Dr Reddy’s has announced the acquisition of the generic portfolio of Mayne Pharma in the US for $105m. The portfolio had sales of $111m in FY22 (ending Jun-22). Our preliminary analysis suggests that the product portfolio is plain vanilla as all the products are oral solid dosage (OSD) and many have high competitive intensity. However, the deal multiples are reasonable (1x sales) and strengthen the overall positioning of Dr Reddy’s.
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As per IQVIA, Mayne Pharma’s top 5 US products accounted for 50% of the sales while top 10 accounted for 71% of sales in CY22. Among the top 10 products, 5 are associated with birth control and 3 products in top 5 have one common molecule in them. All the drugs in top-10 by sales are oral solids and most of them have high competitive intensity. Three drugs that have low competitive intensity have market size of less than $50m. A quick look at Mayne Pharma’s IQVIA sales data shows that the company’s portfolio has faced high price erosion in recent years.
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Our analysis suggests that Mayne Pharma’s US portfolio is plain vanilla products but Dr Reddy’s acquisition could be from a value perspective as at the current acquisition price including the contingent payment, the EV/ Ebitda for the deal comes at 3-5x while EV/sales at 1x as per our calculations.
Given the high competitive intensity in US generics, high price erosion witnessed in recent years and increased US FDA scrutiny, it makes sense for smaller firms to exit or reduce investment in US. However, there are limited buyers for generic drugs as a result of which deals need to be priced attractively. Even Indian generics firms have started to reduce their investment in US generics which may drive consolidation in the longer run.