Wockhardt Limited, an Indian pharmaceutical and biotech firm, might be a good acquisition target amidst the rising trend of mergers and acquisitions (M&A) in the US pharmaceutical industry. Companies like Mylan Inc. (MYL), Actavis plc (ACT) or Teva Pharmaceutical Industries Ltd. (ADR) (TEVA) might benefit from such an acquisition.
Bloomberg analysts believe that the Indian-based company is expected to experience a rebound in revenue growth after experiencing a decline in sales last year. This decline was due to a ban imposed by the US Food and Drug Administration (FDA) on the sale of Wockhardt’s drugs in the US. Analysts estimate that revenue, which tumbled after the ban, will return to about $1 billion in fiscal year 2017 (FY17), owing to new product launches.
The 2013 FDA Ban On Wockhardt’s Drug Sales
Wockhardt is involved in the commercialization of over 1,000 drug therapies around the world. The FDA banned the company’s drugs in 2013 owing to unhygienic conditions at two of its factories in India.
FDA investigators reportedly found “open toilet drains and stagnant urine near the entrance to the sterile manufacturing facility” when they visited the factories in March 2013. Wockhardt’s revenues fell around 60% following the ban in August.
Wockhardt An Attractive Target
Wockhardt, worth $1.3 billion, attracted a suitor named Lupin Ltd., who is the company’s biggest rival in India. According to Antique Stock Broking Ltd., Wockhardt can be an easy acquisition target for either a generic drug-maker or an international pharmaceutical company, such as Actavis, Mylan, or Teva.
Prakash Agarwal, who works at CIMB Securities in India, said that: “What’s attractive about this company, in spite of the import alerts, is its presence in India, the US, and Europe.” Agarwal added that Wockhardt’s R&D is an obvious strength since it was 3.5% of the total sales in FY11, 5.7% in FY12, and 6.7% in FY13. The figure rose to 11% in the second quarter (2QFY14; ended June 30, 2014) this year, compared to 7% in the comparable period last year. This reflects that the company has been increasing its R&D expenditure for developing therapies. Wockhardt’s revenue for 2Q rose 18% year-over-year (YoY) owing to 16 new product launches. Analysts expect revenues to return to a growth trend in FY16.