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Lupin to buy American generic drugmaker GAVIS for $880M in biggest overseas pharma M&A

27 July, 2015

Lupin Ltd, India’s third-largest drugmaker by sales, has agreed to acquire US-based pharmaceutical major GAVIS Pharmaceuticals LLC and Novel Laboratories Inc. (together known as GAVIS) for $880 million (Rs 5,610 crore), to strengthen its presence in the generic space in the world’s biggest drug market, it said on Thursday.

The deal, the biggest overseas acquisition by an Indian pharma company, has been approved by the boards of directors of the two companies. The deal value factors in a cash and debt-free transaction.

The acquisition of GAVIS is expected to broaden Lupin’s pipeline in dermatology and controlled substance products and would give the Indian drug major access to 66 generic drugs, for which GAVIS has sought approval from the US Food and Administration (FDA), and 65 products under development in the US market.

To date, GAVIS has filed 25 Para IVs and 8 FTFs products and its pending filings address a market value of about $9 billion. GAVIS’s New Jersey-based manufacturing facility will become Lupin’s first manufacturing site in the US.

It also brings a US-based R&D organisation which would complement Lupin’s Coral Springs, Florida, inhalation R&D centre.

Once the acquisition is completed, the combined entity will have a portfolio of 101 in-market products, 164 cumulative filings pending approvals and also a deep pipeline of products under development for the US. The acquisition creates the fifth-largest portfolio of ANDA filings with the US FDA, addressing a $63.8 billion market.

Lupin has witnessed a slow growth in the US market, which is also its largest market. The growth has been affected by a slower pace of winning generic drug approvals.

In the first quarter of the current financial year, sales in the US dropped 31 per cent to $180 million, which also pulled down net profit by a sixth to Rs 525 crore over the year-ago period.

Further Lupin said the company expects GAVIS to contribute to earnings in the first full year after purchase. Last year, GAVIS posted sales of $96 million.

“This is a pivotal acquisition for Lupin as it aligns with our goal to expand and deepen our US presence. GAVIS has a strong track record of delivering highly differentiated products in a short time and is poised for continued strong growth as it delivers on its existing pipeline. The acquisition accelerates Lupin’s entry into niche areas like controlled substances and dermatology,” Vinita Gupta, chief executive officer of Lupin, said in the statement.

“The acquisition is expected to be accretive to the earnings from the first full year of operations,” she added.

Lupin is the second-biggest Indian pharmaceutical company by market cap behind Sun Pharma and the third-biggest by revenue behind Sun Pharma and Dr Reddy’s Labs.

It has been scouting for big buys for over a year. Last month it had obtained in-principle nod from its board for raising funds of up to Rs 7,500 crore (nearly $1.17 billion) through issue of equity shares or other equity linked instruments.

The drugmaker did not disclose the purpose of the fundraising. However, this was believed to be part of its plans for the proposed big-ticket acquisition.

Lupin had been pursuing inorganic expansion during 2007-11, but had gone quiet on the M&A front since then.

Early last year, it revived its M&A-led growth strategy as it acquired Laboratorios Grin S.A. De C.V, which marked the company’s foray into the high growth Mexican and the larger Latin American pharmaceuticals market.

It also acquired Dutch firm Nanomi B.V which enables it to manufacture complex injectables with innovative drug delivery systems.

Post these two deals, it roped in Theresa Stevens as chief corporate development officer from Aptalis in April last year for global mergers and acquisitions (M&As) and specialty business strategy. Stevens, however, quit after a stint of eight months in December. 

An email to Lupin seeking further details and rationale behind her exit did not elicit any response immediately.

It struck three more deals recently.

In March, it acquired the balance 40 per cent equity stake in South African generic drugmaker Pharma Dynamics (PD) from its founders to make it a wholly owned unit. It had picked 60 per cent stake in the firm in 2008.

In May, it acquired Brazil-based Medquímica Indústria Farmacêutica S.A., (Medquímica) which marked its foray into the Brazilian market.

Early this month, it announced the acquisition of Russia’s Biocom, marking its foray into the market which is expected to be one of the top eight pharmaceutical markets in the world by 2018.

For the financial year ended March 31, 2015, the company recorded a consolidated turnover of Rs 12,599.7 crore ($1.96 billion) and a net profit of Rs 2,403.2 crore ($375.3 million).

Lupin’s shares closed at Rs 1,728.60 each, down 5.23 per cent on the BSE, in a weak Mumbai market on Thursday as investors remained apprehensive about the impact of the big buy on its balance sheet. Several large overseas acquisitions by Indian firms have turned out to be a pain due to the debt piled-up to finance them.


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Lupin to buy American generic drugmaker GAVIS for $880M in biggest overseas pharma M&A

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