Lupin acquires US generics firm GAVIS for $880 mn

Deal marks the largest acquisition by an Indian pharma company in the US

In its fifth foreign acquisition within 18 months, Lupin on Thursday said it would acquire New Jersey-based generic drugs firm GAVIS for $880 million to boost its presence in the US, the company’s biggest market (it accounted for 45 per cent of Lupin’s revenue last year). This is the largest acquisition by any Indian pharmaceuticals company in the US, where Lupin is sixth in terms of market share.

The company had entered a “definitive agreement to acquire privately-held GAVIS Pharmaceuticals LLC and Novel Laboratories Inc, subject to certain closing conditions, in a transaction valued at $880 million, cash-free and debt-free”, Lupin said in a statement. The deal, finalised through a competitive bidding process, is likely to be closed in the third quarter of this year. Lupin will fund the acquisition through cash reserves of $100 million and a bridge loan.

In an analyst call after announcing the deal, Lupin said GAVIS’s pending filings addressed a market value of about $9 billion.

However, the Lupin stock slipped about five per cent to close at Rs 1,728.60, owing to a 16 per cent drop in consolidated net profit for the June quarter.



Market watchers say the acquisition is expensive. As GAVIS recorded sales of $96 million in FY14, Lupin is paying 9.2 times the annual revenue for the acquisition. “Prima facie, the acquisition looks very costly, given the size of the company,” said Sarabjit Kour Nangra, vice-president (research-pharma), Angel Broking.

The company’s management said the acquisition wasn’t expensive. “GAVIS has a tremendous pipeline and a strong history of compliance with the US FDA. It has a highly profitable business with Ebitda (earnings before interest, tax, depreciation and amortisation) of 36 per cent. Its revenue is projected to grow three times by 2018. GAVIS accelerates our entry into the niche product market. Getting a foot in local pharma manufacturing in the US will help us,” said Vinita Gupta, chief executive officer, Lupin. She added the company would scout for more niche assets abroad.

The company said for the acquisition, it paid an Ebitda multiple of 16, against 18-19 for recent acquisitions. Sujay Shetty, leader (pharma, life sciences and medical devices practice), PwC, said there was a deal-making frenzy in the US and valuations were a bit stretched. The US, the world’s largest pharmaceuticals market, is critical to Lupin’s growth.

In FY15, the company’s revenue from the US increased 12 per cent to $891 mn, even as the US generic drugs market grew only mere 4.5 per cent. In the quarter ended June this year, however, Lupin’s business from the US declined 26 per cent.  

Gupta said GAVIS “is a pivotal acquisition for Lupin, as it aligns with our goal to expand and deepen our US presence.” The acquisition accelerated Lupin’s entry into niche areas such as controlled substances and dermatology, she added.

“We are confident Lupin’s proven commercialisation capabilities, vertically integrated manufacturing operations and supply chain strengths will accelerate GAVIS’s growth.”

GAVIS, which has 250 employees, specialises in the formulation, development, manufacturing and sales of niche pharmaceuticals products. Currently, it has 66 abbreviated new drug application filings pending with the US FDA and a pipeline of 65 products under development. GAVIS’s New Jersey-based manufacturing facility will be Lupin’s first manufacturing site in the US.

In February 2014, Lupin had acquired Netherlands-based Nanomi for an undisclosed amount. A month later, it acquired control of Mexican company Grin. In May this year, it bought Brazilian company Medquimica Industria Farmaceutica. The values of these acquisitions weren’t disclosed. Earlier this month, Lupin acquired ZAO Bio Biocom in Russia, again for an undisclosed amount.

IN THE PINK OF HEALTH

• GAVIS’s Ebitda margin is 36 per cent
• Company’s revenue projected to grow threefold by 2018
• With GAVIS, Lupin has 164 ANDA filings
• Lupin has now become the fifth-largest company in filings with US FDA

Major outbound pharma buys

2006: Dr Reddy’s acquired Germany’s fourth-largest generic drug company, Betapharm, for $480 mn

2010: Sun Pharma bought stake in Israel’s Taro Pharma. Now, Sun owns majority stake in Taro, worth $260 million