Billionaire Gupta May Acquire U.S. Drug Brands: Corporate India

Lupin Ltd. (LPC), the world’s biggest maker of drugs to treat tuberculosis, plans to acquire brands in the U.S. to reduce its reliance on less profitable generic medicines, President Nilesh Gupta said.

The Indian drugmaker founded by billionaire Desh Bandhu Gupta may purchase branded drugs to treat skin diseases and infections, the president said. The company hasn’t identified any acquisition yet, Gupta, son of the founder, said.

Lupin is seeking to maintain its fastest pace of quarterly sales growth in at least three years by adding to its product portfolio in the world’s biggest drug market. The company, named after a leguminous flower, and rivals including Ranbaxy Laboratories Ltd. (RBXY) are shifting strategy to cut their dependence on selling generic versions of medicines as the number of formulations losing patent protection plummets from their peak in 2012.

Purchasing a brand is “the No. 1 priority for the company,” Gupta, who has an MBA from the Wharton School of the University of Pennsylvania, said in a telephone interview on July 24. Lupin will seek to add drugs in the therapeutic segments it has expertise in, he said.

The Mumbai-based company earned more than five times as much selling branded medicines such as Antara, a treatment for reducing cholesterol, compared with average sales of all its copycat formulations, according to Fortune Equity Brokers Ltd.

‘Worrying Factor’

Lupin has advanced 28 percent this year, exceeding the 20 percent gain on the BSE India Healthcare Index. The stock fell 2 percent to 574 rupees as of 2:13 p.m. in Mumbai trading.

“Acquiring additional brands would entail a lot of clinical testing and marketing,” Souvik Chatterjee, senior analyst at SMC Global Securites Ltd. said.“Whether they are equipped to do all this is a worrying factor.”

Higher tax rates in the year that started April 1 after the expiry of benefits at some of its manufacturing units may also be weighing on the stock, Chatterjee said. Lupin currently trades at 21.3 times estimated earnings, higher than peers Ranbaxy, Dr. Reddy’s Laboratories Ltd. (DRRD) and Cipla Ltd. (CIPLA)

The drugmaker’s sales rose 44 percent to 22.2 billion rupees ($395 million) in the three months ended June 30, the fastest pace of growth in at least three years, according to data compiled by Bloomberg.

Copycat Versions

Lupin and larger rivals including Ranbaxy and Dr. Reddy’s are trying to boost profit by offering products that are similar though not identical to those protected by patents, claiming they are not copycat versions.

The U.S. Food and Drug Administration classifies such formulations as new drugs, and if approved, they can be sold exclusively for as long as three years in the U.S.

“If the product clicks, then you make a lot of money and your margins will be also higher,” Bino Pathiparampil, a pharmaceutical analyst at IIFL Ltd., said in an interview. “The development costs will be far higher than an ordinary generic though.”

Lupin, established in 1968 by Chairman Gupta, a masters- degree holder in chemistry, started selling branded products in the U.S. in 2004 after acquiring the Suprax antibiotic from Pfizer Inc.’s Wyeth unit. In the year ended March 31, Lupin got 28 percent of its U.S. sales from three branded products, while the balance came from generics.

“In this fiscal, they will generate enough cash from the patent expirations,” said Hitesh Mahida, an analyst at Fortune Equity Brokers. The company “may need to acquire a brand and launch it in fiscal 2014.”

Generic Exclusivity

Lupin’s sales are occasionally aided by the right to exclusively sell generic versions for six months when a drug loses patent protection, like in the case of the anti-psychotic Geodon. Such opportunities will decline as the number of medicines going off-patent drops.

Four drugs with sales exceeding $500 million lost patent protection in the U.S. in 2016, compared with 10 this year, according to IMS Health Inc. Worldwide, pre-expiry spending on patented drugs will fall to $22 billion in 2016 from $47 billion this year, IMS Health data show.

Ranbaxy, India’s biggest drugmaker, last month received FDA approval for a patent-protected variation of the generic acne medication isotretinoin. Sold under the brand Absorica, the drug developed by Mississauga, Ontario-based Cipher Pharmaceuticals Inc. (DND) is marketed as an improvement because unlike isotretinoin, it doesn’t have to be taken along with a high-fat meal.

‘Innovative Variations’

The Indian company, 64 percent owned by Tokyo-based Daiichi Sankyo Co. (4568), is looking to acquire similar products that are “innovative variations” of medicines already on the market, Chief Executive Officer Arun Sawhney said in a July 11 interview in Washington.

“At the moment, we’d be looking at assets that would strengthen our dermatology portfolio,” Sawhney said. These are products that have a “sustainable patronage and are not susceptible to competition from 20 companies on any particular day.”

Acquisition of branded drugs may boost costs at Lupin, according to Balaji Prasad, a Mumbai-based analyst at Barclays Plc. Selling such products requires a network of pharmaceutical sales representatives to approach physicians across the U.S. to promote the medicine over an existing, and often cheaper generic. The FDA may also require companies to conduct clinical trials on patients.

Clinical Trials

That can be a challenge for Indian drugmakers, who have mostly built their expertise in selling drugs to bulk buyers such as pharmacy chains and don’t have experience in conducting clinical trials on a large number of patients.

“It’s not going to be an easy strategy,” Barclays’ Prasad said by phone. “Making those changes to the drugs and selling it will require clinical trials and significant upfront investment.”

Lupin has a network of 170 sales representatives in the U.S. to sell its branded portfolio, Gupta, 38, said. The company’s future acquisitions are likely to be in an area that doesn’t require a large number of sales personnel, he said.

The company is focusing on brands that “don’t need 500 representatives to cover a good number of doctors,” Gupta said.

To contact the reporter on this story: Adi Narayan in Mumbai at anarayan8@bloomberg.net

To contact the editor responsible for this story: Jason Gale at j.gale@bloomberg.net

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