KKR to invest $200m in India pharma group Gland

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KKR, the private equity firm, said it would spend $200m on a minority stake in an Indian maker of generic drugs for the US market, in the latest in a series of acquisitions by foreign investors into the export-oriented pharmaceutical industry in India.

Hyderabad-based Gland Pharma produces anticoagulants – used in dialysis or heart bypass surgery to prevent blood clotting – anaesthetics and other injectable medicines from five different manufacturing facilities in the southern state of Andhra Pradesh.

The privately-held company, which was founded by Indian chemist PVN Raju in 1978, is in the process of building a large-scale facility that will nearly double its capacity, allowing it to expand both its overseas and domestic sales.

India’s large generic pharmaceutical industry – which developed in the context of a weak patent regime that allowed Indian companies to copy drugs that were protected elsewhere – has been drawing interest from international drug companies looking to secure generic supplies for western markets.

In the past few years, several large Indian generic drug companies have been acquired by global players, including Daiichi Sankyo, Sanofi, and Abbott Laboratories.

Most recently Mylan, the US-based generic maker, was given the regulatory go ahead for the $1.6bn acquisition of Agila Specialties, the Indian vaccine and injectables producer.

But India’s Congress party-led government has become anxious about the growing foreign control of India’s drug producers, which they believe could lead to companies staunching domestic sales and instead turning their production to more lucrative overseas markets.

The government is now considering new restrictions on foreign takeovers of Indian drugmakers to prevent supply shortages in the domestic market.

Approval for Mylan’s takeover of Agila Specialties was delayed for months, but India’s need for foreign currency to bridge its current account deficit appeared to tip the balance in favour of the transaction. However, the debate on new restrictions is still active within the government.

Dr Penmetsa said he did not believe that KKR’s acquisition in Gland would face any major regulatory difficulties from Indian authorities.

Gland, which will remain majority Indian owned, did not reveal the size of KKR’s stake, although it may be increased later if KKR buys out another shareholder.

Ravi Penmetsa, the company’s vice-chairman and managing director, said that Gland Pharma exported roughly 70 per cent of its production, but that it would continue to sell in India after its expansion, in spite of receiving higher margins overseas.

In its most recent results, Gland reported revenues of more than $200m and earnings before interest, depreciation, taxes and amortisation of $58m.

“We are committed to the Indian market – it is our home market,” he said. “Why would we stop supplying our family and friends?”

With its investment, KKR is buying a stake in the company previously held by Evolvence India Life Sciences, a fund operated by an India and Middle East-focused private equity player. But KKR is also injecting fresh capital that will help finance construction of Gland’s new manufacturing facility.

KKR’s investment in Gland, the largest by a private equity company into India’s drugmakers, comes at a time when many foreign financial investors are debating whether the Indian economy has bottomed out.

Gland is KKR’s seventh private equity investment in India, bringing the total value of the portfolio to $1.4bn. The deal is being financed out of the firm’s new $6bn fund.

Additional reporting by Henny Sender in Mumbai

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