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In Jul’25, Aurobindo announced the acquisition of Lannett for USD 250mn, marking a strategic move to expand its US-based manufacturing footprint and enhance its portfolio. The deal is expected to close in the coming month. Lannett brings to Aurobindo a portfolio of ~70 products, including ADHD treatments and controlled substances. The US manufacturing facility, with 40% capacity utilisation, offers significant scale-up potential, further complemented by its strong track record of FDA and DEA compliance. The transaction gives Aurobindo access to a late-stage pipeline, including respiratory generics such as generic Advair and Spiriva. It offers both revenue synergies (CDMO business and controlled substances) and cost synergies (higher capacity utilisation and operational efficiencies). Lannett’s stable revenue base and strong pipeline position Aurobindo to capture significant growth. Overall, we expect the acquisition to add ~USD 90mn to FY28 PAT, leading to an upward revision in our estimates (Exhibit 5). We remain positive on the company with expected Revenue/EBITDA/PAT CAGR of 17/21/26% over FY26–28 and believe that the stock is undervalued at 13x FY28E EPS (versus peer average of 23x PE FY28). In our understanding, RoIC is set to expand by ~470bps over the next two years as the company moves to higher-RoIC segments (namely, Pen-G, biosimilars, biologics deal with Merck, Lannett acquisition, Adquey launch), paving the way for multiple expansion in the coming years. Thus, we maintain BUY with an updated TP of INR 1,610.

* Transaction overview: On 30th Jul’25, Aurobindo Pharma Limited, through its wholly owned subsidiary Aurobindo Pharma USA Inc, announced the acquisition of 100% stake in Lannett Company LLC from Lannett Seller Holdco, Inc. The deal was valued at USD 250mn (INR 21,850mn) on a cash-free, debt-free basis, including normalised working capital. It is expected to close in the coming month post-FTC approval. This acquisition aligns with Aurobindo Pharma’s strategy to expand its onshore footprint with a US-based manufacturing unit with significant headroom for future scale-up and potential expansion. For Aurobindo, the transaction brings a complementary portfolio of profitable products and adds a growing CDMO business, providing it additional revenue streams. It provides the company access to a portfolio of non-opioid controlled substances, particularly ADHD, a segment where Aurobindo currently has limited presence, thus expanding its exposure to a specialised and technically complex category.

* About Lannett: It is a US-based generic manufacturer and supplier founded in 1942 and headquartered in Trevose, Pennsylvania. It focuses on developing and supplying complex generic medicines, including controlled substances regulated by DEA, and has built particular expertise in non-opioid therapies such as ADHD treatments, as well as generic liquid formulations.

* Strong pipeline: The company launched seven products in the 24 months preceding the announcement, while maintaining a development pipeline of 16 active programmes, with three additional launches planned over the subsequent 18 months. Lannett has a diversified pipeline targeting complex and high-value generic opportunities. The pipeline includes respiratory generics through collaboration with Respirent, such as gSpiriva Handihaler (~USD 1bn market) and gAdvair Diskus (~USD 600mn market; approved in Jan’26), addressing large and technically complex inhalation markets. These two products have limited competition and, we understand, can potentially generate USD 175mn in FY28. The company is also pursuing gUptravi (Selexipag) targeting a ~USD 500mn market opportunity. Lannett’s last concall in Feb’23 highlighted a number of other key products – bInsulin Glargine (~USD 1bn+ market) and bInsulin Aspart (~USD 1.9bn market) in partnership with HEC Group, though an update on the same is missing and the projects are past their earlier stated launch timeline, and as such we haven’t factored the same in our estimates. The pipeline provides medium-term launch visibility and access to sizeable addressable markets.

* Manufacturing footprint: Lannett operates a manufacturing and distribution facility in Seymour, Indiana, spanning ~425,000sqft, including a nearly 116,000sqft distribution centre. The facility was part of the Kremers’ 2015 acquisition. The site can produce a wide range of dosage forms such as tablets, capsules, oral liquids and oral suspension. The facility is DEA registered to manufacture scheduled products (Schedules CII-CV) and has been inspected and approved by the FDA, DEA, and China’s NMPA, maintaining a strong compliance record of 100% since acquisition. Though the facility has 3.6bn unit annual capacity, at the time of acquisition it was producing ~1.4bn dosage units annually at ~40% utilisation, offering ample spare capacity for future scaleup. The site also houses AR&D, analytical testing, packaging, and significant storage infrastructure (~13,000 pallet spaces), making it an integrated manufacturing and distribution hub.

* Synergies: The acquisition of Lannett provides multiple strategic and operational synergy levers. Lannett’s US-based manufacturing facility (~40% utilisation) offers meaningful headroom for scale-up, enabling Aurobindo to leverage incremental capacity while benefiting from a strong FDA and DEA compliance track record and alignment with US reshoring initiatives. On the revenue side, the deal adds a portfolio of complex controlled substances (primarily non-opioid) and access to CDMO opportunities, while also bringing a late-stage pipeline including select NCE1 opportunity. Cost synergies are expected through higher capacity utilisation, procurement optimisation, and SG&A rationalisation, supporting margin improvement. The pricing in the existing portfolio is largely stable, and Aurobindo may rationalise resources to further improve margins. Management also indicated that certain products previously discontinued due to sourcing issues could be relaunched. Post-acquisition, Aurobindo will focus on improving Lannett’s gross and EBITDA margins.

* Lannett’s volatile past: Historically, Lannett operated with a relatively modest balance sheet and had grown through smaller tuck-in acquisitions. In 2015, however, the company acquired Kremers Urban Pharmaceuticals Lannett for ~USD 1.2bn, with the transaction being primarily debt financed. While the deal initially expanded the product portfolio and scale, profitability later weakened due to intense price erosion and competitive pressures across the US generics market. With earnings declining while debt remained elevated, leverage became unsustainable, ultimately necessitating a balance sheet restructuring in 2023. The company entered into a prepackaged restructuring, eliminating ~USD 600mn debt. Post the restructuring, the lenders took control of the company and it became a subsidiary of Lannett Seller Holdco.

* Historical performance: Lannett reported revenue of USD 306mn with 30% gross margin and 15% EBITDA margin in TTM Mar’25. The revenue mix has gradually shifted toward controlled substances (i.e., the government-led business), which increased from 29% in FY23 to 47% in TTM Mar’25, while the share of non-controlled products declined from 67% to 47%; the CMO segment remained small but stable at 4–6% of sales. With a transaction value of USD 250mn, the acquisition implied a valuation of 0.82x TTM sales and 2.7x gross margin, suggesting an attractive entry multiple relative to typical US generics transactions, particularly given the company’s manufacturing assets and product portfolio.

* Financial implication and valuation: In our understanding, the company has two major launches expected over the next 12 months – generic Spiriva Handihaler (~USD 1bn market) and generic Advair Diskus (~USD 600mn market; approved in Jan’26). These products have limited competition and can potentially add ~USD 175mn cumulatively at +40% EBITDA margin to Aurobindo’s FY28 top line. This can potentially aid in 152bps EBITDA margin expansion over FY26–28 for Aurobindo. Accordingly, we have adjusted our estimates upwards. We remain positive on the company with expected Revenue/EBITDA/PAT CAGR of 17/21/26% over FY26– 28 and believe that the stock is undervalued at 13x FY28 EPS (versus peer average of 23x PE FY28). We believe RoIC is set to expand by ~470bps over the next two years as the company moves to higher-RoIC segments (namely, Pen-G, biosimilars, biologics deal with Merck, and Lannett acquisition, Adquey launch), paving the way for multiple expansion in the coming years. Thus, we maintain BUY with an updated TP of INR 1,610.

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