Orchid Pharma shares go up 5% on rumours about prospective buyers

The share price of Orchid Pharma Ltd saw a five per cent increase on Monday following reports that some of the pharma majors are looking at acquiring the debt-ridden company.

Analysts are of the view that the attraction towards acquiring the Chennai-based company would be the manufacturing facilities approved by US Foods and Drug Administration (FDA). Its debt to a consortium of banks has crossed around Rs 3,000 crore.

There were reports that Aurobindo Pharma and Dr Reddy's, are looking at buying the company, which is under Corporate Insolvency Resolution Process since August 17, 2017.

Aurobindo denied the rumour and Dr Reddy's said it will not comment on rumours or speculations and that it would comply to the reporting obligations with the market regulators.

Orchid Pharma, which is currently run by Resolution Professional, in a regulatory filing said that the Expression of Interest (EoI) for submission of the resolution plan has been called for and the responses are under scrutiny.

The share price of the company, which was at Rs 17.80 during the previous day close, opened at Rs 18.65 per cent on Monday with 4.78 per cent jump and remained the same mostly through the day.

According to people close to the development, the interested parties will submit a resolution plan, which will include debt repayment and other aspects. The EoI will be converted into a non-binding bid and then a binding bid.

Analysts said that one attraction for the pharma players to look at Orchid Pharma is to augment the capacity faster with the US FDA approved facility it has in Tamil Nadu. 

"The company is beyond facility and the health of the balance sheet is important," said an analyst on condition of anonymity. Abbreviated New Drug Applications (ANDAs) and the facilities could be an attraction, but one has to look at the liabilities also, said the analyst.

Another expert said that given that the US drug regulatot tightening the regulations, getting a pre-approved plant with capacity, which could be put to use without any delay, could be an attraction to those companies that are looking for backward integration.

"There is no issue in these plants as of now, as per the latest inspections and that could be [the] trigger. Since the seller is in financial crisis, the asset will be attractive for other players who are looking to expand inorganically," said another analyst on condition of anonymity. While the margins for the Cephalosporin API would not be attractive, it should also be looked at a formulations perspective. The companies which have formulation presence in the US could utilise it for their market gaining strategy.

The company has a generics oral formulations facility in Irungattukottai, and an antibiotic (cephalosporin) active pharmaceutical ingredient manufacturing facility in Alathur, Tamil Nadu, apart from another oral formulations facility emerging in this location, according to the company website.

Orchid Pharma sold its generic injectables business to Hospira Healthcare, the US- based company that was later acquired by Pfizer, in 2009 for a consideration of $400 million (Rs 1,850 crore as per the then currency rate).