M & A CritiqueAt a time when Aurobindo Pharma gets nearly twothird of its revenues from abroad, it is quite natural for the company to aggressively expand its operations globally. The company bought Dublinbased Actavis Plc’s which has commercial operations in seven western European countries for about 30 million euros, in a bid to increase its international footprint.
Aurobindo Pharma Limited is a pharmaceutical manufacturing company headquartered at Hyderabad, India. The company manufactures generic pharmaceuticals and active pharmaceutical ingredients. The company’s area of activity includes six major therapeutic/product areas: antibiotics, antiretrovirals, cardiovascular products, central nervous system products, gastroenterological’s, and antiallergics. The company markets these products in over 125 countries. Its marketing partners include AstraZeneca and Pfizer. Aurobindo Pharma was incorporated as a private limited company and was converted into a public limited company with effect from April 30, 1992. The chief promoters of the company are P.V. Ramaprasad Reddy and K. Nityananda Reddy.
The company has agency setup at Srilanka, Thailand, Russia and Nigeria for marketing its products. It proposes to set up its own marketing offices at Hong Kong, Moscow, and Nigeria to promote bulk drug sales. In 1997, Glaxo (India), the Indian subsidiary of the UKbased multinational, negotiated with Aurobindo Pharma for an alliance to meet its global bulk drug requirements. The annual capacities now stand at 300 million of capsules and 840 tonnes of bulk drugs. Aurobindo Pharma Ltd, the largest domestic manufacturer of penicillinbased bulk antibiotics, plans to form joint ventures in Brazil and China by the end of financial year 19992000 (AprilMarch).
The company commenced operations in 198889 with a single unit manufacturing SemiSynthetic Penicillin (SSP) at Pondicherry. It became a public company in 1992 and listed its shares on the Indian stock exchanges in 1995. In addition to being the market leader in SemiSynthetic Penicillins, it has a presence in key therapeutic segments such as neurosciences, cardiovascular, antiretrovirals, antidiabetics, gastroenterology, and cephalosporins, among others. Aurobindo Pharma features among the top 10 companies in India in terms of consolidated revenues. Aurobindo exports to over 125 countries across the globe with more than 70% of its revenues derived out of international operations.
ACTAVIS PHARMA:
Actavis Pharma develops, manufactures and markets generics, branded generics, legacy brands and Overthe- Counter (OTC) products in more than 60 countries around the world. The thirdlargest generic pharmaceutical company in the United States with approximately 10% market share, Actavis Pharma is also in the top 3 in 12 global markets, the top 5 in 16 global markets and in the top 10 in 33 global markets. Actavis has operations in more than 60 countries and is among the leaders in key markets including the United States, Canada, Western Europe, Central and Eastern Europe, Russia, Southeast Asia and Australia.
DEAL/TRANSACTION:
Aurobindo has been actively buying firmsercial in India and with Actavis, it will be the firm’s first overseas acquisition in more than six years. The deal would include comminfrastructure, products and marketing authorizations in these seven countries. The two companies will also enter a longterm commercial and supply deal to support the growth plans of the businesses.
AUROBINDO PHARMA ADVANTAGE:
The acquisition will make Aurobindo Pharma one of the leading Indian pharmaceutical companies in Europe. Since 2006, the company has been steadily expanding its European footprint through an increasing presence in the UK, Spain, and Germany. The acquisition will enable Aurobindo Pharma to achieve critical mass in Western Europe with a top 10 position in several key markets.
Aurobindo said the deal would include commercial infrastructure, products (i.e. generic products), marketing authorisations and dossier license rights in the seven countries (viz. Belgium, Germany, Italy, France, Portugal, Spain and the Netherlands). This transaction will complement strategy of pursuing organic growth along with valuecreating acquisitions within served markets and adding complimentary growth platforms to provide scale and revenue diversity.
Although the businesses are currently lossmaking, Aurobindo expects them to return to profitability in combination with its vertically integrated platform and existing commercial infrastructure. The acquisition expands Aurobindo’s frontend operations into five segments (generics, prescription products, overthecounter products, hospital products and generics tenders) with approximately 1,200 products and an additional pipeline of over 200 products. The value created by the commercial operations in these seven markets would be better maximized by Aurobindo, which will gain scale, additional products, and market share.
The company’s management believes that the acquisition of Actavis will give the company a ready-made hospital sales infrastructure where the Hyderabadbased company will be able to launch its own injectables and specialty portfolio throughout the countries in Western Europe. The management said that they have carefully reviewed the Actavis European operations and concluded that with cost competitiveness and group structure, they could significantly capitalise Actavis’s strong market position in these Western European countries and improve profitability, thereby accelerating their strategy of becoming a significant Gx player in Europe. Aurobindo takes a disciplined approach to acquisition with clearly defined strategic and financial criteria and is committed to maintaining a prudential capital and debt structure. This acquisition will give Aurobindo quite a few active pharmaceutical ingredient (API) producing units, which is in the line with the company’s plans to vertically integrate their injectables business by picking up production units as evident from its recent purchase of Hyacinths Pharma.
RECENT DEAL AND VALUATION:
In the domestic market, Aurobindo acquired Hyacinths Pharma Pvt Ltd, which produces active pharmaceutical ingredients, but this was at the undisclosed amount. By picking a 25 percent stake in Silicon Life Sciences Pvt Ltd, it turned a joint venture with Trident Chemphar Ltd into a whollyowned subsidiary. Aurobindo Pharma did not disclose how much the company is planning to invest for this transaction either.
Aurobindo Pharma is said to be in talks to buy one or two units. Management estimates the net sales for the acquired businesses would be around Euro 320 million in 2013 with a growth rate of over 10% yearonyear. The deal is valued at the 0.10 times of the sale value. As the current operation of the units acquired is negative, so the deal is the lower value. The Indian pharmaceutical firm will be financing the purchase with its own cash, so no debt overburden due to this deal. What to see is whether the Aurobindo can fructify this.
The acquisition of current European businesses is a value enhancing and forwardlooking initiative for Aurobindo and will help them in backward integration of sterile injectables. This will add to their focus on growth initiatives in Europe and international markets, which together are expected to be key drivers for future growth.
CONCLUSION:
As Aurobindo Pharma has boosted its API portfolio, by acquiring commercial operations in seven western European countries along with previous ones i.e. Andhra Pradesh based Hyacinths Pharma and Silicon Life Sciences Private Limited.
Similar deals which have been recently seen in India in this space include; Indian publicly listed pharmaceutical firm Lupin Ltd has acquiring Netherlandsbased injectable firm Nanomi BV for an undisclosed amount, Arkray Healthcare acquiring the invitro diagnostic business of Surat-based Span Diagnostics for an estimated INR. 73.4 Crores; Torrent Pharmaceuticals had acquired the branded domestic formulation business of Elder Pharma in India and Nepal for a total of INR 2004 crore and Cipla acquiring South Africabased Cipla Medpro for US $512 million. Can these deals be in response to the recent imposition of ban on Ranbaxy Laboratories (from shipping drugs and raw ingredients from its Toansa plant in Punjab to the US market), read along with several other Indian pharmaceutical companies received warning letters from the USFDA, including Wockhardt, and RPG Life Sciences? Because considering current scenario may Indian Pharma Companies are trying to enter US markets (with clean chit from USFDA) through acquiring foreign facilities/ API’s. This seems to have worked in the case of Aurobindo as well, because soon after officially announcing the acquisition of infrastructure facilities – in Western Europe, from Actavis – a USbased company, it got its pending approvals sanctioned from USFDA. So, can this be a coincidence or a well-planned strategic move!
