Zydus adds muscle with US buy

String of brand buying in India to give it more diversified portfolio

Ahmedabad-based Cadila Healthcare (also known as Zydus Cadila) is expanding, with a string of acquisitions in India and abroad.

On Thursday, the Pankaj Patel-led company acquired Sentynl Therapeutics, making a  foray in the high-margin speciality business in the US.  The company is hoping for a 25% boost in US revenues in the coming financial year, banking on this deal. 

At home, Cadila has acquired eight brands in the maternal care, cough and anaesthesia segments from AstraZeneca, for an undisclosed amount. So far in 12 months, this is five product and company acquisitions. This will help diversify the portfolio and overcome pricing pressure in both markets.

Sentynl is the group's second US purchase, the first being Nesher Pharma in 2011. The company did not disclose the deal size but sectoral sources peg it at $171 million. 

The US market presently accounts for a little over a third of the consolidated annual turnover, of around Rs 10,000 crore. Apart from revenue, the margins are also in for a boost with entry in the speciality drugs segment. More so as the generics drugs space in the US has seen price erosion in recent times. 

“In the generics space, the margins are around 35% or so. In the speciality segment, it is 65-70%,” said a source.  As of March 2016, the company had long-term and short-term borrowings of Rs 2,100 crore, with cash and bank balances of Rs 695 crore. It spent Rs 48 crore on interest in 2015-16.

Sentynl holds the rights for Abstral, a popular pain management drug for cancer patients. The market size for this opioid-based drug is estimated to be $24 billion; annual sale of Abstral is estimated at $10 million. "There is no other player in the US market with an approved product in this space,” said the source. 

Analysts agree but add that as almost all big pharma companies have a presence in the oncology segment, Zydus would have to deploy a huge field force if it wishes to realise this drug's full potential. They say the Sentnyl acquisition will enable Zydus to expand its manufacturing footprint and access to niche pain management products, helping them beat price erosion.

As mentioned earlier, it had acquired Nesher in the US in 2011, which has expertise in controlled substances for around $60 million. Nesher, a subsidiary of KV Pharma, was struggling with US Food and Drug Administration issues and is under some regulator restrictions since March 2009, owing to manufacturing deviations. The acquisition, thus, did not have any near-term impact. Last year around March, Nesher received approval to market Dextroamphetamine IR tablets, used for nervous system disorders, in the American market. Zydus now has seven product filings from Nesher and expects approvals within a year, the company told analysts last year.

Zydus was able to show good revenue growth in FY16, on the back of a price hike in a limited competition arthritis drug, HCQ. However, there has been no strong growth driver in FY17, an analyst said.

In the Indian market, Zydus has been making smaller brand acquisitions. During 2016 it acquired the manufacturing operations and select brands of animal health company Zoetis, apart from acquiring gastro brand Actibile from Albert David. Last month, it acquired nine brands from MSD and its subsidiaries for an undisclosed sum. These brands are used in the cardiovascular and wound management therapy segments.