Sun to raise $1.5 billion for M&A; spotlight on Stada, potential biosimilars interest
This article was originally published in Scrip
Sun Pharmaceutical Industries may be moving away from its conservative approach to mergers and acquisitions, if its latest fund-raising plan is anything to go by.
The Indian firm expects to raise more than $1.5 billion - a figure equivalent to its 2011-12 net sales - to fund a potential buy, putting the spotlight on Stada Arzneimittel, the German firm that Sun has been speculated to be eyeing (scripintelligence.com 3 August 2012).
Sun, which is generally seen as a turnaround specialist of small to medium-sized underperforming businesses, informed Indian bourses late 3 October that its board had approved plans to raise up to Rs80 billion ($1.53 billion) "at an appropriate time" through domestic/ international offerings, subject to shareholder approval at its forthcoming annual general meeting on 8 November, among other clearances.
The fund-raising plan could involve Indian or foreign institutional investors, foreign mutual funds, overseas corporate bodies, foreigners, other foreign parties, Indian financial institutions, alternative investment funds, qualified institutional buyers, companies, individuals, other persons or investors, Sun said in its filing to the Bombay Stock Exchange.
Sun told Scrip that the financing plan was purely an enabling resolution. "If and when raised, funds would be used for inorganic opportunities. We have Rs60 billion of cash and cash equivalent [on our books]," Sun said. It declined to comment on whether Stada was a potential target. Stada told Scrip that it was company policy to not comment on market rumours.
Some analysts say that Sun is clearly eyeing a bigger position in the global market and with Israel Makov, a former president and CEO of Teva, now chairman of Sun's board, large M&A plans may figure in its growth strategy. Mr Makov who joined Teva in 1995 is known to have managed more than a dozen acquisitions including some of largest deals in Israeli history at the time. In 2008, Stada was speculated to be on the radar of Teva Pharmaceutical Industries for a potential deal, though analysts say that that does not necessarily mean that the German firm is the chosen one.
Nimish Mehta of MP Advisors said that Sun was clearly looking for ‘the next orbit’ and a more multinational presence. "Currently, Sun has a meaningful presence in the US and India. So it could be looking at expanding its presence in the US, but Europe and Japan may also potentially on the radar," Mr Mehta said. While Stada may seem interesting "conceptually", Mr Mehta said Sun could look at "non-overlapping [business] areas" or even an opportunity in the biosimilars space – a segment that it currently has no established presence in.
The Bad Vilbel-based Stada focuses on products with off-patent active pharmaceutical ingredients in the health care and, in particular, in the pharmaceutical market in Europe. Its core segments include generics and branded products and for the first three months of 2012, Stada reported a 6% increase in group sales to €443.4 million. In 2011 Stada and Gedeon Richter of Hungary, signed licence and collaboration agreements for the development and marketing of biosimilar products for the two monoclonal antibodies rituximab and trastuzumab. Last month Stada concluded the sale of its Russian production facilities, Makiz Pharma in Moscow and Skopin Pharmaceutical Plant, Ryazan, to LLC DMN Invest, Moscow, as part of a production restructuring plan in the context of group’s cost efficiency programme (scripintelligence.com 27 September 2012).
Sun has in the past suggested that future plans include efforts to build a presence with difficult or technically differentiated generics, such as injections, in certain European markets. In the active pharmaceutical ingredients segment, Sun plans to strengthen its presence in Japan, China and the hubs of Germany and Italy, it said in its annual report for 2010-11. However, in an interview with Scrip last year, Dilip Shanghvi, Sun's chairman and managing director, had also suggested that Sun is open to "appropriate, moderately sized" acquisitions in some of the top emerging markets and attractive opportunities in the US.
Whether or not Stada is indeed the target this time round, analysts suggest that it is clear that Sun is thinking big. In the past, Sun has been involved in a string of overseas acquisitions including brands and plant buys and of Israel's Taro Pharmaceutical Industries and the Detroit-based Caraco over the past few years. The Indian company has acquired 16 high potential yet under-performing businesses that had been successfully turned around in the past.