Lupin to sell Japanese biz for enterprise value of ₹3,702 cr

Lupin has entered into a definitive agreement to sell its entire stake in Japanese subsidiary Kyowa Pharmaceutical Industry Co. to Plutus Ltd for an enterprise value of 57.36 billion yen, or ₹3,702 crore.

The Mumbai-based drugmaker will get 32.6 billion yen, or ₹2,104 crore, in cash from the sale of a 99.82% stake in the subsidiary to Plutus, an entity affiliated to Unison Capital, a Japan-based private equity firm, the company said in a filing with the exchanges.

In 2018-19, Kyowa Pharma had posted sales of 28.3 billion yen, while in the first half of the current fiscal it generated 14.2 billion yen.

Lupin expects the transaction to complete by March-end, subject to requisite approvals, including from anti-trust regulator, Japan Fair Trade Commission, besides its own shareholders.

Nomura International (Hong Kong) Ltd was the sole financial advisor to Lupin for the transaction.

The stake sale in Kyowa Pharma, which Lupin had acquired in 2007, was prompted by the implementation of a price control mechanism by the Japanese government, and moves to encourage substituting branded medicines with generic versions. Japan is aiming to genericise 80% of the pharmaceutical market by 2020.

The impact of the move was also reflected in Lupin’s financials for the September quarter. It posted a 4% drop in sales from Japan from 8.2 billion yen in Q2 FY19 to 7.8 billion yen in Q2 FY20.

Lupin’s consolidated revenue, though, rose 10.3% year-on-year to ₹4,360 crore. Growth was led by sales of drug formulations in its largest market, India.

Unlike in India, where despite price control, prices of essential medicines rise by 2-4% annually, in Japan drug prices have declined.

“The prospects for a generic market, which is actually on the decline, as against a generic market which is actually on significant growth, so obviously, India is much more meaningful,” the management said in a media conference call.

Lupin’s net debt after completion of the transaction will reduce to ₹1,129 crore from ₹4,362 crore as on September-end.

“Our plan is to focus on key markets, in particular, the US and India, where we have the highest likelihood of success. For the US market, we have made significant progress on evolving our generic business into complex generics. We will continue to invest in that strategy to grow our generic business in the mid-to-long term,” Lupin’s chief executive officer Vinita Gupta said.

In India, the company will look at inorganic growth in multiple therapy areas, including cardiovascular and diabetes, while increasing its presence in dermatology, ophthalmology and urology, Lupin said.

In Japan, the company retains its biosimilar business, including etanercept, which is used to treat moderate to severe rheumatoid arthritis and juvenile idiopathic arthritis.

It will also look at its complex and speciality generics portfolio, and focus on bringing some of them to Japan, the management said. It will continue to use its Indian manufacturing facilities to cater to the Japanese market.

“The deal helps Lupin to use its capital on markets where it can get better returns. In the current environment, the structure there is such that a distributor does not get any incentive to change a branded medicine with a generic product. Also, the way the Japanese government is implementing the price control regime it does not make sense for a generic company to invest in the country,” said Surajit Pal, an analyst with Prabhudas Lilladher.