Express Pharma

Playing for high stakes

20150915ep02According to the latest data from the India Brand Equity Foundation (IBEF), the Indian domestic pharma market ended FY15 with a growth of 12 per cent, touching Rs 90,400 crores ($ 15 billion). Given that the IBEF’s brief is to ‘promote and create international awareness of the Made in India label’, it is no surprise that the release makes a strong pitch for the sector’s achievements. India accounts for 30.3 per cent (2,911) of 9619 Drug Master Files (DMFs) filed with the US, which is the highest outside of the US. Similarly, India has been accredited with approximately 1187 CEPs, more than 950TGA, and 584 sites approved by US FDA.

Further progress along this path will depend on many variables. Will the sector get better support from the government? For example, 2015 is billed as the year of APIs, but we are yet to see the promised policy on API manufacture. Thus, it is up to industry to make the best use of the available resources.

And many proactive companies have been doing just that, by migrating to locations which offer the most viable ecosystem for success. Our cover story in the September 16-30, 2015 issue profiles Pune, the cultural capital of Maharashtra, once overshadowed by Mumbai — the commercial hub, but today a magnate for lifescience businesses in its own right. With world class research institutions like the National Institute of Virology (NIV), National AIDS Research Institute (NARI), National Centre for Cell Sciences (NCCS), Indian Institute of Science Education and Research, and National Chemical Laboratory (NCL), as well as others across sectors, Pune became a campus town.

The talent pool and research acumen attracted companies like Serum Institute of India, which grew into a vaccine behemoth from this city. The marriage of IT with biotechnology only added to the perfect storm. The success of Pune needs to be analysed and replicated across India so that India Pharma Inc can not only Make in India, but Innovate in India, for India. (Read story, Pune: Pharma hub in the making; pages 20-23)

But, while the domestic market is important, it is too small to contain the global ambitions. And rightly so. Indian pharma majors have made some bold moves in the US market, clearly eyeing a larger share of the biggest pharma market in the world. Lupin’s acquisition of US-based Gavis Pharma came after four consecutive quarters of muted performance in the US. Reliance Securities’ analysis predicted that pressure will continue to build on the company’s US base business in 2Q as competition mounts in the branded portfolio and key generic launches will continue to be delayed. Even while Lupin’s acquisition of Gavis makes a lot of sense, it remains a high stakes gamble as the acquisition will force the former to take on debt and eat into its cash reserves of $200 million. With a payback period of seven-eight years, the next two-three years will be crucial for Lupin, as new launches in the US are expected to start only in FY17E.

But if Lupin succeeds in executing its strategy, the Gavis acquisition will place Lupin among the top six generic companies in the US, with a combined pending ANDA pipeline of more than 160. A Motilal Oswal analysis paints a more positive outlook of Lupin’s prospects, highlighting gains like the shoring up of its derma pipeline (with 20+ pending filings), as well as an entry into the lucrative control substance market.

Cipla too is making its play for the US market. As a latecomer to the US market, the company is playing catch up and its acquisition of Invagen Pharma and Exelan Pharma for $550 million is being seen as measured compared to the $880 million Lupin paid for Gavis. One of the main gains of this M&A for Cipla is an over 350,000 sq ft manufacturing plant and a R&D laboratory from Invagen Pharma, a first for Cipla in the US. Exelan Pharma’s major attraction seems to be the entry it offers into the hospital and government tender business, areas where Cipla is already very strong, thanks to its long-term association with the WHO tender business. Production costs are kept to a minimum, enabling better margins on the tender business as both plants are vertical integrated, with Invagen Pharma supplying API to Exelan Pharma.

But has Lupin paid too much for Gavis? That seems to be a valid debate, with a Prabhudas Lilladher analysis pointing out that with 30 pending ANDAs including five first-to-files (FTFs), Cipla’s payment of 2.4x sales and valuation of Invagen and Exelan is much cheaper when compared with Lupin’s acquisition of Gavis at 9.2x of sales. Only time will tell which gameplan will succeed better: the measured approach or the audacious bet.

Viveka Roychowdhury
Editor

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