Business / Industry Sectors
Israel’s Teva Pharmaceutical in the race to takeover Indian drug maker Cipla
In an attempt to enter the Indian Pharmaceutical market, Teva, the world’s largest generic drugmaker, is pursuing Cipla with a takeover offer of $6bn, states market speculation

Indian drugmaker Cipla may be the industry’s next target in a record run of takeovers. Drawn by demand for the $5.7bn company’s medicines internationally and factories across India, Teva Pharmaceutical Industries, said IIFL Holdings.

Cipla’s shares had climbed 7.9% since India’s Mint newspaper reported that Petach Tikva, Israel-based Teva, the world’s largest generic drug maker, is pursuing Cipla with a takeover offer of as much as $6bn.

According to the newspaper’s report, Cipla had rebuffed Teva twice since 2012.

"It gives Teva, if they’re interested, entry into the Indian pharma industry," Angel Broking analyst Mr. Sarabjit Kour Nangra said in Mumbai.

"From that perspective, it would be a good move," he said.

A representative for Teva said the $49bn company does not comment on market speculation.

Recently, Teva’s Chief Financial Officer, Mr. Eyal Desheh told participants at a Goldman Sachs Group global healthcare conference that the drug maker, which was created through a series of mergers and acquisitions, would consider more deals given the right opportunity. This month, it agreed to buy Labrys Biologics, a US maker of migraine treatments.

While Mr Desheh said Teva has slowed its pace of doing deals in recent years that does not exclude the company considering a "large and transformative" acquisition as a way to create value. Teva had $901m in cash and equivalents at the end of March, Bloomberg data show.

India’s pharmaceutical market grew 9.8% to about $12bn last year, according to PwC.

Under Teva’s ownership, spare capacity at Cipla’s drug making sites could boost Teva’s own exports, Antique Stock Broking analyst Mr. Hitesh Mahida said in Mumbai. "Cipla has a lot of large facilities which are underutilized that Teva can use far more efficiently," he said.

Cipla, a maker of generic HIV, cancer and respiratory medications, has almost doubled the number of treatments under development in the past year and analysts project its revenue will surge 60% by 2017.

After Mumbai-based Cipla bought its South African distributor and raised its stake in a Ugandan manufacturer to gain more control of exports, buyers may have to offer at least $9.7bn to convince the founders to sell, said Angel Broking.

Any deal would follow about $190bn of global drug and medical-products takeovers this quarter, according to data compiled by Bloomberg.

Cipla is "in investment mode," CIMB Securities India analyst Mr. Prakash Agarwal said in Mumbai. "They are preparing the bride. And everybody’s out shopping."

Founded in 1935 by scientist Dr. Khwaja Abdul Hamied, Cipla is India’s fourth-largest pharmaceutical company by market value. The Hamied family still owns about 37% of the shares, according to Cipla’s most recent results. Mr. Yusuf Hamied, who stepped down last year as MD, is nonexecutive chairman of the company.

The company made its name in 2001 by slashing the price of a multidrug HIV treatment to about $1 a day.

Africa, home to most of the world’s HIV-infected population, now accounts for 25% of Cipla’s sales. The firm also makes generic treatments for heart disease, arthritis and diabetes.

"The company is a world-class company with quality products," Centrum Broking Mumbai-based analyst Mr. Ranjit Kapadia said. "They are entering new markets in the Middle East and Africa."

Last year, Cipla bought an additional 14.5% of Ugandan drug maker Quality Chemical Industries, taking its stake to about 51%. That business focuses on HIV, AIDS and malaria treatments.

Cipla also bought Cipla Medpro SA, its partner since 2005, and on Tuesday announced an agreement to take control of a company that will market its products in Sri Lanka.

The company said last month that it had filed more than 1,000 overseas applications in areas ranging from Latin America to Asia for drug approvals and is developing more than 200 medications. That is close to double the total only 12 months earlier, chief financial officer Mr. Rajesh Garg told analysts on a May 29 call.

"There could be many players that would be a good fit for Cipla," said Mr Agarwal.

Mylan CEO Heather Bresch said in February that the $19bn company was "poised for a transaction this year".

The drug maker — named by IIFL analyst Mr.  Bino Pathiparampil as a possible buyer for Cipla — had its second bid for Sweden’s Meda rejected in April.

Nina Devlin, a representative for Canonsburg, Pennsylvania-based Mylan, said the company had no comment.

While Cipla could attract interest, the Hamied family may be reluctant to sell and a buyer would have to offer six to eight times the drug maker’s projected sales for the year ending March next year, said Mr Kapadia.

That is the equivalent of about $12bn to more than $15bn, based on estimates compiled by Bloomberg.

An offer of five to six times sales may be enough, according to Mr Nangra. That still equates to at least $9.7bn, using estimated revenue this financial year.

Among Indian peers, only Sun Pharmaceutical Industries, India’s largest drug maker by market value, has the financial clout to buy Cipla, said Mr Pathiparampil. Such a deal is unlikely after Sun agreed to buy rival Ranbaxy Laboratories in April, he said.

All the same, for a buyer such as Teva, a purchase would land it a network of factories and a range of respiratory medications to bolster its own products in that area, Mr Agarwal said.

Cipla, after a recent 61% stock-price surge in the five years, may now be willing to entertain offers, said Mr Pathiparampil. "Everybody wants to sell off at the peak and maybe they are thinking this is the peak valuation," he said.

Source: Business Day

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