China’s maiden bil­lion-dol­lar takeover of an In­dian pharma gi­ant

The deal will help the Chi­nese com­pany make in­roads into In­dia, gain ac­cess to US in­jectable drug mar­ket where Gland has a firm hold and bol­ster its prod­uct port­fo­lio.

BioSpectrum (Asia) - - Content - Aish­warya Venkatesh aish­warya.venkatesh@mmac­

Cre­at­ing a new chap­ter in the his­tory of China and In­dian phar­ma­ceu­ti­cal in­dus­try, China’s drug gi­ant Fo­sun Pharma has ac­quired ap­prox­i­mately 74 per cent in In­dia’s Gland Pharma at a val­u­a­tion for $1.09 bil­lion. In the reg­u­la­tory fil­ing, Fo­sun Pharma and Fo­sun In­ter­na­tional said fol­low­ing the com­ple­tion of the ac­qui­si­tion, Gland Pharma has be­come an in­di­rect non-wholly owned sub­sidiary of Fo­sun Pharma and Fo­sun In­ter­na­tional.

The In­dian com­pany’s pro­mot­ers Ravi Pen­metsa and his fa­ther P V N Raju will con­tinue on the board of the com­pany, Gland Pharma said in a state­ment. Be­sides, the present man­age­ment team will be in-charge of the day to day run­ning of the com­pany, it added.

It all be­gan in July 2016, when China’s Fo­sun Phar­ma­ceu­ti­cals agreed to ac­quire ap­prox­i­mately 86% stake in Gland Pharma for $1.4 bil­lion. The news of the takeover im­me­di­ately grabbed eye­balls, mak­ing head­lines. It was the largest takeover of an In­dian pharma gi­ant by a Chi­nese com­pany.

As per the terms of the orig­i­nal trans­ac­tion, Fo­sun had said that it will ac­quire the shares held by Gland Pharma founders Ravi Pen­metsa and his fam­ily and PE gi­ant KKR. KKR had ac­quired nearly 36% in the com­pany in 2013 for $200 mil­lion, which is now val­ued at $540 mil­lion. Un­der the terms of the orig­i­nal trans­ac­tion, KKR will sell its en­tire stake, while Gland Pharma’s other in­vestors, in­clud­ing founder PVN Raju, his son Ravi Pen­metsa and the Vet­ter fam­ily, which con­trols Ger­many-based Vet­ter Pharma, would also sell a part of their stakes. Pen­metsa would re­main man­ag­ing di­rec­tor. The resid­ual stake will re­main with the founder fam­ily.

Com­ment­ing on the ac­qui­si­tion, Gland Pharma said in a state­ment, “The part­ner­ship will lever­age syn­er­gies as fore­seen by the man­age­ment teams of both Gland Pharma and Fo­sun Pharma. Some of these syn­er­gies in­clude the bio-sim­i­lar pro­gramme de­vel­oped at Fo­sun

be­ing made avail­able for man­u­fac­tur­ing by Gland Pharma and in­tro­duc­ing them to the In­dian mar­ket. Fur­ther­more, the part­ner­ship will cre­ate new chan­nels to sell the prod­ucts of Gland Pharma in mar­kets where Fo­sun has an ex­ist­ing pres­ence.”

The deal, once ma­te­ri­al­ized, will help the Chi­nese com­pany make in­roads into In­dia, gain ac­cess to US in­jectable drug mar­ket where Gland has a firm hold and bol­ster its prod­uct port­fo­lio with new on­col­ogy drug pipe­line. How­ever, this scal­ing of the great wall by Fo­sun, wasn’t easy. The deal did not get a nod from the Cab­i­net Com­mit­tee on Eco­nomic Af­fairs (CCEA) and Fo­sun had to set­tle with a smaller stake of 74 per cent. But wait, did Fo­sun ac­tu­ally lose much? Ex­cept for a small stake?

The orig­i­nal deal was ap­proved by the For­eign In­vest­ment Pro­mo­tion Board (FIPB) ear­lier this year, while the Com­pe­ti­tion Com­mis­sion of In­dia ap­proved it ear­lier in De­cem­ber 2016. FIPB re­ferred the deal to CCEA in April. In­dia al­lows for­eign in­vest­ment of up to 100 per cent in its phar­ma­ceu­ti­cal sec­tor but above 74 per cent re­quires gov­ern­ment ap­proval.

Fol­low­ing these ap­provals, the deal, how­ever gath­ered dust at the CCEA, and the In­dian au­thor­i­ties sat on it, giv­ing no word to both the com­pa­nies on the ac­qui­si­tion. There was a wide spec­u­la­tion and me­dia re­ports that the deal would be ‘blocked’ amid height­ened bor­der ten­sions be­tween the two coun­tries.

Fo­sun then de­cided to take the by-pass route and trim its stake to 74 per cent. With this, Fo­sun no longer needed the ap­proval of In­dian gov­ern­ment as per the re­vised In­dian For­eign di­rect in­vest­ment (FDI) guide­lines. Fo­sun said in a state­ment that the re­duced stake will avoid a gov­ern­ment re­view and the trans­ac­tion was com­pleted by Oc­to­ber 3 with all the main con­di­tions be­ing met. “The ap­provals of the rel­e­vant [Chi­nese] au­thor­i­ties and the United States an­titrust fil­ings and In­dian an­titrust fil­ings in re­spect of the trans­ac­tions have been com­pleted,” Fo­sun Pharma said in its fil­ing.

“No re­view and ap­proval of the In­dia For­eign In­vest­ment Pro­mo­tion Board and the Cab­i­net Com­mit­tee on Eco­nomic Af­fairs of In­dia is re­quired in re­la­tion to the trans­ac­tions contemplated un­der the amend­ments to the trans­ac­tion doc­u­ments un­der the rel­e­vant In­dian for­eign in­vest­ment poli­cies,” the com­pany said.

Why was Fo­sun so de­ter­mined?

Found in 1978, Gland Pharma, makes generic in­jecta­bles, pri­mar­ily for ex­port in the US mar­ket. The com­pany also sells its prod­ucts in In­dia and has pres­ence in 90 coun­tries, over five con­ti­nents. With this deal, Fo­sun gets ac­cess to two state-of-the art R&D lab­o­ra­to­ries, four US Food and Drug Ad­min­is­tra­tion (FDA) (USFDA), Medicines and Health­care prod­ucts Reg­u­la­tory Agency (MHRA) ap­proved man­u­fac­tur­ing sites, 60+ niche in­jecta­bles and a grow­ing on­col­ogy pipe­line. The deal will thus help the Chi­nese drug maker to lever­age ca­pa­bil­i­ties and ex­pand its prod­uct

of­fer­ings. More im­por­tantly, this ac­qui­si­tion will give Fo­sun easy ac­cess to the US and Europe mar­kets as well as in­crease its pres­ence in Asia and In­dia. Ac­cord­ing to Fo­sun’s fil­ing, Gland rev­enues in the fis­cal year end­ing in March were Rs 1,490 crore ($232 mil­lion), with 3.14 mil­lion ru­pees in profits.

San­jeev Ku­mar, In­dus­try Man­ager, Trans­for­ma­tional Health: Life Sci­ences, Frost & Sul­li­van, high­lighted, “There is a huge op­por­tu­nity in the in­jectable in­dus­try. In the US alone, over 20 bil­lion in­jectable drugs are ex­pected to ex­pire in next 5-6 years. Ow­ing to these prospects the mar­ket has at­tracted large phar­ma­ceu­ti­cal firms to look for ex­pand­ing in in­jectable busi­ness either by ac­qui­si­tion or through strate­gic part­ner­ship. For ex­am­ple, My­lan, ac­quired the in­jectable busi­ness of Strides Sha­sun Ltd in 2013, sev­eral other pharma com­pa­nies such as Bax­ter, Tor­rent phar­ma­ceu­ti­cal etc. are also look­ing to in­crease the in­vest­ment in this seg­ment. Gland pharma is one of the lead­ing de­vel­oper and man­u­fac­turer of generic in­jecta­bles, which is strate­gi­cally based in In­dia. Sev­eral of its man­u­fac­tur­ing fa­cil­i­ties are ap­proved by USFDA. Also, a ma­jor­ity of Gland Pharma’s busi­ness comes from the US. There­fore, if Fo­sun col­lab­o­rates with Gland Pharma, it will have in­stant ac­cess to the US mar­ket as well as sev­eral other semi-reg­u­lated mar­kets.”

Fo­sun’s gain?

In­dia’s con­cerns over the Gland-Fo­sun deal are not, how­ever, a re­sult of the bor­der ten­sions, Reuters re­ported, cit­ing sources fa­mil­iar with the mat­ter. The con­cern is largely about In­dia los­ing its edge on a par­tic­u­lar pharma seg­ment where it has sig­nif­i­cant pres­ence in­ter­na­tion­ally. “They have more to do with giv­ing con­trol of a large pharma com­pany to a Chi­nese en­tity,” the source said.

San­jeev Ku­mar, said, “Fo­sun ear­lier wanted a larger share in Gland Pharma, hence of­fered to buy 86% stake in the com­pany. Due to Dokalam ten­sion be­tween In­dia and China, this deal came un­der heavy and strin­gent scan­ner. Prac­ti­cally it was never taken up by the Cab­i­net Com­mit­tee of Eco­nomic Af­fairs and was con­se­quently put on hold mainly due to con­cerns over the for­eign takeover of a lead­ing lo­cal drug ex­porter.”

But is a 74 per cent stake with a Chi­nese com­pany, re­ally that dif­fer­ent from an 86 per cent stake? Last year with an aim to pro­mote the sec­tor, In­dian gov­ern­ment al­lowed 74 per cent FDI in ex­ist­ing In­dian pharma com­pa­nies with few pre­con­di­tions such as main­tain­ing re­search ex­pen­di­ture and meet­ing pro­duc­tion vol­umes to en­sure avail­abil­ity of essen­tial medicines.

“With the ob­jec­tive of pro­mot­ing the devel­op­ment of this (phar­ma­ceu­ti­cal) sec­tor, it has been de­cided to per­mit up to 74 per cent FDI un­der au­to­matic route in brown­field phar­ma­ceu­ti­cals and gov­ern­ment ap­proval route be­yond 74 per cent will con­tinue. The move to per­mit 74% FDI un­der au­to­matic route in Brown­field phar­ma­ceu­ti­cal sec­tor is aimed at at­tract­ing re­quired cap­i­tal, in­ter­na­tional best prac­tices and lat­est tech­nolo­gies in the sec­tor, an of­fi­cial state­ment from the In­dian Min­istry, said.

“The gov­ern­ment of In­dia had re­laxed the for­eign in­vest­ment rules last year it­self,” ex­plained San­jeev Ku­mar, “Al­low­ing for­eign com­pa­nies to in­vest up to 74 per cent in lo­cal drug man­u­fac­tures with­out gov­ern­ment ap­proval. As Fo­sun pharma was still highly in­ter­ested in in­vest­ing in this com­pany, they took a faster route.”

But what has largely changed in the deal ex­cept for a small per­cent­age of stake is some­thing that re­mains to be an­swered. Fo­sun still has a ma­jor­ity stake of the com­pany and though non-wholly owned has con­trol over de­ci­sion mak­ing, gains ac­cess to Gland’s fa­cil­i­ties and prod­ucts. Ev­ery­thing largely re­mains the same, with the only dif­fer­ence that the founder fam­ily re­tained a larger share. Ear­lier, in 2016, while com­ment­ing on the re­vised guide­lines, In­dian Phar­ma­ceu­ti­cal Al­liance sec­re­tary­gen­eral Dilip G. Shah had told IANS that “with 74 per cent FDI, the gov­ern­ment’s con­trol is to­tally gone. Though the move may not ad­versely af­fect the in­dus­try, the move has some risks as cer­tain In­dian as­sets like the in­jecta­bles fa­cil­i­ties are the jewels of the in­dus­try and time alone would tell if ac­qui­si­tions have been help­ful or harm­ful.” For now, one In­dian jewel is with the Chi­nese.

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