Cipla Plans Acquisitions to Enter New Therapies, Boost Africa Business

The company is looking at inorganic growth opportunities to offset delays in product approvals

Cipla is planning acquisitions and product in-licensing to enter new therapies and consolidate its business in Africa market.

Last week, Cipla acquired Mirren, a South African over-the-counter medicine (OTC) manufacturer and distributor, for Rs 2.28 billion. The acquisition which brings cold, flu and pain relief brands to Cipla is its second in South Africa in two years and its fourth overall in the market since 2013. Cipla will also get a manufacturing plant as a part of the transaction.

Africa is the second largest market for the drugmaker after India as it accounted for 22 per cent of its consolidated revenue in FY 2018. Also, its Ebidta margin in South Africa is higher than its consolidated margin of 18.6 per cent (FY18).

“We believe Mirren will be a rewarding asset. Over the last three years, the company's revenue has seen 20 per cent CAGR. We were not present in the cold and flu segments in South Africa. It is fast growing, sticky and importantly, out of pocket, so it's not subject to price volatility,” said Kedar Upadhye, Cipla's global chief financial officer. Cipla is the fourth-largest generic drug maker in South Africa.

The company's Africa portfolio includes central nervous system medication, respiratory drugs and HIV drugs in Africa. Acquisition and partnerships would give it access to other growing therapies such as cancer and hypertension.

The company is looking at inorganic growth opportunities to offset delays in product approvals and a decline in institutional tender business. Upadhye said the drug major is evaluating various opportunities but refused to comment on potential deal sizes and therapies.

Cipla's main focus markets are South Africa, East Africa (Uganda, Kenya, Tanzania). Also, it has a large institutional tender business (called global access) consisting of anti-malarial and HIV drugs.

In Uganda, the company is looking to partner with the government to increase access to cancer treatment for the local population. Uganda has around 800,000 cancer cases but only 4 per cent of the patients have access to treatment. In Kenya and Tanzania, it has put in place a direct-to-market model in place of a distributor model for higher growth.

In FY18, Africa market contributed $522 million to its revenue. While in the South Africa business, margins are higher, institutional tenders is a low margin business.

The tender business is under stress and all major Indian companies, including Ajanta Pharmaceuticals, Aurobindo, Ipca Labs, Strides Shasun besides Cipla, have seen a revenue decline from the segment.

While the global access business did about $145 million in FY17, it logged $110 million in FY18, down 24 per cent for the year. The decline was largely the result of phasing out of tenders and challenges in funding.

Reference -  https://www.business-standard.com/article/companies/cipla-on-acquisitions-spree-in-africa-to-enter-new-therapies-in-the-market-118071800230_1.html