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Orchid Pharma sells businesses to Hospira for $200 mn

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Chennai-based Orchid Chemicals and Pharmaceuticals Ltd (OCPL) announced that it has divested its penicillin and penem active pharmaceutical ingredience (API) business and the API facility at Aurangabad, in Maharashtra, along with an associated process R&D infrastructure in Chennai, to for a total cash consideration of around $ 200 million (around Rs 1,112.59 crore). The business sold accounts for around 23 per cent of the total sales of the company last year, according to company officials.

According to the business transfer agreement (BTA) the company entered into with Hospira, the US generic company which acquired the company's generic injectables pharmaceutical business for around $400 million in 2008, the business transfer includes the related penicillin and penem product portfolio and pipeline. Around 830 employees would be transferred to Hospira, as part of this, according to an announcement from OCPL.

“The sales of penicillin and penem injectables to Hospira would help the company to fast-track its future growth while maintaining a healthy debt profile in the balance sheet,” said K Raghavendra Rao, chairman and managing director, Orchid Chemicals & Pharmaceuticals Ltd.

“Given the current scenario, it is a prudent decision for Orchid to monetise these verticals and bring in cash to de-leverage its debt position and fund newer growth horizons,” he added. The business Orchid sold to Hospira now accounts for around $80 million (almost Rs 450 crore) of the total Rs 1,900 crore revenue of the company as on March 31, 2012, according to an official.

The company, at present, has a total debt of around Rs 2,200 crore and it would repay around Rs 800 crore from the total amount from divestment, said a company official. The rest would go into current working capital requirement, company's new plans and new products, said the official.

After the sales, the company, which grew up as an injectables manufacturer, now has antibiotic, non-antibiotic APIs and oral formulations business, along with R&D.

Some of the API production for Orchid for its non-penicillin, non-Penem, non-cephalosporin (NPNC) business is supplied from the Aurangabad facility, which would be under the ownership of Hospira, according to the BTA.

These products would be manufactured in the plant and would be supplied to Orchid by Hospira under a long-term agreement between the companies. The products would be supplied by Hospira for five years, according to the BTA, said sources. Meanwhile, Orchid would continue to supply its Cephalosporin APIs to Hospira, in accordance with the long-term supply contract it entered into during the previous acquisition, said the company announcement.

The transaction is expected to be completed in the third quarter of the 2012-2013 fiscal year, subject to all the necessary clearings including the shareholders’, regulatory and legal approvals, as well as customery closing conditions.

The acquisition would help the company reduce its costs and support continuity of supply of key antibiotic products and would lead to future API development, said Hospira in an announcement. This would enable the company to vertically integrate into certain critical beta-lactam antibiotic APIs (penems and penicillins) and to improve its standard cost position in this therapeutic space. In addition, controlling the source of these beta-lactam APIs will improve the company's security of supply.

"Our decision to acquire Orchid's world-class API facility demonstrates Hospira's continued dedication to the antibiotics space, enhancing cost-competitiveness and ensuring continuity of supply," said Dr C Bhaktavatsala Rao, managing director, Hospira India.

The associated R&D facility acquired would be directed to beta-lactam and other APIs with approximately 160 scientific personnel and an additional 30 employees supporting the facilities.

The company added that the transaction is expected to be breakeven to slightly accretive to earnings per share (EPS) in the first year post close, excluding the impact of transaction-related expenses, such as purchase accounting charges, integration costs, and the amortisation of intangible assets.

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