Lupin says looking at buyout opportunities in domestic market

India accounts for around 29% of Lupin’s revenues; the domestic pharmaceuticals market is expected to grow to $55 billion in 2020 from $20 billion now


This year has witnessed a surge in inbound deals in the pharmaceuticals sector in India. Photo: iStockphoto
This year has witnessed a surge in inbound deals in the pharmaceuticals sector in India. Photo: iStockphoto

Mumbai: After a series of acquisitions in overseas markets over the past two years, Lupin Ltd is looking at buyout opportunities in the domestic market to gain market share, said a top executive. These could be either domestic companies or product portfolios.

“We would look at everything in India,” said Nilesh Gupta, managing director at India’s third largest drug maker. “It’s the home market and we have the ability to grow the asset, whether it is a brand, regional company or OTC (over the counter) products.” 

India accounts for around 29% of Lupin’s revenues. The domestic pharmaceuticals market is expected to grow to $55 billion in 2020 from $20 billion now, according to a joint study by the Associated Chambers of Commerce and Industry of India (Assocham) and TechSci Research released in June 2016. 

“It is a great opportunity and we are looking at several (acquisitions) even now,” said Gupta. 

“For several years now, large Indian pharma companies have been looking to acquire select portfolio of domestic or foreign companies to spur their growth in local markets. However, there have been few sizeable transactions in this space due to the valuation mismatch and lack of high-quality assets,” said Gaurav Marathe, managing director at investment bank Lincoln International Advisors Pvt. Ltd.

“The deals will give entry into new therapeutic segment and buying few brands will strengthen the therapeutic segment, where they already have presence, and this works very well as it brings no additional selling and distribution cost,” Marathe said. 

This year has witnessed a surge in inbound deals in the pharmaceuticals sector in India. So far in 2016, three inbound deals worth $1.4 billion have been announced compared to four deals worth $215 million in 2015 and four deals worth $326 million in 2014, according to data by investment tracker VCCEdge. 

Some of the transactions that took place this year in the domestic market include RPG Lifesciences Ltd’s acquisition of seven prescription brands in the urology and respiratory segments from Sun Pharmaceutical Industries Ltd for Rs41 crore in July, the acquisition of Pfizer Ltd’s four OTC brands by Piramal Enterprises Ltd in May and Zydus Healthcare Ltd’s acquisition of a gastroenterology brand from Kolkata-based David Albert Ltd. 

Overseas markets account for close to 70% of Lupin’s revenues and that is what the firm has been focusing on over the past few years through a series of acquisitions. 

In August, Lupin Ltd agreed to buy a portfolio of 21 generic brands from Japan-based Shionogi and Co. Ltd for 15.4 billion yen ($150 million), to strengthen its presence in the world’s second largest pharmaceuticals market. Last year, Lupin bought US generic-drug maker Gavis Pharmaceuticals Llc for $880 million. 

Future acquisitions in these markets would be guided by gaps in the company’s portfolio and its desire to get into the complex generics and specialty products, Gupta said. 

“The specialty side is much more sustainable, much more durable to build on a year-on-year basis,” said Gupta. “That’s where the next wave of consolidation for large Indian companies will come.” 

To finance these acquisitions, the promoters are willing to consider all methods of fund-raising, Gupta said. 

“We would want to time it (fund-raising) closer to large acquisitions,” said Gupta. “The family as such is open to equity dilution for the right kind of asset but we don’t see the need for that in the near term.” 

At the end of June, promoters owned 46.76% of Lupin. 

The main concern for Lupin, however, is its Goa plant (which accounts for half of Lupin’s US business and at least 30% of new generic-drug application pipeline) which is still under the scanner of the US Food and Drugs Authority (FDA). In March, the US FDA had inspected the company’s Goa plant and made nine observations related to inadequacies and adherence to standard operating procedures in a so-called Form 483. 

“When we talked to FDA, they said it is still under review. Right now, we don’t know if the end point is re-inspection or not,” said Gupta. “We’ve had some tentative approvals and supplementary approvals. If we get a couple more, we know that the FDA is looking at our transformation programme favourably.  The March inspection follows similar observations the US FDA issued in July 2015. Before the end of the year, we will know where we stand.”

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