His small and functional office in a narrow street off the main road at Ameerpet in Hyderabad hardly evokes the picture of a company whose enterprise value has been pegged at $1.35 billion. But that is not to say that he was not being noticed. Not just across the street by Dr Reddy's, Indian pharma major and others in India, but also in China by Shanghai Fosun Pharmaceutical Group, which eventually bought a controlling stake in Gland Pharma for $1.26 billion. Ravi Penmetsa, Managing Director of Gland Pharma, who has been avoiding media interviews, spoke to Business Today on how the deal happened, why he feels Gland is a very valuable company and how Fosun could leverage Gland's facilities not only in India but also in the lucrative global markets, especially the US. Penmetsa said that he is not exiting the company and remains excited about the growth opportunities for Gland as its new CEO. Here are the excerpts:
Can you describe us Gland Pharma and its operations? What strengths does it have to justify this valuation?
Gland Pharma was set up by my father P.V.N. Raju in 1978 as a company that made heparin API. Later we made heparin injectables which we still sell in India. Heparin is a blood thinner that finds applications in heart surgeries and in dialysis. Later, we got into contract manufacturing of injectables, which makes for about 10 per cent of our revenues today. Bulk of our revenues today - about 85 per cent - comes from the injectables we develop and licence out through a B2B arrangement to pharma companies , who we see also as our marketing partners. The balance 5 per cent of revenues are from direct marketing in India as a B2C. Today, Gland is among the fastest growing global pure-play injectable companies with products being sold in over 90 countries. It has had a long-standing track record of regulatory compliance with major regulatory bodies. Our current portfolio (In US) is of more than 160 ANDA filings including 72 approved ANDAs and on-going development work that will result in the filing of an additional 140 ANDAs within next 5 years. These are complemented with a strong global platform of registrations as well (Asia/Middle East and North Africa (MENA) - 311, Africa - 328, Latin America - 340, EU - 33, Commonwealth of Independent States (CIS) - 50, Australia and NZ- 29. This robust portfolio and pipeline of products include presence in highly-attractive segments such as high-value generics, sterile injectables, oncology and ophthalmics.
What about your revenues? And what makes you think the current valuation is justified?
Gland has a dynamic growth profile with strong revenue CAGR of 30 per cent between 2009/10 to 2015/16 with improving margins. We feel the valuation is fairly reasonable if you look at Gland's strengths and the EBITDA multiples at which pharma companies are trading both in India and in China. Gland's revenue stood at $168 million (about 1,023 crores) in 2014/15, which grew to $213 million (Rs 1,384 crores) in 2015/16, while the EBITDA grew from $57 million (Rs 345 crores) in 2014/15 to $83 million (Rs 539 Crores) in 2015/16. Our net profits stood at $34.5 million (Rs 209 crore) in 2014/15 and $48.2 million (Rs 314 crore) in 2015/16.
Also, note that about 86 per cent of our revenues are from exports (65 per cent of revenues come from US); 14 per cent domestic (5 per cent from our own marketing and 10 per cent from contract manufacturing). The future growth will be propelled by invested capacity coming on-stream along with new product approvals in key markets. The fact that nearly 75 per cent of revenues forecasted for 2019/20 comes from products that have already been filed, talks of the strong footing Gland is on.
Why Fosun? How will it take the story further and how did this deal come about?
We have been thinking on these lines for sometime now but the process has been on for about six months starting January, though the formal process began only in March. Many companies, including Fosun, reached out to us. Chinese companies today, as you would have seen, are eager to be truly multinational and Fosun is a conglomerate with over 800 scientists (we have over 200 scientists, we will double that in the next three years in terms of R&D capability). It is a company that has a growth model like global healthcare major Johnson & Johnson (J&J), which is also a well diversified company with interests in pharmaceuticals, medical devices, diagnostics and consumer health. And if you see J&J's growth in the past, it also built itself through continuous acquisitions. Fosun also has, in a sense, a similar diversified growth approach. It is present in pharamceutical manufacturing, pharamceutical distribution and retail, medical devices, diagnostics and also in health services. Fosun has also had an impressive track record with acquisitions. It has managed to complete over 30 acquisitions since 1999. We have total seven facilities of which four are injectables and three are APIs. It has high quality, regulatory-compliant injectable facilities. Leveraging these and driving growth by taking the products deeper into the global markets also matches well with the aspirations of Fosun. We feel, Fosun is best placed today to take Gland Pharma into a higher growth orbit, something that would have taken us very long if we would have done it all by ourselves. We felt, we have created a footprint and a platform that now needs a bigger company to drive future growth.
It's a big deal and you will get a lot of money, even post taxes, there will still be a large sum of money at your disposal, what do you plan to do with it?
I continue to be the CEO of the company and the promoter family has a 10 per cent stake in the company, which is not small and I see a lot of potential here and will continue to focus here. However, as far as promoter family funds are concerned, I am open to pursuing my entrepreneurial pursuits and we could look at investing across sectors depending on the opportunities.
What is your view on the injectables space, is it getting crowded with more pharma companies setting up their own capacities, making it a good time to exit?
There is still a shortage of injectables worldwide and in the US and as new plants are coming up some of the older ones are shutting down, so overall, the demand for injectables is going up. Thus, we don't see over supply happening any time soon. Also, lot of new drugs and biologics and oncology drugs are all expected only in injectables.
Why are you exiting then?
I am not exiting. What's important to remember is that we have created a footprint, a large enough one, and in order to take Gland to the next level of growth, we felt there was a need to get in a larger company with more resources and more products in its pipeline.
Also, we have created a new USFDA-approved facility near Hyderabad with over $100 million (around Rs 700 crore) investment but it is not functional currently. So, production from there may take time and it may be better if this could be leveraged by a larger company that could get its own pipeline here.
What happens to your existing contract manufacturing clients like say Dr Reddy's and relationships with them?
We currently have such relationship with over 10 companies. We will honour all those commitments and there is enough capacity to fulfil that. Fosun has also committed that it will honour all the existing relationships.
The generic injectables space is currently described as a huge $17-billion business, globally. How do you see it evolve and what implications can that have for companies that make injectables in India.
As Mabs (monoclonal antibodies), biologics and more oncology products start becoming generic, if you can call it that way, you will only see this space growing and who knows it could well become a $50-billion or even a $100-billion market.
How are the dynamics in China that are important for this deal?
Chinese companies are eager now to be truly multinational and have been making strategic acquisitions across sectors. Fosun is a conglomerate with global aspirations and a rich pipeline of products that are expected to drive future revenues and margins. For instance, Fosun has in its pipeline oncology products and mAbs (monoclonal antobodies which very loosely are antibodies that are made by identical immune cells that are clones of the parent cell in the body) and these would mostly be injectables and therefore some of these as finished products could get made out of Gland Pharma facilities.