Fosun Pharma complements the injectables platform created by Gland Pharma and provides scope to expand into front-end marketing, said Gland's Vice Chairman and Managing Director Ravi Penmetsa.
Gland Pharma looked for many partners with the help of private equity partner KKR, but Shanghai's Fosun Pharma came across as the best fit due to its global presence and size, said Vice Chairman and Managing Director Ravi Penmetsa in an interview to CNBC-TV18 after the Chinese conglomerate announced it will buy 86.1 percent stake in Gland for up to USD 1.26 billion.
Penmetsa said Fosun complements the injectables platform created by Gland and provides scope to expand into front-end marketing. Fosun also has biosimilar and biological portfolio which can be brought into the injectables platform that Gland has, he added.
Gland will now apply to the government and Penmetsa expects the deal could be completed in a few months. He does not see any regulatory hurdles as the deal fits well with the "Make in India" theme.
Sharing his take on the deal, Sanjay Nayar, CEO of KKR India said it is good to see that capital invested by the fund helped Gland Pharma expand its facilities. He refrained from making any specific comments on the valuation of the deal but said valuations in the pharmaceutical space are calming down.
Below is the transcript of Ravi Penmetsa and Sanjay Nayar's interview to CNBC-TV18's Nisha Poddar.
Q: How difficult was this transaction for you and what does the Fosun really bring to the table?
Penmetsa: First of all this company was started by my father. So, I have built on that platform that he has provided and we are where we are now. We looked at many partners with the help of KKR and as we went through this process we felt Fosun suits us the best because they are a conglomerate, they have a lot of resources, they are worldwide and they also have Fosun Pharmaceutical which is a multinational. They have a presence in Israel, they have R&D in the US.
They have several R&D centres in China, lot of manufacturing in China. They are also strong in active pharmaceutical ingredient (API). So, we felt that this will really compliment what we already created. And at Gland we already created an injectable platform that can access any market in the world and as you know we are very successful in the US market. So, we felt this would be a great compliment and we could get to the next level.
Q: KKR of course is exiting its investments from Gland Pharma. From 2013 you have invested in this company. How has the journey been and are you happy with the kind of sale process and also the returns and the valuations that this particular deal has clocked in because you are a deal maker at heart?
Nayar: Obviously first in terms of the investment experience partnering with Ravi and his team has been one of our most wonderful experiences. When we look for partners obviously you want to partner people that you like and you trust but in this case you have probably one of the most competent management teams. Just going by their track record on quality which is absolutely the hallmark for injectable business like this. So, they have been a superb journey in terms of investment.
Our real value add to the extent we could and we can like to claim a bit. Our capital really went in helping Gland double up their facilities, accelerate some of their production lines, de-bottleneck some of the issues but frankly this company\\'s hallmark really is their customer centricity and the quality and towards that we have had one of the most splendid experiences.
In terms of the deal, we are not going to comment on value and returns. I would say these are good returns. We are obviously happy to go along with what Ravi and the team wanted which is they wanted now a strategic partner for the next journey of growth and therefore we will be exiting. I think what is really gratifying to us is that this company will now go into a hand of a very strategic company with Ravi at the helm still for a couple of years and I think it goes to show that you really have people recognising entrepreneurs in India who have build world class manufacturing facilities and furthering the manufacturing paradigm in India which is probably the most interesting part of this thing.
Q: You are going to stay on as MD and CEO for the next few years, what are your internal targets? Where do you want to see the company when you finally step down from here, you have retained some part of your stake as well?
Penmetsa: There is still more things to be done in the injectables space. So, we would like to keep building on this platform. I think we would like to with the strength that Fosun Pharmaceutical brings to us, we would like to go frontend marketing in many countries because Fosun already has marketing outlets themselves in Africa and other parts of the world. We definitely like to go frontend marketing with that.
What they bring to the table is, they have a biosimilar and biological portfolio which at different stages have developments, some of it is quite mature and this can be brought into the injectable platform that Gland already has. We as you know, we sell in 90 countries and to take these products into the portfolio and go into these countries would really accelerate the growth and the multiples and I think the future is extremely bright with this kind of combination.
Q: Talk to us about the valuation bit also, of course this particular sector has seen a large transaction in the past where Strides had sold to Mylan and now the injectable business by Gland Pharma is being sold. The numbers that I have generally is 16x of EV EBITDA and for the next year forward it is 14x on those lines. Do you think that you have managed to clock in a very good valuation in terms of the richness there?
Penmetsa: No matter how much people pay, I always think company is far more valueable.
Q: In terms of valuations in this sector how do you see this panning out for investors who are looking at it right now and especially with the way markets are running up, do you think that the expectations of the sellers are way to higher at this point?
Nayar: I think so, we as sellers and Ravi and the team really I would say determined finally what we all did, my view is that if you take too much of a price, you don\\'t leave enough for the buyer, it is not as exciting in the future and at the end of the day you have to leave a legacy behind. This company has a long way to go as you heard from Ravi. I would say the valuations are actually calming down little bit which is good. They are not as stratospheric as they used to be. Frankly it is a question of demand supply of injectables in the world markets. There is still demand for injectables, high quality facilities like this. This is pretty much 95 percent exports from this company.
At the same time people are going to create more facilities, there is more supply coming up in the market. So, at some point demand supply will begin to get balanced again. So, whatever multiples we finally transacted at are pretty fair. I think it is leaving enough on the table for the buyer who will add a lot of strategic value and give a lot more products, bring in more capital over time and technology to help Ravi and his team go to the next level and put India on the map which is what we are all trying to achieve.
Q: Coming to the timeline of this deal when is the deal completion deal likely?
Penmetsa: We have to make an application to the government of India and it shouldn\\'t take very long, may be a couple of months.
Q: Any challenges that you see going forward is it going to be a long drawn process in that way to consume it this deal finally.
Penmetsa: I don’t see any hurdle this fits in very well with the Make in India strategy and more manufacturing coming to India, more investment coming into India, India becoming a manufacturing base for the rest of the world. In pharma investment already up to 74 percent have already been liberalised. Of course, this is higher than that so we do have to go back to the government, but I think this will be taken very well and will be able to move forward very smoothly.
Q: You have been a dealmaker for so long. There was an intense fight for Gland Pharma as well as an asset and there was interest from Baxter of US, there was an Indian entity as well involved which has been looking at and scouting around for assets and there was a buyout fund as well. What really clinch the deal for Fosun?
Nayar: I think the strategic intent that they have put forth, obviously its valuation to an extent and its Ravi’s and his team’s comforts with these people, it’s the overall package that you get with this strategic company. They are very hungry which is good, they want to grow the business, they want to make this a platform for themselves in the future and one has to use Indian facilities as your backend. Other is to for people like the Fosun who want to make this their leading platform to manufacture and to supply to the world which I think says a lot as to how this company is going to be viewed by Fosun. It is not like some supply company being bought by for the supply chain, this is going to be front and centre for Fosun as they build their base here and increase manufacturing, put more money and cater to the world markets here.
Q: You are a global investor you see more money in the waiting to really invest in India?
Nayar: I think so, from a private equity perspective what I can comment on long term value added foreign capital like all of us bring in I think private equity and venture capital has been the most significant FDI in the last calendar year. Even for this half of the year it is being very significant part of foreign direct investment (FDI) and frankly that’s what India needs.
India today has a bit of a deficit on private investments from local capital and that has been made up by foreign capital, so you have a few deals like this and a lot of our colleagues in the private equity industry have had some good exits. I think you put all this together you are going to put India on the map for private capital to get attracted through private equity and venture capital firms and you need it, because there is a paradigm of growth that is shifting in India under the prime minister and his team. You need capital right now and this quality of capital will be attracted if folks can get good returns, so last one year has been good for private equity industry and from industry view point, I think it is very positive that investors will see finally returns coming out of India and that’s what helps.