive valuation as the reason.

"The valuation of the German company's generics assets could be as high as $6 billion which, according to us, is very expensive," a top Cipla official said on Friday.

"We need to make at least $600 million a year on $6 billion investment from the acquired business to pay back debts and to run the operations successfully," the official said.

"We did not see such high revenue stream and value addition to our business. Hence, we decided to get out of the race instead of getting burdened with huge debts," he said.

The auction for Merck's generics business is expected to start in the next few weeks and a clutch of bidders, including India's biggest pharmaceutical company Ranbaxy, is expected to submit bids. "We wish good luck to other bidders," the official said.

Merck's generic drugs business had revenues worth $2.35 billion in 2006 in the global $50 billion market of copied medicines.

Cipla was asked by a few private equity companies to partner them in bidding for the company. After studying the Merck's generics business and a possible auction by Merck made the Indian company to change its mind.

The Merck generics business is attracting bids from across the world, as the acquisition will give them an opportunity to increase their market shares in the fiercely competitive generics drugs sector.

A Ranbaxy official said the company was keen to acquire Merck's assets, as it would help expand its global footprint.

However, the company official did not elaborate.

Iceland's Actavis and market leaders Novartis' Sandoz unit and Israel-based Teva Pharmaceuticals are also in the fray to buy the company.