Agila: the next billion dollar Indian acquisition in the works?
This article was originally published in Scrip
Agila Specialties is perhaps the next big deal on the horizon in the Indian pharmaceutical industry despite the carefully worded denial by Strides Arcolab's top brass on plans to hawk the firm’s crown jewel and injectables arm.
What makes Agila a star candidate for a billion dollar-plus potential deal, according to a clutch of market watchers and industry pundits, is the current shortage of injectable drugs in the US, Agila's "clean and large" manufacturing base, an add-on foothold in the biotech space and Strides' debt position which, though reduced from previous years, is still currently in excess of Rs10 billion ($179.5 million).
Potential suitors, featuring prominently in market speculation, include Pfizer, Novartis and even a US buyout fund, although some analysts told Scrip that Pfizer may not necessarily chase large plant-based deals. Not surprisingly, all the potential suitors have declined to comment on the speculation, while in a clarification to the Bombay Stock Exchange on 9 August, Strides Arcolab denied it was considering selling Agila adding that the company will keep the stock exchanges informed "as and when there is any such development".
Manish Jain, director of Axis Holdings, a boutique money management firm for large industrial families in India, said that Agila offers significant capacities with multiple regulatory approvals and appropriate [product] filings. "We would attribute a minimum value of $2.5 billion [for Agila] should there be a potential suitor," Mr Jain told Scrip. Bloomberg earlier suggested that Agila could fetch about $1.35 billion, assuming a deal at about 18-20 times the firm's estimated earnings before interest, taxes, depreciation and amortisation (EBITDA) in 2012.
Others like Nimish Mehta of MP Advisors believe that the Agila asset is "premium enough" to attract buyers, and this may be the opportune time for a potential deal, more so given the Strides' high debt. In July, Strides said its debt stood at about Rs13 billion, of which about Rs5 billion was working capital debt, giving it a net debt-to-equity ratio of 0.65.
Mr Mehta thinks it unlikely that Pfizer would be among the potential suitors. “I am not too sure whether Pfizer would be interested. Global pharma companies are more inclined to buy 'markets' and 'intellectual property' than buying facilities. Pfizer's alliance with Strides itself means that Pfizer had chosen to partner rather than buy," Mr Mehta explained.
In 2010, Strides entered into a licensing and supply agreement with Pfizer for a portfolio of 40 off-patent sterile injectables and oral products, adding more products and markets to the alliance in the same year (scripintelligence.com, 14 May 2010). In July this year, Strides received FDA approval for fluorouracil, among the products in the drug shortage list of US FDA and part of the oncology portfolio licensed to Pfizer for the US market.
Others believe limited competition and an eye on the future make Agila an interesting target. A source with a leading boutique corporate advisory and investment firm told Scrip that there were only a handful of players in India with strong injectables capability and the entire supply chain [in this segment] needs careful management.
"Most biotech products are administered through parentals. A facility with global regulatory approvals becomes an attractive proposition for a variety of players. In the light of the Roche-Emcure deal, companies with such capabilities acquire even more significance," added the boutique corporate advisor, who did not wish to be identified.
Roche is partnering up with the Indian firm Emcure to launch cut-price versions of its anticancers Herceptin (trastuzumab) and MabThera (rituximab) in India. Eventually the Indian firm is expected to fill the bulk products into vials by the end of 2014 (scripintelligence.com, 26 March 2012).
...what Agila brings
Agila has eight manufacturing facilities across the globe including those in Brazil and Poland and the largest steriles capacity in the Indian sub-continent and one of the largest lyophilisation capacities in the world.
Agila's sites have approvals from various regulatory authorities including the US FDA, the MHRA and the TGA. Earlier this year, Agila also acquired a US FDA approved sterile formulations facility in Tamil Nadu, India, from Star Drugs and Research Labs. The unit is expected to provide immediate incremental capacity as Agila's existing capacities have been fully committed due to drug shortages of sterile injectables worldwide.
A couple of large players in the injectables segment in the US, including Hospira, had previously been badly hit by manufacturing compliance issues, leading to shortages of certain products, creating significant opportunities for firms like Agila. In 2010, Hospira was pulled up by a FDA warning letter for good manufacturing practice (GMP) violations at two plants (scripintelligence.com, 23 April 2010).
It has been suggested that Hospira expects to spend more than $300 million over the next few years to bring its plants into regulatory compliance, much of it going to its Rocky Mount injectables facility in North Carolina, which has been under regulatory glare. Last month Hospira issued a recall of 19 lots of the cancer medicines carboplatin, cytarabine, paclitaxel and methotrexate after discovering visible particles embedded in the glass in the neck of the vials (scripintelligence.com, 17 July 2012).
Agila's business model in specialties has, over the years, evolved from a joint-venture focus to a domain-led partnership model. The Indian firm has a joint venture with Sagent Pharmaceuticals, to jointly develop, supply and market injectable products for the US market and a licensing and supply agreement with GlaxoSmithKline for 95 emerging countries excluding Sub Saharan Africa and India. Agila's other partners include Teva, Sandoz and Actavis.
In 2010, Agila moved into the biopharmaceuticals space via the acquisition of the Bangalore-based biotechnology firm, Inbiopro Solutions. The acquisition gave Agila access to a pipeline of eight biosimilars, five of which are monoclonal antibodies for cancer.