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Business News/ Companies / News/  Lupin, US firms may bid for GSK’s mature drugs portfolio
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Lupin, US firms may bid for GSK’s mature drugs portfolio

The drug maker wants to dispose of off-patent drugs with annual sales of around 1 billion

GSK brands up for sale include antidepressant Paxil, migraine treatment Imitrex, Zantac for stomach acid and Zofran for nausea. Photo: Pradeep Gaur/MintPremium
GSK brands up for sale include antidepressant Paxil, migraine treatment Imitrex, Zantac for stomach acid and Zofran for nausea. Photo: Pradeep Gaur/Mint

London/Mumbai: Generics firm Lupin Ltd, some US drug makers looking for a tax-saving deal in Europe and private equity funds are planning to bid for a range of older drugs being auctioned by GlaxoSmithKline Plc (GSK), five people familiar with the matter said.

GSK is looking to divest the mature products in a bid to improve its growth profile and wants to dispose of off-patent drugs marketed in North America and western Europe with annual sales of around £1 billion (around 10,200 crore).

Assuming a multiple of between two and three times those sales, the assets on the block could fetch between $3.5 billion (around 21,000 crore) and $5.0 billion, the people said.

Chief executive officer Andrew Witty said in April that GSK was reviewing its portfolio of mature drugs, known as established products, and in May the group invited sector players and private equity firms to consider bidding.

Non-binding offers are expected before the end of the month, according to several people with knowledge of the matter, who asked not to be named because the talks are private. GSK brands up for sale include antidepressant Paxil, migraine treatment Imitrex, Zantac for stomach acid and Zofran for nausea.

Officials at GSK, which is being advised on the auction by Lazard Ltd, declined to comment. Britain’s largest drug maker will report second-quarter results on Wednesday.

One person with direct knowledge of the matter said on Tuesday that Lupin was seriously looking at the GSK assets and was in talks with the British drug maker.

Lupin chief executive Vinita Gupta has said for some months that the company wanted to enhance its branded generics business in the US and a company official confirmed it was looking for deals, while declining to comment on specific targets.

“For these billion-dollar companies like GSK, such fringe products add flab. On the other hand, a smallish Indian player can do very focused promotion...and gain scale with increased penetration," an analyst in Mumbai, who did not want to be named because the talks were not yet public, said. “This has been Lupin’s strategy thus far with its US branded business."

The GSK portfolio could also appeal to US speciality pharma firms, which may be able to use the transaction to reduce their tax bill by moving their tax address outside the US, a practice known as tax inversion.

Asset combination

Mylan Inc. carried out a similar deal last week when it agreed to buy Abbott Laboratories’ branded speciality and generics business in developed markets outside the US for $5.3 billion, or around 2.7 times sales.

Private equity firms are also looking at the GSK products, although GSK does not plan to sell the factories and sales forces needed to make and market the medicines, which may deter some, the people with knowledge of the matter said.

That means private equity would have to outsource manufacturing and distribution operations, or team up with an industry player, unless GSK is persuaded to compromise and offer infrastructure for some of the drugs, people close to the matter said.

An asset combination with a rival large drug maker selling the same type of non-core assets, like France’s Sanofi SA, could also be explored if GSK failed to sell the assets in the current auction, one person said.

Sales of the 50 or so older medicines in GSK’s established products portfolio totalled £814 million in the first quarter of 2014, down 11% on a year earlier, and revenues are expected to decline further this year due to increased competition from cheaper generic copies.

Furthermore, around half of GSK’s established product sales are generated in emerging markets, where GSK is keen to retain its presence, and in Japan, another market where GSK is not selling up.

GSK’s decision to carve out some of its low-growth, mature drug portfolio is part of a wider industry trend, with companies including Sanofi and Merck and Co. Inc. also looking to shed older drugs that face shrinking sales.

Although GSK’s sales of established products are declining, they remain extremely profitable, with first-quarter operating margins at 59.6% against 27.3% for the group as a whole.

GSK has already disposed of some non-core products. Last September it agreed to sell thrombosis medicines Arixtra and Fraxiparine to South Africa’s Aspen Pharmacare Holdings Ltd for £700 million, or around two times annual sales.

Witty is also pushing ahead with a more radical reshaping of his company’s business, after agreeing to a $20 billion asset swap in April with Novartis AG that will involve the two firms shoring up their best businesses and exiting weaker areas. Reuters

Additional reporting by Ben Hirschler and Freya Berry in London, with Olivia Oran and Soyoung Kim in New York; Editing by David Holmes.

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Published: 22 Jul 2014, 07:34 PM IST
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