Strides Shasun Ltd and SeQuent Scientific Ltd have agreed to merge some of their bulk drugs businesses and separately sell a few others to sharpen their focus, the two drugmakers said on Friday.
Strides Shasun will hive off its commodity active pharmaceuticals ingredient (API), or bulk drugs, unit while SeQuent will carve out its human API business. The two businesses will then be merged and listed on stock exchanges, the Bangalore-based companies said in stock-exchange filings.
The move will catapult the new combined company into one of India’s largest standalone bulk drug makers with five manufacturing sites globally, Strides and SeQuent said.
The companies haven’t yet decided a share swap ratio for the merger and will soon appoint valuers, merchant bankers and solicitors. The companies aim to make the merger effective from 1 October 2017.
Merger rationale
SeQuent said the ever-evolving regulatory landscape exposes its business from concentration risk at one plant approved by the US Food and Drug Administration.
Strides said the changing regulatory landscape highlights the need for a standalone API player adhering to higher compliance levels. “Also, being a B2B business, it needs a differentiated strategic direction to grow and deliver value,†it said.
Strides had announced its intention to hive off its API business in August 2016. The company previously said the bulk drugs business has been putting pressure on margins as the cost of compliance increases.
Strides’ API unit reported turnover of Rs 712 crore for 2015-16, contributing 23% of the company’s revenue.
SeQuent's human API business has facilities in Mangalore, Mahad and Mysore. It has annualised revenue of Rs 300 crore and contributes 27% to the top line. However, the business is sub-scale despite the differentiated business model of focussing on mature small volume molecules, SeQuent said.
SeQuent also said the move will help it become a pure-play animal health company.
Strides to sell African biz
Strides Shasun also said it is selling its African generics business to an entity set up by CEO Sinhue Noronha. The sell-off will fetch the company around Rs 108 crore.
The African business has turnover of Rs 137 crore and contributes 4% to the overall business. The divestment of the African business will involve a combination of slump and share sale.
This comes barely a year after the company acquired Kenyan company Universal Corporation to gain a foothold in East Africa.
The firm also said it is selling its probiotic business worth around Rs 1 crore to one of the promoter entities. The company expects around Rs 10 crore as proceeds from the sale.
Strides Shasun’s M&A activity
To sharpen its focus, the company in May 2016 sold its UK contract research manufacturing services and APIunit for Rs 240 crore.
On Friday, the company said its third-quarter consolidated net profit tripled on the back of recent divestments.
Strides Shasun has been aggressively buying brands and assets to enhance its formulations business while focusing on its higher margin branded generics business.
In December, it acquired Perrigo’s API plant for around $14 million. In November, it acquired PediaCare, a branded drug which treats cold, cough and allergy, from Moberg Pharma for $5 million.
In March 2016, the firm acquired three brands – JointFlex, Fergon and Vanquish – also from Moberg Pharma for $10 million plus inventory value to build its portfolio of over-the-counter products.
SeQuent to focus on animal health biz
The company said it has also received in-principle approval from its board to sell its women's healthcare business as part of the restructuring process.
SeQuent owns 51% of its women healthcare business NAARI, which it acquired in January last year. It now plans to sell its stake back to the promoter group of NAARI for Rs 11 crore, it said.
The acquisition of NAARI had paved the way for SeQuent into a niche area requiring dedicated manufacturing with limited competition. However, the NAARI business requires significant investments in the next three years for ramping up the R&D programme, it said.
The company will now focus on building its animal health unit, Alivira Animal Health Ltd, which has a run rate of $120 million (Rs 800 crore).
SeQuent has been ramping up its animal healthcare business in the past months through acquisitions.
In May last year, it said that Alivira Animal will acquire a majority stake in Spanish animal health firm Karizoo Group for Є7.4 million (Rs 55 crore). Just six weeks prior to this acquisition, SeQuent had said that Alivira would acquire a 70% stake in veterinary products maker Interchange Brazil for $3.6 million in cash.
In November 2015, Alivira agreed to acquire Turkey’s Topkim Premiks San at an enterprise value of about $7.2 million.
The company is present in over 54 countries for animal health formulations and 44 countries for animal health APIs realising over 80% of the revenues outside India, its annual report 2016 show.
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