NEW DELHI – In a move that could further pave the way for Cipla Ltd., one of India's best-known makers of generics, to tap into the lucrative U.S. market, Invagen Pharmaceuticals Inc., a subsidiary of Mumbai-based Cipla, has entered a two-stage agreement to acquire the specialty hospital business of Avenue Therapeutics Inc. in the U.S.

In the first stage of the deal, Invagen will acquire a 33.3 percent stake in Avenue Therapeutics for $35 million, Cipla said. In the second stage, Invagen will purchase the remaining shares in Avenue. All told, the transaction is expected to be worth $180 million. Avenue will also receive milestone payments.

"With this deal, firstly, Cipla will enter the U.S. specialty institutional business in line with our previously stated intention to invest in specialty in the U.S.," a Cipla spokesperson told BioWorld. Also, "we believe the asset offers a unique proposition to patients and addresses an unmet need in pain management."

Oral Tramadol is a schedule IV drug currently approved and marketed in the U.S. for moderate to moderately severe pain in adults.

"There is currently no approved intravenous formulation of Tramadol in the U.S. and, therefore, we believe there is enormous potential for intravenous Tramadol," Cipla said.

"Over the past three to four quarters, we evaluated institutional business which is an interesting segment in the U.S. with high barriers to entry [because of sterile manufacturing], lesser price erosion and stronger margins," the spokesperson said.

"We looked at the existing opportunities and agreed to invest in building a hospital business. It opens up a channel for us which is therapy-agnostic. Our strategy is to develop and nurture this business further by expanding our portfolio."

The proposed two-stage structure of the deal "is ideal for Cipla as it provides the most upside to our shareholders while substantially limiting our exposure to risk. We will only close tranche two/full acquisition once the FDA approval and conditions which impact the value of the asset are met. And once approved with the conditions attached to tranche two, it will unlock significant value," the spokesperson added.

Lucy Lu, president and CEO of Avenue, said the company is looking forward to accelerating the phase III development and potential commercialization of I.V. Tramadol in the U.S. "I.V. Tramadol offers a novel mechanism of action among intravenous analgesics and could be an important new therapy that fills a significant gap in pain management," said Lu.

This is not Cipla's first U.S. deal. In 2015, the company acquired Invagen and Exelan Pharmaceuticals Inc. for around $550 million to get traction in the U.S. generics market.

And the company has also been looking to other markets. In July, a Cipla subsidiary, Cipla Medpro South Africa (Pty.) Ltd., signed an agreement to acquire Mirren (Pty.) Ltd., South Africa. Mirren specializes in over-the-counter (OTC) pharmaceutical products.

"Cipla is a success story in the supply of large volume anti-infectives from India for global public health needs," said Pushpa Vijayaraghan, director of Hyderabad-based Sathguru Management Consultants, which analyzes the Indian biopharma industry.

"They [Cipla] have been explicit about the current focus on gaining a foothold in the higher-margin U.S. specialty business, and consolidating presence in rest of the world [semi-regulated] markets," she added. The investment in Avenue dovetails with the strategy of acquiring lower competition portfolio assets for the U.S. specialty segment, Vijayaraghavan explained.

I.V. Tramadol is Avenue Therapeutics' single asset. While there are more than 20 companies holding active abbreviated new drug applications (ANDAs) for the oral opioid formulation, there is currently no competition at all in the U.S. market for the injectable formulation, she said. Injectable formulations are currently marketed in the U.K. as well as several other countries, hence product risk is relatively low.

Portfolio strengthening

Overall, Indian pharma companies have been cautious in pursuing opportunities abroad, looking to strategically align those acquisitions with a larger focus of creating presence in higher-value specialty pharma segments, especially in regulated markets, she said. Transactions have been more common for acquisition of specific assets or technology platforms to support that objective, she added.

"We anticipate more transactions with this intent of portfolio strengthening. Additionally, the current supply landscape has already created higher appetite for backward integration and acquisition active pharmaceutical ingredient manufacturing assets."

The Cipla spokesperson said that in the U.S., the company's focus areas are complex generics and the development of its inhaler franchise. "In our branded markets of India, South Africa and parts of the emerging economies, our effort to build strong brands and expand our therapy footprint will continue."

She said the company has significantly increased its internal R&D spend to more than 7 percent to 7.5 percent of sales, which has resulted in key approvals and launches in the U.S., Europe and other markets.

"We will selectively look at M&A to build new [U.S. specialty] businesses, for expansion in select emerging markets, and to further expand our therapy footprint in home markets," the spokesperson said.

Cipla's recent acquisition of Mirren in South Africa is expected to strengthen the company's OTC play in the market. "Through the proposed acquisition of Avenue Therapeutics, we aim to enter the specialty segment in the U.S."