Cipla buys two US generic firms for $550 million

Close on the heels of Lupin buying Gavis Pharma in the US in July, Mumbai-based Cipla has entered into a deal to acquire two US generic businesses for $550 million (about Rs 3,655 crore).

In a statement, the company said on Friday its UK arm Cipla EU has entered into definitive agreements to acquire two US-based companies, InvaGen Pharmaceuticals Inc and Exelan Pharmaceuticals Inc.

"The transaction being subject to certain closing conditions is valued at $550 million and will be an all-cash transaction. The combined revenue from these transactions is over $200 million for the year ended December 2014, and over $225 million in last 12 months till June 2015," the company said in the statement.

At a time when all of its peers have made a significant inroads to the US market, Mumbai-based Cipla is relatively a late entrant. The US market accounts for only 8% at present, which it expects to take up to 20% by 2020, its MD and global CEO Subhanu Saxena told reporters recently.

It was earlier reported that Cipla is in talks to buy the US business arm of the Hyderabad-based Hetero Drug.

However, Hetero Drug's spokesperson said in a statement, "Hetero would like to clarify that the current sale of Invagen Pharmaceuticals is the sale of strategic investment by the Hetero promoter group which has a different product portfolio than Hetero. InvaGen Pharmaceuticals Inc is not linked directly to the flagship companies of the Hetero group i.e. Hetero Drugs Ltd or Hetero Labs Ltd. Hetero has currently 130 abbreviated new drug applications (ANDAs) filed in US. The company will continue to strengthen its presence in the US market by investing in US generics and speciality products through its subsidiary firm Camber Pharmaceuticals in the US.

The acquisition of InvaGen offers a large capacity manufacturing base in Hauppauge, New York and US-based R&D organisation, Cipla's first such presence in the US. It will give the company scale in the US generics market through a wide ranging product portfolio in CNS, CVS, anti-infectives, diabetes as well as other value-added generics.

"This investment is in line with Cipla's strategy to grow Cipla's share in the US pharmaceutical market. We see InvaGen as a strong strategic fit with a relevant diverse portfolio as well as a strong market and customer presence. With a local manufacturing facility, Cipla can further strengthen its presence and commitment to serve patients in the country," said Saxena in the statement.

The acquisition of InvaGen also provides Cipla with about 40 approved ANDAs, 32 marketed products, and 30 pipeline products which are expected to be approved over the next four years.

"They represent a balanced, diversified and growing portfolio targeting highly attractive, large and niche markets. In addition, InvaGen has filed five first-to-file products, which represent a market size of nearly $8 billion in revenue by 2018. Dosage forms include immediate release, modified release and extended release tablets and capsules. With a manufacturing footprint of about 350,000 sq ft of GMP area, InvaGen has 3 units located in Long Island, NY, with a total production capacity of 12 billion tablets and capsules per annum and about 500 employees," the statement added.

The InvaGen acquisition further provides Cipla with an access to large wholesalers/retailers in the US. The acquisition of Exelan Pharmaceuticals provides Cipla access to the government and institutional market in the US through Exelan's deep expertise, engagement and experienced management team in the business.

Sarabjit Kour Nangra, VP-Research (Pharma), Angel Broking, said, "As per the agreement, the cash consideration payable for Invagen is $500 million and for Exelan $50 million. The acquisitions will strengthen the overall presence of Cipla in the US in terms of scale, revenue, and manufacturing opportunities, and would enable widening of Cipla's product portfolio. Cipla, unlike its peers which get much of their revenues from the US (20-50%), gets only 8% of its revenues from the US markets (nearly $150 million in fiscal 2015). With these acquisitions, the US now will have sales of about $400 million, accounting for almost 16-17% of its FY2017E earnings."

Nangra also said that on the profitability front, Cipla did not disclose the profitability of the acquired companies, except that they had significant cash on books and are geared for healthy cash generation.

"Also the companies will be EPS accretive from day one. In terms of funding, the company is comfortably placed with a debt: equity of 0.2x in fiscal 2015. In terms of valuations, the companies has been acquired at 2.4x market cap/sales June ended revenues, which can only be justified by the long term sustainability of the profitability of the acquired companies, which seems to be high given the better profitability and the FTF pipeline, which can supplement additional cash flows into the company," Nangra said.

"The acquisitions are likely to get completed by end of December 2015 and thus will fully reflect in fiscal 2017 financials. Thus, in fiscal 2017, the acquisitions will contribute around 10% of the overall sales (estimated to be around of Rs 1,550 crore) of the company. On the operating front, the acquisitions could have OPM of 18-20%, yielding around Rs 150 crore of net profit," she said.