JPMorgan to fund Lupin’s $880-million Gavis deal

PMorgan will bankroll Lupin for its $880 million acquisition of Gavis, a New Jersey-based generic drug firm.

The Wall Street bank will act as guarantor till the date of payment, which is some weeks away, and then lend the full deal amount that Lupin will have to repay over a medium term period, said a person who is aware of the transaction

The loan, it's understood, is not backed by hard collateral or claims on future cashflow, but based on pure credit assessment. "Lupin will have enough time to arrange funds to pay off the loan...JP is not holding a gun to their head," said a source.

The acquisition financing arrangement was cobbled together after the seller insisted on a guarantee.

A spokesperson for JP Morgan India declined to comment on the deal while ET's email to a Lupin spokesperson went unanswered till the time of going to press.

On Thursday, Lupin, a Mumbai-based pharmaceutical company, announced that it would take over Gavis, which is run by Veerappan Subramanian.

It would be the biggest outbound transaction in the Indian pharmaceutical industry.

JP Morgan is also the sell side advisor in the deal. "What's unusual is the absence of other bankers and JP writing the cheque for the entire amount which is not small," said a seniior banker.

Two industry sources said that Lupin had placed the bid for Gavis and another UKbased drug firm specializing mainly in dermatological brands, which was also valued at $700-900 million.

Earlier in the year, Lupin's name had cropped up as a bidder for Kremers, the US generic drugs business of Belgian drug firm UCB.

Analysts are divided on the Gavis deal. Being valued at 9 times 2014 sales and 6 times 2015 sales, some feel it's an expensive acquisition.

Indeed, one Mumbai-based investment expert said the deal does not give comfort on the payback time, especially due to a lack of clarity on the potential upsides from the launch pipeline of Gavis. However, another analyst thinks Lupin that has paid full price for a good asset in contrast to some generic peers who typically acquire assets at distress value. "If the margins are sustained at 35% to 40%, we see Gavis to give the right push to Lupin," he said requesting anonymity.

Lupin itself has been a conservative buyer and has not paid a very heavy price for any of its global deals.

On the Gavis deal, Lupin said that it hoped to leverage on at least 50 of the 66 future filings of Gavis to treble revenues by 2017-18. On Friday at the BSE, Lupin stock ended down 3% at Rs 1672.

Lupin acquires specialty portfolio from German company

Temmler Pharma has a specialty portfolio of 13 products including key Central Nervous System (CNS) products

A day after announcing a $880-million acquisition in the US, drug maker Lupin said it will acquire speciality product portfolio from German company Temmler Pharma for an undisclosed amount.

Chief executive Vinita Gupta said Temmler’s business had a “strong strategic fit with Lupin’s Hormosan business in Germany and enables Lupin to bring an enhanced specialty central nervous system (CNS) portfolio to the German market.” Established in 1917, Temmler is a part of Aenova Group, a pharmaceutical contract manufacturer. Hormosan, also a German pharmaceutical company, was acquired by Lupin in 2008.

Based in Marburg, Germany, Temmler has a specialty portfolio of 13 products including key CNS products and specialty products that address rare disease areas like myasthenia gravis, huntington’s disease as well as fast-growing dermatology products for anti-wart treatment.

The announcement came after the close of business hours at the stock exchanges. On Friday, Lupin stock closed at Rs 1,672, down 3.27 per cent from the previous day’s close. This is the second consecutive day of decline in the stock price. On Thursday, the stock lost over five per cent after it announced a 16 per cent drop in consolidated net profit for the June quarter. The Mumbai-headquartered drug maker has lost Rs 6,844 crore of market value between Thursday and Friday owing to a drop of over eight per cent in stock price.

Earlier this week, the country’s biggest pharma company, Sun, lost over Rs 34,000 crore of market value in a day after the company said its profit will be ‘adversely impacted’ due to expenses related to integration with Ranbaxy, a company it acquired last year.     

This is Lupin’s sixth acquisition in 18 months. In February 2014, it had acquired Netherlands-based Nanomi.

A month later, it acquired control of Mexican company Grin. In May, it bought Brazilian company Medquimica Industria Farmaceutica. Earlier this month, Lupin acquired ZAO Bio Biocom in Russia. On Thursday, it announced acquisition of New Jersey-based generic drugs firm GAVIS for $880 million. GAVIS is the largest overseas acquisition 

What took mighty Lupin down!

In an interview to CNBC-TV18, Praful Bohra, VP- Research, Religare said that US business is one of the most profitable markets for Lupin, and seeing a decline there has resulted into overall weak numbers. 

Besides, absence of big bang approvals and Aurobindo Pharmax entry into generic Suprax also impacted Lupin sales, he said. He also feels the price Lupin paid to acquire Gavis is too high. 

Below is the transcript of Praful Bohra's interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18. 

Sonia: How to approach Lupin  ? 

A: The numbers were weak. On the operating front - that's largely led by the sequential decline in the US business. However, some part of it would also be driven by the entry of Aurobindo Pharma  in Suprax; I think that would have led to some sequential decline. Having said that I also believe that there would be some erosion in the base business because there were no big bang approvals for Lupin in the last quarter. The US business is one of the most profitable markets for Lupin and that seeing a decline the overall numbers are weak. 

Latha: How are you looking at the Gavis acquisition? Is the price right?  

A: First on the acquisition and what it brings to the table. If you look at the portfolio of Gavis, they have a portfolio of control substances products, dermatology products where Lupin is negligibly present as of now, so that way the acquisition fits. The only thing is the price that they are paying; my sense is it is pretty expensive. So they are paying almost 9x the sales. We have seen such kind of valuations in the past only for domestic acquisitions like Ranbaxy and Abbott 's acquisition of Piramal. I think for US geography this is an expensive acquisition, much higher than what the past acquisitions have been in the range of four-five times sales. So price is one thing which I am concerned about but from a strategic perspective initially this can be return on capital employed (RoCe) dilutive in the medium-term for the company. 

It is okay portfolio wise because it fits in the strategy of Lupin but whatever the price they have paid is obnoxious.

Glenmark: Revenue growth in recovery mode

Glenmark Pharma’s revenue growth estimate of 18-20 per cent, with a 200-basis point margin expansion (excluding licensing income) for FY16 seems to have been received well by the Street. After opening below its Monday closing price (a reaction to disappointment over the company’s earnings), the stock gained ground on Tuesday, closing at Rs 861.

For the company, growth in revenue is expected to be driven by its US operations, likely to grow about 20 per cent. Growth of only 7.1 per cent in the US market in the March quarter, as well as one-offs and cross-currency headwinds, had led to lower than expected numbers.

Analysts at HSBC believe the FY16 estimate is realistic; they maintain a ‘buy’ rating on the stock, with a revised target price of Rs 925. Other brokerage firms such as Reliance Securities, Antique Stock Broking, IDFC Securities and Prabhudas Lilladher have higher target prices — up to Rs 1,186.

The company posted almost flat (0.63 per cent) growth in US sales, which contributed about 30 per cent to its overall sales in FY15. This was due to slower approvals for new launches, even as its existing portfolio faced more competition. With six drug approvals in the past three months and more approvals expected, growth in FY16 is expected to be higher. Recent launches will have a substantial impact only in the second quarter of FY16, says Hitesh Mahida of Antique Stock Broking. Glenmark is expected to announce launches in specialty segments, particularly dermatology, which could help further, says Mahida.

Glenmark filed 18 abbreviated new drug applications in FY15. Of the 95 product launches in the US, 70 are pending approvals (including 33 Para IV). Analysts at Reliance Securities foresee a smart recovery (26 per cent compounded annual growth over FY15-17) in the US, led by a pick-up in approvals and launches. The potential launches of dermatology product Azelaic acid (size $95 million), ortho ($450 million), cholesterol-lowering drug Welchol ($420 million) and Zetia ($1.7 billion) paint a healthy outlook in the US in the medium term, say analysts. The Company will launch Zetia and Azelaic acid on an exclusivity basis and analysts expect at least one of the two to be launched by December 2016. Besides, the company’s focus on complex injectables (six pending approvals), oral-contraceptives (13) and dermatology (eight) is a positive.

The company is growing well in Europe and Latin America (combined contribution about 24 per cent to revenue). In the March quarter, these growth figures stood at 26 per cent and 75 per cent, respectively. Rest-of-the-world sales (12-13 per cent of revenue), however, fell — 36 per cent in the March quarter and 18 per cent in FY15. Primarily, this was because Russia was hit by a weak currency and subdued business environment. Nevertheless, new products have been lined up for this market, too.

Analysts at IDFC Securities say with multiple data points expected from six ‘first in class’ clinical candidates through the next 18 months, Glenmark could generate significant licensing revenue. Successful progression of even one of these could put it in a higher growth orbit in the medium term. The company plans to utilise proceeds from the Temasek stake sale ($152 million) to reduce debt. The company’s net debt stands at $484 million.

Mahida expects further improvement on this front, with Zetia’s launch-on-exclusivity, which is expected to lead to cash flow of about $150 million.

USTR’s praise of Modi’s remarks worries pharma companies

The United States' appreciation of Prime Minister Narendra Modi's remarks on intellectual property rights (IPR) has stirred concerns among the public health groups as well as the domestic drug manufacturing industry.

While keeping India under its 'priority watch list' in the annual report on IPR laws and patent regimes of partner countries and noting that several of its policies continue to be of grave concern, the US Trade Representative (USTR) has lauded Modi's recent remarks to align India's patent laws with "international standards".

Public health groups, advocating patient rights for access to cheaper medicines, are now concerned that this should not lead to softening of India's stand by making changes in its patent law, which has been a matter of contention between the US and Indian government for its stringent provisions.

 

MSF, working with patients in several developing nations, said it is extremely concerned that any suggested modifications in India's IP laws will have an impact on availability of affordable medicines.

Another such organization, Delhi Network of Positive People, working mainly with HIV infected people around the world, has written to Modi, commerce minister Nirmala Sitharaman and health minister J P Nadda to safeguard interests of patients and not fall into the US trap to introduce IP provisions by making backdoor amendments to other laws such as the Drugs and Cosmetics Act.

The USTR report dubs China and India as sources of most of the counterfeit pharmaceuticals shipped to the US. "While it is impossible to determine an exact figure, studies have suggested that up to 20% of drugs sold in the Indian market are counterfeit and could represent a serious threat to patient health and safety," the report said.

While refraining from imposing an out-of-cycle review (OCR) of India's IPR laws, the report lauded the efforts of the National Democratic Alliance government towards "increased bilateral engagement" between both countries in matters pertaining to IPR.

The report states that the US expects India to keep the momentum going, indicating expediting the rolling out of the national IPR policy, leading to "substantial and measurable improvements" in the country's IPR and patent laws.

However, executives of domestic pharmaceutical companies, manufacturing low cost generic medicines, say India must not fall under such pressure and instead should be cautious while making promises.

"We must not make concessions in our patent law. Also, policy makers need to be more cautious while dealing with bilateral issues and making strategies," said Indian Pharmaceutical Alliance secretary general DG Shah.

In September last year, the government here had announced it would come out with an IPR policy by early this year. For this, it has set up a taskforce under the aegis of the department of industrial policy and promotion. The final draft of the policy is now pending with the ministry of commerce.

 

Source: http://timesofindia.indiatimes.com/business/india-business/USTRs-praise-of-Modis-remarks-worries-pharma-companies/articleshow/47126816.cms 

Pharma Industry and Commercial Data Analytics

Ever since the fall of the financial world in 2008, the global healthcare community has been in a unprecedented tizzy concerning its financial expenditure with very little direction towards salvation. The impact of this turn of events had been felt in the pharmaceutical industry, where the price for innovation and scientific progress was questioned. Leading pharmaceutical companies bore the brunt of the resulting promotion of non innovative/generic drugs and increasing pricing pressure for innovative drugs.

The pharmaceutical industry has responded to this crisis by being more cautious in their expenditure – R&D, promotions, sales, etc. Effective performance has been demanded from the salesmen and marketers, and this increased scrutiny has prompted an uptake in the usage of Analytics to make decisions at all the levels of business.

Analytics is the use of Data, collected with intent, from processes which define a business. In the pharmaceutical industry, the sales data (brand, geographical region, indication, line of therapy, pack size), sale rep visits, promotional expenditure, discounts offered, clinical data are some of the facets of business where Analytics capabilities have been developed and used so far. The onset of field of health informatics has enabled to analyze the demand side of the business, both for the payers and the Pharmaceutical companies. Outcomes research and real world evidence have gained significance for reimbursement decisions and formulary listings.

Although Analytics existed since the onset of the industrial revolution, the current capabilities including the big data collection and analysis has been created by the advent of information technology. Although the promise of Analytics has been realized in various other industries such as finance, retail and industrial production, the Pharma industry (except the big few) has been plagued by the limitations in know-how and essential infrastructure. Connected data processes (between manufacturer, wholesaler, retailer, healthcare providers) are an important requirement for collection of the data which is lacking ubiquitously in the industry.

The shortcomings in the Analytics capabilities of the Pharma industry has given rise to a host of third party providers who offer boutique solutions tailored to meet the needs. However these cannot replace the company’s own capabilities due to the lack of the overall corporate context in the outsourced set up.

Secondary research and analysis often have a time lag of 6-8 months which relegates its importance to the marketers. Marketing managers prefer to have fresh and dynamic inputs from the markets rather than the static insights from secondary research. Some of the key areas of applications of Analytics specific to the Sales, Marketing and Strategic planning in the Pharma industry are listed below with brief explanations

-          Optimized marketing expenditure across customers and channels: Analytics offers marketing mix optimization using predictive analyses to suggest future best course of action. For example a push of a button can help run analyses that optimally allocate the total brand marketing budget across multiple internal departments within healthcare consumers such as health care provider (HCP) sales/marketing, consumer/patient marketing and managed markets contracting (rebates/allowances). This method includes adding the interdependencies of the variables and can provide ‘what if’ scenarios which offer a multidimensional view of the market.

-          Optimized targeting of prescribers and the related investment decisions:  The traditional approach of identifying the potential prescribers which is based on the historical data is passé. The historic data can suggest only based on historical prescription habit and cannot predict potential future leaders in prescription. Predictive Analytics can identify attributes of high profile prescribers and help spot potential leaders-with similar attributes-potential future prescribing leaders are highest productive target for sales force effectiveness. Identification of prescription patterns can also help segment the market which will help to streamline investments in the right directions.

-          Optimize the marketing channels, and identification of key opinion leaders:  Information about the preferences of the physicians about their mode of contact (mail, personal, e-mail) and frequency of rep visit preferred also helps to increase productivity of sales rep visits. Targeting the high value prescribers can be further improved if key opinion leaders/top influencers in the field are identified. Social media Analytics offers solutions which involve text mining tools scouring through   the internet to identify individuals and groups who can have a direct/indirect impact to prescription through academic clinical research work; journal publications and conference speaking. Following the trending individuals and their works (studied through interdependent variables such as recent publications in top journals, key recent conference presentations, and key incumbent board positions) can help companies focus on the individuals with highest impact who are the most productive targets.

-          Study the sentiments of the patient/provider feedback and sentiments: Social media Analytics uses text Analytics and descriptive statistics to identify key sentiments running amongst the various market segments. The interactive online initiatives through social networking sites organized by patient support groups, healthcare providers and patients offer an excellent opportunity for the marketers to understand the product performance.       

The grotesque side of international politics

A peep out at international politics always throws at you distasteful human behaviour that defies ethics, rational thought and peaceful co-existence. It is a norm that one population suffers in order for another to flourish. In history, influential human beings and their directions have resulted in extreme distress for populations en masse, recent examples being that of George Bush and Osama Bin Laden; Prabhakaran and Rajapakse.

What is causing distress in Iran?

The UN sanctions on Iran, supported by the US and its EU allies, to discourage Iran’s nuclear energy programs have led to the alienation of the nation’s commercial freedom. The international banks have been asked to sever all contact with the Iranian banks which has prevented cross-national and continental trade activities. Amidst all the chaos surrounding oil exports and curbs on banking, one silent victim has been the pharmaceutical industry.

Although the unilateral sanctions put in place by the United States and the European Union has exemptions for medicines and medical equipment, companies interested in selling such merchandise to Iran require a special license from the Treasury Department’s Office of Foreign Asset Control. However the reluctance of the banking organisations (American and European) to engage in transactions fearing backlash from the governments have discouraged the exporters to Iran.

 The healthcare problem

Iran has a well developed generic markets industry which produced most of the necessary drugs. However the innovative drugs which are used to treat advanced diseases are not available at this time in the market owing to the international trade alienation. The size of the Iranian market is USD 3.2 billion, of which USD 1.78 billion is generics, USD 1.13 billion is innovative drugs and USD 360 million is OTC. The market share by volume is relatively small for the innovative drugs but the higher prices have pushed up sales.  Iran has a healthcare system where 90% of the population has access to healthcare provided by the government and the employers. However the weakening economy due to the drop in international oil exports is beginning to show up on the dropping healthcare expenditure.

The suffering is chiefly borne by haemophiliacs, cancer patients (particularly leukaemia), heart diseases, lung problems, and multiple sclerosis. There are currently 37000 patients of multiple sclerosis in Iran and every year 40000 patients die of cancer. International health authorities suggest that a cancer tsunami is expected by 2015, due to its high incidence in the country.

Examples from the past

When trade sanctions happened to Iraq in the 90s, a study conducted by the Columbia school of public health, found that 225,000 children aged under five died in 8 years. This number is higher that the children killed in Hiroshima. However the US government thought that the choice was hard but the price was worth it to stabilise the Middle East.

What the Iranian leaders say?

The Iranian leaders, are holding on to the hardline position of Iran’s Revolutionary Guard and Supreme Leader Ayatollah Ali Khamenei, who has called for the development of a “resistance economy” in order to resist the pressure by the West. However there are dissenting voices both within Iran and in the Diaspora that wants the Iranian leadership to compromise with the West. The US can promote these voices if it offers to lift some of the economic sanctions in return of curbing the nuclear advancement. However the US has so far been un-yielding.

What lies ahead?

Iran may look at support from other willing nations for trade in pharmaceuticals. India is exploring the opportunity of drug exports to Iran despite pressure from the US in return of oil. Business will be carried out in rupee terms and not in dollar terms.

Few points to ponder here..

-      Would Iran violate the TRIPS norms and engage in compulsory licensing?

-      Would trade with India become a reality?