Global shortage of injectables

1. Global Shortage of Injectables
Announcement likely early next month on deal for generic sterile
injectables business
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2. Contd..
Cadila Healthcare, the Zydus Cadila Group flagship, has emerged the
frontrunner to acquire the generic sterile injectables business of
Ahmedabadh eadquartered Claris Lifesciences (CLL) trumping several
domestic and global peers who were also interested in the asset. Both sides
are currently engaged in last-minute due diligence negotiations involving tax
and other financial matters, said at least five sources aware of the talks.
Cadila is likely to pay a hefty premium, valuing the company at . 3,100-3,400
crore. For 12 months ` ended December 31, 2014, the injectables business
reported revenues of `. 405.6 crore and EBITDA of `. 149.4 crore (37% EBITDA
margin). Therefore, the business is being valued at over 22 times EV EBITDA.
To put it in perspective, the current market cap of parent CLL, including all
the businesses, is `. 1,793 crore. A formal announcement is expected early
next month provided there are no last-minute delays or glitches. The Cadila-
Claris deal, however, has not yet closed.
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3. Contd..
The Cadila Healthcare spokesperson told ET that as a matter of policy ,
the company does not comment on market speculation. A Claris
spokesperson, however, denied any such development.
ET, in its edition dated February 12, first reported about the business
being put on the block.
The possible deal underscores amplified interest in the business in the
backdrop of a global shortage of injectables -drugs that are delivered
through vials, syringes and bags, as well as pumps. The supply problem
has driven many recent transactions both in India and overseas,
including Pfizer's $17-billion takeover of Hospira earlier this year.
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4. Contd..
Pankaj Patel-led Cadila faced competition from bigger domestic rivals
such as Lupin, which were also aggressively pursuing the opportunity .
Even global players such as Pfizer, Amneal and Novartis were initially in
the fray, said sources. But valuations apart, the comfort between the
two Gujarat-based entrepreneurs is said to have influenced Arjun
Handa, the promoter, vice-chairman & managing director of CLL. Both
Patel and Handa are from Ahmedabad and have been old industry
associates.
One of the sources said that if the talks with Cadila break down at the
last minute, the prospects of Lupin walking away with the asset could
improve considerably .
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5. Contd..
Cadila, among the top 5 pharma companies in the country in terms . 8,651 crore in
FY15), of revenues ( ` has been on an acquisition drive for a while, having executed
17 M&A deals since 1995. However, since 2003, most of the deals have been
outbound transactions with the intent to develop a presence in specific markets
such as Japan, Brazil, Spain and South Africa. In late 2011, Cadila acquired Biochem,
a domestic formulations business. Once completed, this would be the company's
first deal after Biochem.
UNLOCKING VALUE
In October last year, CLL transferred its specialty injectables business into a wholly
owned subsidiary, called Claris Injectables Limited (CIL). The listed parent CLL
became a holding company with three business segments -it owns 100% in CIL, has
a 20% minority stake in its three-year-old joint venture with Japan's Otsuka and
Mitsui for the infusions business for India and other emerging markets, and
manages cash thrown up by the businesses.
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6. Contd..
Many saw the restructuring and hiving-off of the injectables business as a precursor
to a sale. In January end, CLL mandated investment banks Barclays and Jefferies to
initiate a formal sale process that saw interest from over half-a-dozen strategic
players. Post-sale, Claris is expected to be a holding company with cash from the
sale of the business and a stake in the Otsuka JV -a trend that is becoming popular
among Indian pharma companies. Once backed by Carlyle, Claris Injectables -
among the larger players in the country -manufactures and markets products
across multiple delivery systems, markets and therapeutic segments. Most of these
products can be directly injected into the human body and are predominantly used
in the treatment of critical illnesses. These are largely used by government and
private hospitals, aid agencies and nursing homes.
Cadila also has a presence in injectables through two joint ventures. The first is with
Hospira for supplying oncology products for the US and European markets.This JV
commenced operations in 2009. Brought to you by
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7. Contd..
The second alliance is with BSV Pharma. Around 37% of Cadila's revenues
come from the US (about $500 million), which grew 62% in calendar year
2014. It is ranked among the top 10 generic companies in the US and the
market is one of the key drivers for its overall growth and profitability. The
company filed 38 ANDAs during the year with the USFDA, taking the
cumulative filings to 260, and received eight ANDA approvals during the year
taking the total to 99. Both JVs have factories in a SEZ in Ahmedabad.
NEIGHBOURS EYE US MARKET
Like Cadila, the US is a also stra tegic market for Claris and analysts feel this
could be a key rationale for the acquisition. CLL has filed 36 ANDAs, of which
13 have been approved and 23 are being processed.
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8. Contd..
The total addressable market size of these filings is estimated to be close to $2 billion, of
which the market size for the ANDAs approved comes to $200 million. “Cadila gets access
to a great backend infrastructure which would help boost the US business and its speed to
file ANDAs,“ said a pharma analyst tracking both the players.
More importantly, the three facilities of Claris are located near Ahmedabad, in close
proximity to Cadila's units. Most pharma companies in India have their `comfort zone'
when it comes to manufacturing and prefer to expand within that geography.
Claris' focus on the critical illness therapeutic segment and its wide delivery capabilities
make it a prized buyout candidate. There are very few injectables businesses left in India
that are independently owned after Mylan acquired Agila from Strides Arcolab for $1.6
billion in 2013. Prior to that, in 2009, Hospira had acquired Orchid's injectables business for
$400 million.
The total global injectables market is estimated at $144 billion with the lion's share being
with innovators. The generic injectables sector is seen at around $16.5 billion, as per
industry estimates, and is a very attractive segment.
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