Lupin enters Brazil market with Rs 640 crore buyout

Drug manufacturer Lupin on Wednesday said it has forayed into the Brazilian market through its acquisition of 100% equity stake in Medquímica Indústria Farmacêutica S.A., Brazil, (Medquímica). The size of the deal is estimated at around $100 million (about Rs 640 crore), according to industry experts.

However, the deal is subject to certain closing condition, the company said in a release. “The acquisition marks Lupin’s foray into the high growth Brazilian market and would also shore up its position in the Latin American pharmaceuticals market given the company’s acquisition of Laboratorios Grin in Mexico last fiscal,” it said.

Medquímica, which is incorporated in 1975, is a broad-based pharmaceutical company engaged in the development, manufacturing & commercialisation of branded generics, pure generics and OTC products, Lupin said. 
“It is one of the fastest growing companies in the Brazilian branded generics market and a trusted brand with the distribution channel in Brazil. Medquimica recorded net revenues of approximately BRL 94 million (nearly $31 million) in calendar year 2014 and has over 550 employees,” the company said.

Brazil’s pharmaceutical market has nearly doubled in size from 2009-2013, expanding at a CAGR of 17%, driven by growing public health expenditure and increasing household income. In 2013, retail drug sales reached a value of $25.9 billion (BRL 58 billion), making Brazil the sixth largest market in the world, accounting for 3.98% of global sales (based on ex-factory prices, taxes included, no discounts).

Vinita Gupta, chief executive officer, Lupin Ltd, said, “There are a lot of synergies to the acquisition and Lupin would not only leverage its research & technology strengths to build a high quality product pipeline but also use Medquímica's commercial presence to expand business by targeting niche high-growth therapy segments.”

In its fourth quarter results announced on Wednesday, the company reported a marginal decline in its net profit on the back of pricing pressure and delay in product approvals in the US market, coupled with the currency fluctuation in some of the emerging markets.

Net profit fell 1% to Rs 547 crore during the period under review from Rs 553 crore in the corresponding period the last fiscal. Net sales fell to Rs 3,054 crore compared to Rs 3,051.5 crore during the year-ago period.

Earnings before interest, tax, depreciation and amortisation (Ebitda) stood at Rs 806.5 crore (Rs 882.1 crore). The overall impact of foreign exchange loss is Rs 36.7 crore during the quarter as against gain of Rs 16.9 crore in the third quarter of 2014-15, resulting in adverse variance of Rs 53.6 crore between the quarters.

“Our revenue is flat because of the pressure on our generic business in the US as well as currency fluctuation that we saw in emerging markets in particular. In the US market, in the generic business side we have pricing pressure on existing business, compounded by the fact that we were awaiting approvals for a few products which we didn't happen,” Gupta said.

The US and Europe formulation sales (including IP) were Rs 1,467 crore during the quarter under review as against Rs 1549.4 crore in the same period last year. The India formulations business contributed 22% of the company’s overall sales during the quarter. The business grew by 15% recording net sales of Rs 663.7 crore. Its Japan sales for the quarter stood at Rs 294.3 crore as compared to Rs 321.8 crore in the year-ago period.

Revenue expenditure on R&D for the quarter amounted to Rs 309.6 crore, at 10.1% of net sales. It has filed seven abbreviated new drug applications (ANDAs) and received three approvals from the US FDA during the quarter.

Gupta said the company is looking at both organic and inorganic growth opportunities and is looking at acquisition option in East European market as well, where it has a small presence. The company is also looking at opportunities that will give it a head-start in some of the complex generics which may also see the company change its strategy from investing on R&D to an acquisition.

“We are looking ways at really finding ways and means on accelerating our entry into this complex generic areas,” she added.

The company has also successfully resolved concerns raised at its Pithampur facility in Madhya Pradesh by the US Food and Drug Administration (FDA). The company, which announced its January-March quarter result on Wednesday, “We were able to address all the FDA queries. We are fully compliant. After the Pithampur inspection, we got an approval of a product from that site. So there is no concern,” Gupta told dna.