Drug major Cipla has entered into agreements to acquire US-based InvaGen Pharmaceuticals and Exelan Pharmaceuticals. In an exclusive interview to Bloomberg TV India, Subhanu Saxena, MD & Global CEO, Cipla, talks about the perspective of the acquisitions and when it is expected to be completed.

What are these acquisitions going to add to your portfolio and how soon you’re looking at closing the deal?

We are very pleased with the transaction that we have announced. It is a great example of how two Indian companies can come together and hand a baton from one to the other to continue growth of the pharma industry. For Cipla, the US is a very important market. Today, the US represents eight per cent of our sales. We publicly stated our aspirations that it should become 20 per cent of the business over the next five years or so.

This acquisition gives us a very strong platform to allow us to accelerate our ambitions in the US and it gives us a complimentary portfolio of products, a number of opportunities and an ability to accelerate our pipeline through the expanded front end it will give us in the US. All of these transactions, as you are aware, are subject to various regulatory approvals and that can take weeks. It can also take two to three months. It is rather hard to say how much financial impact will happen in this financial year or next because it is subject to exact time of the closing but certainly this will matter from the date of closing for Cipla.

You spoke about the fact that how this is going to be an important figure as far as your strategic portfolio is concerned when we talk about the foreign markets. Can you elaborate little more in terms of synergies in terms of verticals for you to gain an advantage by making this acquisition?

Sure, there are two things. It gives us a critical mass today in the US. Cipla already has a strong reputation with key customers through the various partnerships we have formed over the years. So, we expect our overall business to benefit from that increase in critical mass and scale today.

Having a manufacturing facility in the US, it allows us to access important government business and offer the business in Mexico and further expand our own pipeline from a number of projects we currently have within the Cipla arena. We may well be able to manufacture some of that in the US, which will save me capex here in India. So, we see a lot of good complementarities and a very good strategic fit for us and we are very much looking forward to building momentum once the transaction is able to formally close.

There were reports which suggested that you would be looking to buy Hetero’s US businesses. But InvaGen is really a strategic investment which the Hetero group has made in this company. Please clarify where it stands. Is there any overlap in terms of the product portfolios and how that’s going to pan out for the group?

These businesses are businesses where Hetero has been the major investor. So, this is why I am saying that this has really a great outcome of an ongoing relationship we have with Hetero in Hyderabad, where the portfolio is absolutely complimentary to Cipla’s portfolio. Therefore, we see a lot of synergies between our portfolios and portfolios of the two companies we are acquiring.

Are you also looking at any more strategic buyouts and more strategic investments in some of the other markets as well?

That’s a wonderful invitation to invite a no comment from me. As you know, we do not comment on specific discussions, rumours or speculation. What I can say is Cipla is fortunate that over the next few years, we see over 70 per cent of our growth coming from organic means, which means that we can be very selective on looking at inorganic or semi-inorganic activities to see if it is a good strategic fit. We look to see whether truly we are the better owner, add value and in the worst case something that we feel comfortable taking and it’s only those criteria that we fulfil, only then we will consider an acquisition. So, you should look for a very strong organic growth trajectory for the company and then as and when things come up, revaluate them but we feel under no compulsion to focus on purely inorganic growth since we have such a strong organic trajectory.

Healthcare analysts who track your company want to know how you are planning to fund for the deal because the total consideration that we understand is around $550 million is what you will be paying for both those companies. Can you tell us as to how you look to pay this and if there would be any component out here where you are looking to raise debt?

Sure, I am not going to provide you with specifics for obvious reasons right now, but what I will share with you is that Cipla has a very healthy cash balance. You can see the cash on the books on the annual report we just published. We have a very strong internal cash generation. So, obviously we will look to fund the bulk of this through internal accrual.

How many products do you have in the pipeline now through this deal and over what timeframe could you see those getting approved and coming into the portfolio?

They should start coming over the next two to three years and it is a very good complement to our own pipeline where you will start seeing an increase in our own filing activities particularly respiratory space starting next year but more towards the end of 2017. So, it gives us a very good bridge to accelerate our ambitions for the US.

During your AGM recently, you had spoken about how large the respiratory portfolio is for you. We have learnt from sources that you could have an aggressive game plan…

So, as I said, two things, one is I want to set up a very balanced geographic distribution of our business. I don’t want any geography to be more than 40-50 per cent of Cipla’s future. So, India is around 45 per cent of our business today. Our goal is to reach every Indian with affordable high quality medicine. We will double that business over the next 3-5 years, but it will only be 30 per cent of our future. We expect the US to be 20 per cent of our business.

We think we may get there a little ahead of our initial schedule through this acquisition. Respiratory is standalone.

This is complementary to our respiratory business. What I publicly stated is over half the growth of our respiratory business, we see over a billion dollars of growth over the next five years. It will come from the existing markets where we are already present and then if you would look at the remaining half of the growth, two-thirds of that will come from the US and only one-third will come from Europe.

So, we will continue to focus on our plans, we have a proprietary pipeline of innovative devices.

You would have seen the announcement of breast accentuated inhaler Synchro Breathe launching in South Africa and shortly in other markets. So, we also see ourselves strengthening our technology in some platforms, in respiratory and other key areas; so, we are very excited about the growth in the future.

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