Sun Pharma May Have To Wait Before It Benefits From the URL Acquisition

India's largest pharma company by market cap Sun Pharma, is once again on an acquisition spree.  Through its US subsidiary Coraco pharmaceutical, it has bought Philadelphia-based pharma company URL Pharma from Takeda Pharmaceuticals USA Inc. Both, Sun Pharma and Takeda have not disclosed the amount at which this deal has been signed. This acquisition is in sync with Sun’s growth strategy. Earlier, last month, Sun had acquired another US-based company Dusa pharmaceuticals for USD 230 million.

URL pharma was acquired by Takaeda in June this year. Prior to that, it was a privately held pharma company with a focus on patent protected branded and generic products. URL has a top product Colcrys which contributes to about 75% of its total sales which came up to USD 600 million in 2011. Colcrys s a highly effective drug used in the treatment of glout (swollen Joints). Besides this product, URL's rest of the sales come from Generic products (10%), Qualaquin - an antimalarial drug (5%), Felodipine – Blood pressure controlling drug (2%) and royalties (the remaining 8%). Takeda during the acquisition had disclosed that URL has a 50% Operating margin which we believe is really good. The company also has a total of 288 ANDA approvals as mentioned on its website.

The real flip side of this acquisition however, is the fact that Sun Pharma gets URL without Colcrys. This means, no super margin product in the portfolio and sales of only USD 150 a year.

Takeda had paid USD 800 million for acquiring URL. The USD 600 million in revenues that URL Pharma generated in 2011 included USD 430 million that came from Colcrys. Considering that USD 800 million was an enterprise value of URL Pharma, this deal seems to have happened at an EV/Sales ratio of 1.33x. Sun Pharma has not disclosed any value of the acquisition at this moment but as per our estimage this acquisition may have cost it an amount of about USD 225 million (about Rs 1246 crore).

Sun Pharma will not benefit from the superior product portfolio of URL even after acquiring the company. However, it has a good pipeline of ANDAs which is a point to note. The details of these ANDAs is however not available. URL’s revenues however would add about 10% more in the current top line of Sun Pharma.

Sun may use URL as a platform to launch more products as Coraco Pharmaceutical had faced some issues in 2009 in the US market and has not been able to develop into a strategically important component for Sun till now. The URL pharma acquisition seems good for the company but it may have to wait until it monetizes its ANDA properties.

Sun Pharma’s shares rose 2.2% to touch a new high of Rs 737.95 on the BSE yesterday.