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Business News/ Industry / Manufacturing/  Global buyouts to boost generic pipeline for Indian drug makers
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Global buyouts to boost generic pipeline for Indian drug makers

Through global buyouts, Indian drug makers will have a healthy abbreviated new drug application pipeline, which otherwise sees a delay by the USFDA

Through Gavis’ buyout, Lupin got access to its first manufacturing site in the US that makes niche products including dermatology-controlled substances. Photo: BloombergPremium
Through Gavis’ buyout, Lupin got access to its first manufacturing site in the US that makes niche products including dermatology-controlled substances. Photo: Bloomberg

Mumbai: July was an eventful month for the Indian pharmaceutical industry, recording the largest overseas acquisition by an Indian drug maker and another large buyout by an Indian company.

On 24 July, Lupin Ltd, the fourth-largest Indian drug maker, announced the acquisition of US generic drug maker Gavis Pharmaceuticals Llc for $880 million.

Mumbai-based Lupin was not alone in spending millions of dollars in the US generic drug market. Cipla Ltd, the Mumbai-based pharma company getting less than 8% of its revenue from the US, the world’s largest pharmaceutical market, also made its largest-ever buyout this month.

Cipla, which plans to double revenue from the US market to 15-20% by 2020, acquired US-based InvaGen Pharmaceuticals Inc. and Exelan Pharmaceuticals Inc. for $550 million.

Generic pharmaceuticals make up 80% of the prescriptions dispensed in the US but account for just 27% of total drug spending. The US generic drug market is estimated at an yearly $35 billion, more than double the Indian pharmaceutical market estimated at $14 billion (around 90,000 crore).

“In the last 2-3 years, the US pharma distribution channel has consolidated significantly, and the US generics market has also matured quite a bit. Indian pharma majors have been trying to survive and grow in this market by expanding presence in ‘niche therapies’ and ‘value-added generics’ through strategic acquisitions," said V. Krishnakumar, partner—M&A, Lifescience and Healthcare, Ernst and Young Llp.

Through Gavis’ buyout, Lupin got access to its first manufacturing site in the US that makes niche products including dermatology-controlled substances. Besides the access to manufacturing base, the acquisitions will provide a healthy abbreviated new drug application (ANDA) pipeline for Indian companies, which see a delay in ANDA approval by the US Food and Drug Administration (FDA).

Through Gavis buyout, Lupin gained access to 66 ANDA filings pending approval with the US FDA, representing a potential market value of $9 billion, and a pipeline of 65-plus products under development to which Lupin will gain access.

Similarly, Cipla gained access to 40 ANDAs, 32 marketed products and 30 pipeline products of InvaGen Pharmaceuticals. InvaGen has also filed five first-to-file products, which represent a market size of $8 billion in revenue by 2018.

The acquisition of Exelan Pharmaceuticals will provide Cipla access to the government and institutional market in the US.

“Besides slow pace of approvals, the US generic drug industry is also facing multiple challenges in the form of increased scrutiny by the US FDA, consolidation of supply-chain and need for higher investments in R&D to tap complex segments. The impact of 483s, warning letter and import alert being issued to manufacturing units of companies has also contributed to lower revenue growth from the US during the current year," said a July report by Icra Ltd.

The US FDA issues form 483, which comprises observations and concerns discovered during plant visits. Later, warning letters are issued, to address the corrective actions mentioned in form 483.

Besides its largest buyout in the US, Lupin made three overseas acquisitions in 2015. On 2 July, it announced the purchase of Russian company Biocom for an undisclosed amount. In May, Lupin entered the Brazilian pharmaceuticals market by acquiring Medquimica Industria Farmaceutica S.A. Brazil (Medquimica) for an undisclosed price. On the very next day of the Gavis buyout, Lupin announced another buyout of speciality product portfolio from German company Temmler Pharma for an undisclosed amount.

“Given the past few years in which many European countries (namely in the south and east) underwent a recession and are desperate for capital infusions, many small- and mid-sized companies are available at lower entry costs, allowing Indian companies to gain access to the EU Internal Market and to build up a regional (European) hub for further expansion," said Philippe Reich, partner at Zurich-based law firm Baker and McKenzie Llp.

However, compared to other global generic counterparts, Indian drug makers spend a minimal amount for acquisitions. For instance, Israeli company Teva acquired US-based Allergan’s generics business for $40.5 billion last month.

“However, the pace of outbound M&A seems to be accelerating, in the light of the “land grab" that is underway in the US fenerics market. It is almost as if there is a limited window of time available for prospective acquirers to pick up their ‘dream’ targets, lest someone else beats them to it," Krishnakumar added.

According to data from Grant Thornton, the first six months of 2015 witnessed outbound deals in pharmaceuticals sector worth $514 million against $267 million in the same period of 2014. The first six months saw overall deals worth $1.6 billion compared with deals worth $5.6 billion in 2014 and $4.1 billion in 2013 in the Indian pharmaceutical sector.

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Published: 09 Sep 2015, 01:49 PM IST
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