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Published on: Aug. 11, 2020, 12:57 p.m.
Chinese checkers at Gland Pharma
  • Gland Pharma: in the limelight again

By Sumit Ghoshal. Contributing Editor, Business India

Sometime in October 2017, Gland Pharma, a Hyderabad-based manufacturer of medicinal formulations (mostly injections) hit the headlines when Chinese drug giant Fosun Pharmaceuticals acquired a 74 per cent stake in the company at a deal value of Rs6,894.65 crore. It was among the largest acquisitions of 2017 in the pharma space.
 
Now, in a politically-charged atmosphere with wide-ranging demands for a boycott of Chinese companies and their products, Gland Pharma has come into the limelight once again.
 
This time, it is because Fosun and the other equity holding companies have announced a sizeable divestment of their stake as soon as the regulatory hurdles are cleared. This will be done through an IPO (Initial Public Offer) comprising of a fresh equity issue worth Rs1,250 crore (the number of shares being dependent on the issue price) and an OFS (Offer For Sale) of 34.86 million shares (face value: Re one). Incidentally, the scrip had a face value of Rs10 until as recently as March this year. Further, the shares have an NAV (Net Asset Value) of about Rs235.
 
The OFS component will consist of 19.36 million shares from Fosun Pharmaceutical, which holds a total of 114.66 million shares (74 per cent). Much of the remainder will come from Gland Celsus Bio Chemicals Private Limited, which holds a 12.97 per cent stake and will divest approximately 10 million shares. The total of the OFS portion thus adds up to about 34.86 million shares. Two discretionary trusts will together contribute another 5.44 million shares to the OFS.
 
Though the stated purpose of the IPO is to fund the incremental working capital requirements and some part of the capital expenditure (estimated at about Rs168 crore), a sizeable part of the proceeds will not come into the company account. Only the money from the fresh issue would be available to the management for these purposes.
 
 Hence the question that begs an answer is: why is the OFS being made at this particular time? If the reason is geopolitical, the Chinese owners of the company could have got out in a single step. Perhaps they merely want to test the waters and the attitude of the Indian government.
 
 It can be understood quite clearly that the OFS is not because of pure business reasons. For the past few years, Gland Pharma was performing quite well, both in terms of the topline as well as profits. Its total income had grown from Rs1,671.68 crore in FY18 to Rs2,129.76 crore the next year and then to Rs2,772.4 crore in the financial year ended March 2020. Likewise, its EBIDTA increased from Rs584.6 crore to Rs1,094 crore during the same period.

Besides, Gland Pharma is not a new company. It was set up as far back as 1978 and remained privately held all along, even after it was acquired by the Chinese pharma giant. Its business model too was designed to insulate it from the vagaries of government policy in the Indian pharmaceuticals market and from the stiff competition in generic (off-patent) tablets, capsules, syrups, etc. Its product portfolio consists mainly of highly sophisticated injectable medicines where the price erosion due to patent expiry is not too drastic. In some medicines, particularly those consumed by mouth, the generic versions are available at one-tenth the price of the patented product.
 
“We believe that Gland Pharma has been innovative since inception and has evolved over the years. We were established in Hyderabad, in 1978 and have expanded from liquid parenterals to cover other elements of the injectables value chain, including contract development, own development, dossier preparation and filing, technology transfer and manufacturing across a range of delivery systems. We are one of the fastest growing generic injectables-focused companies by revenue in the United States from 2014 to 2019. We sell our products primarily under a business to business (B2B) model in over 60 countries as of 31 March, 2020, including the United States, Europe, Canada, Australia, India and the rest of the world,” says a senior company official in an email response.
 
Promising pipeline
 
It also has a promising pipeline of products that could be launched in the US and Europe in the coming months and the first one or two quarters of FY22. As of 31 March, 2020, the company and its partners had 265 ANDA (Abbreviated New Drug Applications) filed with the US FDA. This is a legal requirement for any medicinal products to be sold in that country. Of these 204 were approved and 61 were pending approval at the end of FY20. The 265 ANDA filings comprise of 189 ANDA filings for sterile injectables, another 50 oncology (cancer) products and 26 more for ophthalmic (eye-care) related products. The company has a consistent regulatory compliance track record and all its facilities are approved by the USFDA from whom they have had no warning letters since the inception of each facility. Other key regulatory agencies for which certain of its facilities have approvals include MHRA (UK), TGA (Australia), ANVISA (Brazil), AGES (Austria) and BGV Hamburg (Germany).
 
This is crucial for the continuation of its business operations because approximately 80 per cent of Gland Pharma’s gross revenue comes from overseas, including most of the developed (and therefore highly regulated) markets. In those countries, Gland conducts its business through a B2B model, instead of selling directly to the retail market. Among other things, this approach helps the company avoid the brutal competition faced by others such as Lupin, Sun Pharma, etc. Being much larger companies, they also have the capacity to withstand the pressures of the international market.

In the Indian market, too, most of Gland Pharma’s business is through the B2B approach. In fact, only a miniscule 4 per cent of its total sales revenue comes from B2C, that is, through the retail market. Even there, it deals almost entirely with major hospitals and nursing homes rather than your neighbourhood drugstore.
 
Gland has seven manufacturing facilities, three of which produce Active Pharmaceutical Ingredients (API) or bulk drugs, and four others produce formulations, also known as Finished Dosage Forms (FDF). The FDF are mostly injectable medicines including high-end antibiotics, cancer medication, etc. They also produce ophthalmic products that require a high degree of technical sophistication, because the slightest amount of impurity in an eye medicine can ruin a patient’s vision for life.
 
 Some of their key achievements during the last three years include the following: in 2018, they received US FDA approval for Enoxaparin Sodium Injection (used as a blood thinner in Deep Vein Thrombosis) as well as for their first eye-care product. The following year, they filed the documentation for Dexrazoxane injection, their first filing with the National Medical Products Administration in China. This medicine is used for prevention of damage to the heart caused by doxorubicin (a cancer medicine). In FY20, Gland launched its First Novel Non-Frozen Ready-To-Use Bivalirudin in the US market. This biotech-based medicine is used for prevention of blood clots in patients about to undergo angioplasty.
 
 Among the management’s key strategies, going forward are: expansion of the product portfolio and delivery systems, investment in manufacturing and related technological capabilities to meet future demand, alignment and synergy with Shanghai Fosun Pharma to increase market share and looking out for strategic acquisitions and partnerships.
 
 The real determinant of the company’s short- and medium-term future would be the question of whether or not the Chinese promoters divest their stake further. In that case, as the company returns to Indian ownership including domestic institutional investors or private equity players or both, its business strategy and product mix could undergo a significant revamp.

This article was updated on 7 September 2020, after clarifications received from Gland Pharma. The errors are regretted.

 

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