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| Wockhardt to hive off biotech division |
| P B Jayakumar / Mumbai Apr 09, 2009, 00:27 IST |
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To rope in MNC partner.
 Wockhardt Ltd, India's sixth largest drug maker, is planning to hive off its biotechnology products division into a separate company and rope in a global pharmaceutical major as a strategic investor. The process will take 12 to 18 months.
Wockhardt Chairman Habil Khorakiwala told Business Standard that the company was looking at a strategic investor among the top 10 multinational companies having the muscle to take their products to global markets.
He said discussions had been initiated, but it was too early to reveal specifics, including the size of the investment the strategic partner would bring in. The company was also looking at the option of licensing out the biotech drugs under development to a partner.
Wockhardt is saddled with a debt burden of over Rs 3,400 crore and has opted for the corporate debt restructuring (CDR) route. The CDR process, which will take up to four months for finalisation, will help the company realign its debt to a long-term repayment of two to five years. Wockhardt has one of the largest off-patent biotech drugs under development in India. In the past few years, the company has invested Rs 300-500 crore at its Biotech Research Park at Aurangabad with modern manufacturing facilities. The complex has capacity to manufacture 10 to 15 per cent of global demand for major biopharmaceuticals, anticipating the future demand for off-patent biotech drugs. “Except insulin, which has already gone off-patent, we have the first-mover advantage in all others,” Khorakiwala said.
The company currently sells Biovac-B, a hepatitis B vaccine, Wepox, used for treatment of anaemia caused by cancer and kidney failure, and Wosulin, an insulin product. Wockhardt has already registered Wosulin in 45 countries.
The company recently launched Glaritus, a recombinant human insulin that works slowly for over 24 hours. Wockhardt was the first company in the world after the innovator to launch this product, which has $2 billion global sales.
Biosimilars or copy-cat versions of reverse-engineered biotech drugs is an emerging opportunity, globally worth over $30-40 billion, because many biotech drugs are going off-patent in the coming two to five years. Most of the top 10 global pharmaceutical companies such as Pfizer, GlaxoSmithKline and Merck &Co are looking at new revenue segments, including biosimilars, to boost their sagging profits and revenues due to the dwindling new drug pipeline and existing drugs going off-patent.
On the CDR issue, Khorakiwala said the company will benefit greatly as it allows “us non-payment towards our loans for some time, thereby giving is huge flexibility in generating our own liquidity.”
On whether CDR means banks would ask for greater control in running his company, he said Wockhardt would not be able to go in for any acquisition or any mega expansion plan till it was under the CDR. “However, we are anyway hardly in a position at this point to do either of this,” the chairman said.
Wockhardt, he said, would easily be able to come out of the debt burden as the company’s business gave high margins. US business grew 40 per cent in the first nine months of 2008. Wockhardt follows January-December financial year. It got 23 drug approvals in the US in 2008, one of the largest number of approvals by the US regulator, last year. The European business was also outperforming the market growth and this was expected to continue in the coming years, he said.
Nodal agency IDBI bank, in coordination with ICICI Bank and others are working on the CDR, which will be announced in four months.
The company, he said, was close to divesting a minority stake in Wockhardt Hospitals. Besides, some other non-core assets and restructuring of overseas subsidiaries were also on cards, he said without revealing details due to stock exchange rules. “We are insulating ourselves like in a typical insurance plan keeping in mind the current market conditions,” he added.
Sources close to the company said a decision to divest stake in Irish generic drug company, Pinewood, a minority stake sale in Wockhardt Hospitals and sale of its veterinary business was expected in a couple of weeks.
Meanwhile, credit rating agency Fitch today downgraded ratings of the long-term debt programmes of Wockhardt to a level indicating an extremely weak credit profile.
The downgrade from rating B (ind) to C (ind) follows the public information showing that the company has stopped making its scheduled debt payments pending finalisation of its corporate debt restructuring plan, Fitch said in a statement.
C (ind) is a speculative grade rating and denotes extremely weak credit profile and total reliance on positive business and economic environment.
The credit rating agency also said the debt instruments of the company have also been removed from rating watch negative.
Shares of the company closed at Rs 77.80 , up 0.52 per cent on the Bombay Stock Exchange today.
Lenders to help company pre-pay FCCBs
Wockhardt’s main problem of arranging money to pay around $140 million (around Rs 700 crore) to redeem foreign currency convertible bonds (FCCB) by September this year is set to blow over, with the company’s bankers arranging additional loans to pre-pay the FCCBs under the corporate debt restructuring (CDR) process.
Sources familiar with the developments said the company’s lenders such as IDBI, ICICI Bank and State Bank of India, will do this shortly since the FCCBs are now trading at a steep discount of 84 per cent. The conversion price of the FCCB is Rs 486 against the current price of Rs 77.80, and it makes sense to pre-pay rather than wait for the conversion. The mark-to-market losses will be added to Wockhardt’s total debt of Rs 3,400 crore.
Though the total debt will go up, pre-payment of FCCBs will be a major relief for Wockhardt, which has been grappling with the issue for a long time and was unable to find new lenders to pre-pay the FCCBs.
Wockhardt Chairman Habil Khorakiwala, however, did not want to comment on the issue.
The company had earlier planned to raise fresh equity if the bond-holders opted for redemption, and already has shareholder approval to raise equity worth Rs 1,000 crore. However, that plan has been shelved due to adverse market conditions and the global meltdown.
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