Hospira, Inc., a global leader in generic injectable pharmaceuticals, is set to acquire the generic injectable finished-dosage form pharmaceuticals business from Orchid Chemicals & Pharmaceuticals Ltd.

The deal will cost Hospira $400 million.

The acquisition will cover Orchid’s beta-lactam antibiotics manufacturing complex (comprising cephalosporin, penicillin and carbapenem facilities) and pharmaceutical research and development (R&D) facility at Irungattukottai near Chennai. The acquisition will also include Orchid’s generic injectable product portfolio and pipeline. Beta-lactam antibiotics represent a class of drugs with a wide spectrum of anti-bacterial activity.

The two companies have also penned a long-term exclusive agreement. Under this, Orchid will supply active pharmaceutical ingredients (APIs) for the acquired generic injectable pharmaceuticals business of Hospira. The two, it may be recalled, have already a product development and commercialization relationship.

For Hospira, the acquisition will give it a direct presence in India. This could be a platform for its future commercial growth in India. The acquisition will fetch Hospira a proven-quality and cost-competitive generic injectable manufacturing site, which has approvals from the U.S. Food and Drug Administration. Further, it will also help Hospira get the associated R&D facility and a talent base of approximately 450 employees dedicated to the development and production of beta-lactam antibiotics. More importantly, the acquisition will enable Hospira to have a full ownership of its primary beta-lactam portfolio and pipeline, which were previously part of a commercialization pact with Orchid.

“This acquisition aligns perfectly with Hospira’s strategy to improve our margins and cash flow by lowering our cost position for a key product line, and to invest for growth, by expanding our presence globally and reinforcing our leadership position in generic injectables,” said Terry Kearney, chief operating officer, Hospira.

Addressing a press conference here on Wednesday, K. Raghavendra Rao, Managing Director, Orchid, said the transaction underscored the company’s ability to develop value added and niche skill sets in the global pharmaceutical value chain and monetize them. He asserted that the deal would help Ochid fortify its business model with long-term contractual API revenue stream. Further, he felt that this would give Orchid financial flexibility to pursue new growth opportunities.

The relationship between the two dates back to 2005 when Orchid and Mayne Pharma Ltd. (now a part of Hospira) entered into a strategic commercialization and development agreement.

The boards of both the companies have unanimously approved the deal. It now requires the approval of shareholders, regulatory and legal authorities. The transaction is expected to be completed in the first quarter of 2010. To help facilitate the transition process, the two companies will enter into transitional services agreements for approximately 12 months, says a release.

Fielding a range of questions, Mr. Rao said the business being sold was fetching Orchid $90 million in top line (at current hit rate) and an EBITA (earnings before interest, taxation and amortisation) level of $35-40 million. He estimated the capital investment (gross block) in the Irungattukottai plant would be around Rs.600 crore and the net depreciated worth at Rs. 450 crore. The proceeds from the sale would help pay off debt and grow new businesses, he added. The company, he said, had a long-term debt of Rs.1,200 crore and short-term debt of Rs.550 crore . It had $150 million exposure to overseas debt. After providing for a taxation of $20 million for the transaction, Orchid would be left with a cash flow of around $100 million, he said

To a question on his holding in Orchid, Mr. Rao said, ``I am quite safe now.’’ He said the promoters held 21 per cent stake in the company. He said he was allowed to acquire five per cent equity every year under the `creeping acquisition rules’. He said he would exercise this option this year.

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