The Gland deal is likely to be accretive in CY2017
We believe the Gland deal is likely to be accretive to Fosun A-share in CY2017,excluding potential upside from significant orders such as copaxone. Based onour estimates, the implied P/E for Gland is 16x, vs. 17x for Fosun A-share on2017E core profit. We believe the major product, enoxaparin, is likely to beapproved in 2H16 or 2017, which will add another leg of growth to the existingbusiness. In addition, we examine the global injectable generic market in thisreport and highlight the shortage of injectable assets globally.
Drug shortages and paucity of assets lead to high valuation multiples
The shortage of key sterile injectable (SI) drugs, including some cancer drugs,owing to manufacturing issues, has led to several asset sales to largeinjectable players from small players at seemingly high valuations, rangingfrom 16-22x EV/EBITDA. We attribute the seemingly high valuation to theshortage of global manufacturing capacity and the longer approval timeline ofplants and products in this area. Deutsche Bank’s analysis on historical andongoing (reported) deals has indicated that the Gland acquisition multiple is atthe lower end of the range on an EV/EBITDA basis. In addition, we expect apotential copaxone order to represent a free call option.
Deutsche Bank analysis on global generic injectable market
According to Pfizer, the largest injectable player in the US, the global genericsterile injectable (SI) market is estimated to achieve sales of USD70bn in 2020,with a CAGR of 10% during 2013-20 (vs. overall SI segment at 6%).Importantly, the global industry is expected to be driven by the US, China andemerging markets, with growth of 6%, 13% and 12%, respectively, during thesame period. We believe drug shortages and patent expiries in the US will alsodrive the generic injectable market for a long time.
Valuation and risks
Our target price is based on 20x 2017E core EPS of HKD0.91 and 40x 2017Ehospital EPS of HKD0.09. We believe 20x for the core business is justified, asits pharma peers are trading at 15x 2017E EPS, with 16% growth (vs. 17% forFosun Pharm). For the hospital business, the target multiple of 40 is reasonable,in our view, as its Asian peers are trading at 35x, with 17% growth (vs. 24% forFosun Pharma). Upside/downside risks include the magnitude of price erosion,the ramp-up of new products and the integration progress of Gland Pharma.