Gland pharma acquisition: we like it
Fosun has proposed to acquire 86.08% equity share in India’s Gland Pharma,with a total consideration no more than USD1.26bn. The implied P/E multiple is31x on FY3/16 net profit vs. 24x on 2015 core profit for Fosun shares trading inHK, vs. 30x on 2015 core profit for shares trading in A-share market. Howeverthis is based on 2015 data instead of forward looking estimates, therefore webelieve it is challenging to conclude whether this deal would be dilutive. Thecompany expects value could be created by bringing Gland Pharma productsto China, and accelerating Fosun's export business through GP's injectableplatform. Despite the lack of financial forecasts, we like this deal due topotential mid/long term value proposition.
Highlights of the deal
According to the company, the total payment of USD1.26bn would be paid incash, which will be funded with USD800m loans from financial institutionsplus other self-raised capital. The transaction is still pending shareholder andregulatory approvals. Upon the completion of the deal, Fosun will have 7 out oftotal 9 seats on the board. The original investor KKR will fully exit thecompany. However, the founder family would still hold 10% equity share. Inaddition, management indicated a potential IPO for Gland in 5 years.
Background of Gland Pharma, a high quality India injectable name
Gland Pharma is a CDMO, or contract development and manufacturingorganization. It primarily engages in developing and manufacturing injectabledrugs for its clients such as Dr. Reddy’s and Mylan. Gland is the first drugmanufacturer in India to receive FDA approval for injectables, and it is wellrespected among global pharmaceutical companies due to its top-tiermanufacturing quality according to our India colleagues. It has 7manufacturing sites, including 1 oncology facility in India. With 60% revenuefrom regulated markets, the company realized total revenue and net profit ofRMB1.4bn/314m in FY3/16, with YoY growth of 36%/50%, respectively. Theirtwo largest products, heparin and enoxaparin contributed 24%/15% ofcompany revenue in FY3/16, with growth of 13%/23% respectively, whilevancomycin and human insulin experienced strong growth of 291% and 117%during the same period.