Lifesciences tracker august 2016

Lifesciences Sector Trends August 2016

Strictly private and confidential

Recent Developments in the Indian Lifesciences Sector News Run

1

Indian Lifesciences Sector – Industry Headlines Indian pharma companies eyeing overseas acquisitions to expand operations “India’s top pharma companies are embarking on an acquisition spree to bulk up their overseas presence. Companies like Lupin, Torrent, Zydus, Cadila, Aurobindo, Dr. Reddy’s and Sun Pharma are examining proposals of varying sizes that can fill gaps in the product range, scouting for niche manufacturing sites, promising experimental drugs, specialty firms in emerging markets and opportunities in the US, Europe or Japan. At the same time, a bunch of small Indian firms are also emerging as prime acquisition targets“ The Economic Times, August 25, 2016

Indian drug makers feel pinch of price curbs as Q1 growth slows “India’s pharmaceutical sector grew at 6.4% in the April-June quarter, down from 14.8% last year, largely due to the aggressive price controls by the government. The moderation of growth is attributable to aggressive price controls by the government, coupled with cut-throat competition in the domestic branded formulation market and the ban on fixed dose combination drugs” Livemint, August 17, 2016

GST to benefit pharma industry but pricing remains a concern “The goods and services tax (GST), India’s biggest indirect tax reform, is expected to be beneficial for Indian drug makers in the medium to long run as it aims to simplify tax structure and bring operational efficiency. However, concerns about drug prices, exemptions and compliance remain. Up to 12% tax rate, the impact on pricing of drugs will be neutral. Beyond that, there may be some inflationary effect” Livemint, August 05, 2016

At last, India caps prices of stents “Prices of stents are set to get cheaper. The government has included two categories of stents (drug eluting and bare metal stents) in the National List of Essential Medicines (NLEM), a step expected to lead to a steep drop in the prices of the device. The move has received mixed reviews producers - Global medical device manufacturers criticized the move and said it is detrimental to the nascent medical device industry committed to improve access to quality healthcare & medical devices in India. AiMed, a lobby group representing indigenous medical device makers, said the move may improve opportunities for Indian stent makers” The Economic Times, July 20, 2016

2

Indian Lifesciences Sector – Company Highlights Cipla, Wockhardt in talks for a broader business alliance “India's top drugmakers Cipla and Wockhardt are in advanced stages of talks for a broader business alliance exploring the best synergies between the two to tide over serious market and regulatory challenges globally. The alliance, which is very strategic in nature, would involve synergies between the manufacturing capabilities of Cipla and the brand and marketing bandwidth of Wockhardt on a global scale, mainly concerned with the US and Europe” The Business World, August 23, 2016

Lupin looks to launch 25 products in US this fiscal “Drug major Lupin expects to launch nearly 25 products in the US market in 2016-17 that the company expects to be the key driver for its revenue growth, going forward. As per the company, in the next two years, a combination of products in particular semi-exclusive, exclusive plus dermatology pipeline out of India as well as Gavis plus the controlled substances would add nicely to their revenues as well as profitability” The Economic Times, August 15, 2016

Dr. Lal Path Labs looking at acquisitions to expand, to set up central hub in New Town by Sept ’17 “ Dr Lal PathLabs, India's biggest pathology chain, is looking for acquisition of medium and small pathology firms, especially in western and southern parts of the country. To spread its footprint in the east, the pathology major is coming up with an 8-storied, 1,500sqm central lab in New Town (Kolkata) by September, 2017. The New Town lab will cater to the entire east for high-level and critical tests like molecular diagnostics, flow cytometry and genetics. In order to bolster its footprint in central India, the firm will set up one central lab in Lucknow by December, 2018. For the west and south regions, it is strengthening network in Pune and Bengaluru” The Times of India, August 09, 2016

Apollo Hospitals launches cancer institutes, to invest INR 1,200 crore in oncology segment to offer proton therapy “The Apollo Hospitals announced consolidation of its oncology facilities across the country into a functional independent entity called Apollo Cancer Institutes. Plans are afoot to launch cancer institutes in Mumbai besides some other cities including Visakhapatnam. Further, Apollo will also invest ~ INR 1,200 crore in advanced precision oncology care.

Out of the proposed investment, INR 650 crore will be spent on state of the art proton therapy treatment facilities to be installed in the Apollo Cancer Institute in Chennai. The proton therapy, to be available for the patients by 2018, will be first of its kind in the country” The Hindu Business Line, August 04, 2016

3

Lifesciences Deal Activity YTDFY2017

4

PE, M&A and Capital Market Activity # of transactions vis-à-vis last year 1 YTDFY16 40

38

Transaction value vis-à-vis last year 1&2 YTDFY17

38

2,500

29

30

YTDFY17

2,138

2,000

24

1,716

1,500

20

1,000

10

2

1

610

500

1

153

85

137

62

0

0 PE

M&A

IPO

QIP

PE

Capital market activity – YTDFY17 IPOs

Company

YTDFY16

US$ mn

Issue Size Month (US$ mn) May-16

Aug-16

74

63

Issue Price (INR) 446

896

M&A

IPO

QIP

Upcoming IPOs Listing Price3 (INR) 662

1,210

Source: VCC Edge, Equirus research 1 YTD represents period from 1 April to 26 August 2 Includes transactions where deal value has been disclosed 3 Represents price on listing and not the closing price on first day of listing

Post listing CMP % Listing (INR) premium change % 554

1,355

48%

35%

Company

Proposed Issue Size (US$mn)

DRHP filing

Segment

Nov-15

Single specialty hospitals

18

Jun-16

Multi specialty hospitals

308

Jul-16

Pharma / Biotech

18

Aug-16

Pharma / Biotech

46

(16%)

10%

5

PE and M&A transactions M&A deals – YTDFY17

M&A transactions value – YTDFY17 Transaction value (YTDFY17)

Number of deals (YTDFY17)

Pharma/Biotech

2 1 1

Diagnostics

3

166

Pharma/Biotech

Hospitals # of deals: 38

6

Includes transactions where deal value has been disclosed; Remaining segments have been disclosed under ‘Others’ as deal values are insignificant 6

Medical Devices

25

Hospitals

US$ 2,138 mn

Health Tech

Others

1,967

Others

PE deals – YTDFY17

PE transactions value – YTDFY17 Transaction value (YTDFY17)

Number of deals (YTDFY17)

Includes transactions where deal value has been disclosed; Remaining segments have been disclosed under ‘Others’ as deal values are insignificant Single specialty 6 1 2

Medical devices

6 # of deals: 24 4

37

Pharma / Biotech Health tech 3

2

Multi specialty hospitals

3 US$ 153 mn

Multi specialty hospitals Diagnostics

56

Others

Note: YTD represents period from 1 April to 26 August

6

58

Single specialty Pharma / Biotech Others

Key PE and M&A transactions in the last 6 months PE transactions Date

Target Company

Investor

Segment

Deal value (US$ mn)

31-Mar-16

Corona Remedies Pvt Ltd

Creador

Pharma / Biotech

18

6-Apr-16

Adcock Ingram Healthcare Pvt. Ltd.

Samara Capital

Pharma / Biotech

23

23-Apr-16

Cancer Treatment Services International

TPG Growth

Hospitals

33

2-Jun-16

Vyome Biosciences Pvt. Ltd.

Aarin Capital, Kalaari Capital, Sabre Partners, Romulus Capital, Perceptive Advisors

Pharma / Biotech

14

15-Jul-16

Rhea Healthcare Pvt. Ltd. (Motherhood Hospitals)

TPG Growth

Single specialty hospitals

33

18-Aug-16

Cytecare Hospitals Pvt. Ltd.

HNIs

Hospitals

25

24-Aug-16

Nephrocare Health Services Pvt. Ltd.

IFC, SeaLink Capital Partners

Single specialty chains

15

M&A transactions Date

Target Company

Acquirer

Segment

29-Mar-16

Novartis AG, 14 Prescription Brands

Sun Pharmaceutical Industries Ltd.

Pharma / Biotech

31-May-16 Dr. Ramesh Cardiac & Multispeciality Hospital

Aster DM Healthcare Ltd.

Multi specialty hospitals

11-Jun-16

Teva Pharmaceutical Industries, 8 ANDAs

Torrent Pharmaceuticals Ltd.

Pharma / Biotech

350

30-Jun-16

Glochem Industries, Vizag API Unit

Torrent Pharmaceuticals Ltd.

Pharma / Biotech

45

30-Jun-16

Rockland Hospitals Ltd.

VPS Healthcare

Multi specialty hospitals

28-Jul-16

Gland Pharma Ltd.

Shanghai Fosun Pharmaceutical Group Co. Ltd.

Pharma / Biotech

1,261

16-Aug-16

Ash Stevens Inc.

Piramal Enterprises Ltd.

Pharma / Biotech

53

19-Aug-16

SRL Ltd.

Fortis Malar Hospitals Ltd.

Diagnostics

NA

Source: VCC Edge 7

Deal value (US$ mn) 293 17

149

Indian Lifesciences Sector - Public Market Performance

8

Stock performance vis‐a‐vis Sensex and Nifty Hospitals 30%

One year return % 24%

20% 10%

8%

10%

8%

0% (3%)

(10%) HCG

Apollo Hospitals

(8%) Narayana Hrudayalay

Fortis Healthcare

Nifty

Sensex

Diagnostics One year return % 15%

12%

10%

10%

8%

5% 0% (5%) (10%) (11%)

(15%) Dr Lal Path Lab

Thyrocare Technologies

Nifty

Source: Bloomberg Note: Return calculated as per listing date for Narayana Health, HCG, Thyrocare and Dr Lal Path Lab 9

Sensex

Stock performance vis‐a‐vis Sensex and Nifty Large Cap Pharma

Mid cap Pharma

One year return %

Small cap Pharma

PE

115%

B

112%

Na DL

25%

APL

54%

Syn

C SP

38%

AL

13%

TP

(11%) (13%)

Alem

(8%)

GSK

(10%)

IL(28%) DRL (25%)

13%

Gr

12%

UL

11%

IR

(4%)

Seq

(5%)

SL

(9%)

GP(29%)

NSE

WCK (37%)

10%

BSE (50%)

SM

6%

SS (16%)

L (16%)

86%

45%

AP 5%

DP

60%

JL

9%

CH

One year return %

One year return %

8% 0%

50%

100%

150%

NSE

10%

BSE

8%

(50%)

0%

50%

Source: Bloomberg Note1 : Return calculated as per listing date for Alkem Labs.

Note2: Large Cap pharma – Mcap >US$ 5bn, Mid cap pharma – Mcap of US$ 1bn – US$ 5bn, Small cap pharma – Mcap of <US$ 1bn 10

100%

150%

NSE

10%

BSE

8%

(50%)

0%

50%

100%

Indices movement vis-à-vis Sensex & Nifty BSE Healthcare Index vis-à-vis Sensex & Nifty BSE Healthcare vis-à-vis Market performance BSE Healthcare Index

Sensex

Nifty

115 1yr return - 10%

110

1yr return - 8%

105

100

95

1yr return – (7)%

90

85

80 Aug-15

Sep-15

Oct-15

Nov-15

Dec-15

Jan-16

Feb-16

Source: Bloomberg

11

Mar-16

Apr-16

May-16

Jun-16

Jul-16

Aug-16

Equirus Group Lifesciences focus

12

Lifesciences credentials Key transactions

Lifesciences companies under research coverage

BNH Dr. Balabhai Nanavati Hospital Collaboration towards operation of Onco Centre with

Kiran Medical Systems Strategic Partnership with Trivitron Healthcare

HealthCare Global Enterprises Ltd.

Glenmark Pharmaceuticals

Raise of PE Investment by Milestone Religare

Private Equity Investment by CDC Capital Partners

Plethico Pharmaceuticals Limited

Fortis Healthcare

Advisor to Plethico Pharma in itâ&#x20AC;&#x2122;s acquisition of Natrol Inc.

Advisor to Fortis in itâ&#x20AC;&#x2122;s acquistion of Clinique Darne

13

Highly experienced lifesciences focused team Strong Healthcare practice covering PE markets, Public Markets and Strategic markets Team Member

Gautam Kothari Associate Director

Maitri Bhatia Associate

Profile

● ● ●

Gautam has over 12+ years of experience in I-banking at different levels and is currently heading the Life sciences practice at Equirus Gautam’s previous assignments were with JM Financial Group in Mumbai & Singapore, Rosyblue in UAE and Pyramid Research in the US B.Com, LLB from University of Mumbai & MBA from Boston College - Carroll School of Management, USA

● ●

4 years of experience in investment banking, financial due diligence and equity research Prior to Equirus, was associated with Deloitte Touche Tohmatsu India Pvt Ltd where she assisted private equity clients and Indian corporates in their financial / strategic investments across various sectors like healthcare, pharma, manufacturing, hospitality, etc.

Member of the Institute of Chartered Accountants of India (ICAI) and a graduate of Institute of Company Secretaries of India (ICSI)

●

● ● Nimish Mehta Research Analyst

● ●

Over 15 years of experience in pharma sector Nimish has been a part of some of the largest M&A deals in Indian pharma space and as a part of Mehta Partners, he led a team of research analyst and developed proprietary research database He is a Founder Director of Research Delta Advisor Nimish is a CFA from ICFAI

14

Annexure Sector Trading Comparables

15

Trading Comparables â&#x20AC;&#x201C; Hospitals / Diagnostics Hospitals Mcap

EV

(INR mn)

(INR mn)

FY16

FY17E

FY16

FY17E

FY16

FY17E

FY16

FY17E

188,097

211,666

3.5x

2.9x

24.5x

22.0x

56.8x

46.3x

10.0%

11.2%

Fortis Healthcare Ltd

80,087

86,285

2.0x

1.9x

39.3x

20.1x

NM

58.4x

NM

3.1%

Narayana Hrudayalaya Ltd

63,658

65,996

4.1x

NA

37.2x

NA

NM

83.0x

2.3%

11.0%

HealthCare Global Enterprises Ltd

18,070

20,482

3.6x

3.1x

23.8x

22.0x

NM

NM

0.3%

3.1%

Mean

3.3x

2.6x

31.2x

21.4x

56.8x

62.6x

4.2%

5.8%

Median

3.5x

2.9x

30.9x

22.0x

56.8x

58.4x

2.3%

3.1%

Company Apollo Hospitals Enterprise Ltd

EV/Revenue

EV/EBITDA

P/E

RoAE

Diagnostics Mcap

EV

(INR mn)

(INR mn)

FY16

FY17E

FY16

FY17E

FY16

FY17E

FY16

FY17E

Dr Lal PathLabs Ltd

76,272

73,362

9.3x

7.8x

35.0x

30.3x

57.7x

52.5x

31.2%

25.6%

Thyrocare Technologies Ltd

29,666

29,590

12.8x

NA

31.3x

NA

57.3x

NA

15.8%

NA

Mean

11.0x

7.8x

33.1x

30.3x

57.5x

52.5x

23.5%

25.6%

Median

11.0x

7.8x

33.1x

30.3x

57.5x

52.5x

23.5%

25.6%

Company

EV/Revenue

EV/EBITDA

Source: Bloomberg

16

P/E

RoAE

Trading Comparables – Large Cap Pharma Large cap pharma Mcap

EV

(INR mn)

(INR mn)

FY16

FY17E

FY16

FY17E

FY16

FY17E

FY16

FY17E

1,817,656

1,797,034

6.4x

5.5x

21.5x

16.2x

38.5x

25.6x

16.5%

20.5%

Lupin Ltd

681,714

745,281

5.4x

4.2x

19.9x

15.3x

30.0x

23.3x

22.9%

23.9%

Dr Reddy's Laboratories Ltd

518,510

512,068

3.3x

3.4x

14.2x

16.8x

25.9x

29.4x

16.7%

13.3%

Aurobindo Pharma Ltd

462,255

500,930

3.6x

3.1x

15.6x

12.8x

23.3x

18.7x

32.5%

30.2%

Cipla Ltd

455,824

495,915

3.7x

3.2x

19.8x

17.3x

30.3x

27.1x

13.3%

13.3%

Cadila Healthcare Ltd

391,070

407,812

4.3x

3.9x

17.3x

17.5x

25.7x

24.4x

31.7%

26.7%

Divi's Laboratories Ltd

353,538

345,250

9.1x

7.7x

24.4x

20.4x

31.8x

28.0x

28.6%

27.2%

Piramal Enterprises Ltd

318,741

471,249

7.1x

5.3x

25.1x

25.2x

33.5x

55.5x

7.9%

5.4%

Mean

5.4x

4.5x

19.7x

17.7x

29.9x

29.0x

21.3%

20.1%

Median

4.9x

4.1x

19.8x

17.0x

30.1x

26.4x

19.8%

22.2%

Company Sun Pharmaceutical Industries Ltd

EV/Revenue

EV/EBITDA

Source: Bloomberg Note: Large Cap pharma – Mcap >US$ 5bn, Mid cap pharma – Mcap of US$ 1bn – US$ 5bn, Small cap pharma – Mcap of <US$ 1bn 17

P/E

RoAE

Trading Comparables – Mid Cap Pharma Mid cap pharma Mcap

EV

(INR mn)

(INR mn)

FY16

FY17E

FY16

FY17E

FY16

FY17E

FY16

FY17E

Torrent Pharmaceuticals Ltd

273,367

283,144

4.3x

4.3x

10.4x

15.9x

15.9x

22.9x

58.6%

31.0%

GlaxoSmithKline Pharmaceuticals Ltd

252,559

239,606

8.7x

7.6x

49.7x

45.1x

67.0x

57.4x

21.4%

26.4%

Glenmark Pharmaceuticals Ltd

239,722

271,028

3.6x

2.9x

18.9x

11.8x

34.1x

17.9x

19.3%

27.5%

Alkem Laboratories Ltd

184,477

180,410

3.7x

3.1x

21.3x

17.7x

27.4x

21.8x

20.7%

21.9%

Biocon Ltd

178,490

183,149

5.3x

4.6x

21.3x

19.2x

19.9x

33.0x

24.5%

12.6%

Ajanta Pharma Ltd

173,365

172,886

10.0x

8.0x

29.3x

23.6x

43.2x

34.4x

39.9%

36.6%

Alembic Pharmaceuticals Ltd

119,670

116,841

3.7x

3.7x

11.6x

18.5x

16.6x

27.3x

57.9%

24.2%

Natco Pharma Ltd

118,822

119,194

11.0x

7.4x

44.2x

24.8x

76.6x

36.2x

14.5%

23.0%

Syngene International Ltd

92,380

94,091

8.8x

7.0x

26.7x

21.0x

43.1x

29.2x

23.3%

27.2%

Wockhardt Ltd

90,439

104,523

2.3x

2.1x

20.2x

19.3x

27.8x

27.1x

8.6%

8.3%

Strides Shasun Ltd

85,129

107,065

3.4x

2.6x

20.5x

13.2x

40.7x

20.8x

10.4%

13.2%

Jubilant Life Sciences Ltd

82,189

124,006

2.1x

2.0x

9.6x

8.5x

19.0x

14.1x

16.1%

18.4%

Ipca Laboratories Ltd

69,489

73,777

2.6x

2.3x

20.6x

14.2x

74.5x

26.9x

4.2%

10.7%

Mean

5.3x

4.4x

23.4x

19.4x

38.9x

28.4x

24.6%

21.6%

Median

3.7x

3.7x

20.6x

18.5x

34.1x

27.1x

20.7%

23.0%

Company

EV/Revenue

EV/EBITDA

Source: Bloomberg Note: Large Cap pharma – Mcap >US$ 5bn, Mid cap pharma – Mcap of US$ 1bn – US$ 5bn, Small cap pharma – Mcap of <US$ 1bn 18

P/E

RoAE

Trading Comparables – Small Cap Pharma Small cap pharma Mcap

EV

(INR mn)

(INR mn)

FY16

FY17E

FY16

FY17E

FY16

FY17E

FY16

FY17E

Shilpa Medicare Ltd

42,537

43,844

6.1x

NA

28.2x

NA

41.0x

35.0x

17.4%

17.3%

Sequent Scientific Ltd

32,519

34,331

5.5x

4.1x

54.6x

32.0x

NM

NM

NM

4.1%

Indoco Remedies Ltd

28,557

29,574

2.9x

2.6x

17.1x

13.8x

34.4x

23.2x

15.0%

19.6%

Dishman Pharmaceuticals & Chemicals

28,413

36,209

2.3x

1.9x

8.8x

7.1x

16.6x

14.3x

12.7%

13.0%

Granules India Ltd

27,699

30,321

2.1x

1.9x

10.9x

9.3x

23.4x

17.1x

21.2%

21.4%

Suven Life Sciences Ltd

24,731

23,167

4.6x

3.8x

22.6x

16.5x

37.1x

24.9x

11.6%

15.8%

Unichem Laboratories Ltd

24,723

24,834

1.9x

1.6x

15.1x

11.5x

22.9x

17.8x

11.9%

13.7%

Mean

3.6x

2.6x

22.5x

15.0x

29.2x

22.1x

15.0%

15.0%

Median

2.9x

2.2x

17.1x

12.6x

28.9x

20.5x

13.9%

15.8%

Company

EV/Revenue

EV/EBITDA

Source: Bloomberg Note: Large Cap pharma – Mcap >US$ 5bn, Mid cap pharma – Mcap of US$ 1bn – US$ 5bn, Small cap pharma – Mcap of <US$ 1bn 19

P/E

RoAE

Contact Equirus

Equirus Capital Pvt. Ltd.

Equirus Securities Pvt. Ltd.

Mumbai

Hyderabad

Ahmedabad

12th Floor, C Wing, Marathon Futurex,

Office No. 801, Block A, 8th Floor,

3rd floor, House No. 9,

N M Joshi Marg, Lower Parel,

MJR Maginifique IT Park,

Magnet Corporate Park,

Mumbai 400 013

Khajaguda Cross Road, Nava Khalsa,

Near Zydus Hospital, B/H Intas,

Tel: +91-22-4332-0600

Near Raidurgam Police Station,

Sola Bridge, S.G. Highway,

Fax: +91-22-4332-0601

Hyderabad 500 008

Ahmedabad 380 054 Tel: +91-079-6190-9595 Fax: +91-079-6190-9560

Disclaimer: This presentation has been prepared by Equirus Capital Pvt. Ltd. (Equirus) for restricted distribution. No representation or warranty, either expressed or implied, is made nor responsibility of any kind is accepted by Equirus Group company, its directors or employees either as to the accuracy or completeness of any information stated in this document.

Neither Equirus nor any of its affiliates and/or their directors, officers, employees shall in any way be responsible or liable for any losses or damages whatsoever which any person may suffer or incur as a result of acting or otherwise relying upon anything stated or inferred in or omitted from this presentation.

Opinions and projections found in this presentation reflect our opinion as of the presentation date and are subject to change without notice. This presentation is neither intended nor should be considered as an offer or solicitation, or as the basis for any contract, for purchase of any security, loan or other financial instrument.

20