Orchid Chem to sell Aurangabad API facility to Hospira

K. Raghavendra Rao. Photo: Paul Noronha   | Photo Credit: bl

Orchid Chemicals and Pharmaceuticals is set to sell its penicillin and penem API (active pharmaceutical ingredients) businesses and API facility at Aurangabad in Maharashtra along with an associated process R&D facility in Chennai to Hospira, a leading provider of injectable drugs and infusion technologies.

The sale consideration is estimated at around $200 million.

Orchid has already inked a business transfer agreement with Hospira in this regard.

The sale, Orchid claims, will help it de-leverage its debt position, and fund new growth plans.

The boards of both the companies have already approved the business transfer deal. It will, however, have to be approved by Orchid’s shareholders and other regulatory agencies.

The entire deal is expected to be completed by the third quarter of this fiscal.

Around 830 Orchid employees would also be moved to Hospira as part of the business transfer agreement. Orchid at present has a workforce of around 4,400 people.

Orchid has also entered into a long-term agreement with Hospira to supply the Chennai-based company API needs for the non-penicillin, non-penem and non-cephalosporin (NPNC) business. These are now sourced from the Aurangabad facility. In effect, the long-term deal will help Orchid get uninterrupted API supply from the Aurangabad facility even after its sale. Under the agreement, Orchid will continue to supply Hospira its cephalosporin APIs.

According to K. Raghavendra Rao, Chairman and Managing Director of Orchid, “It (the deal with Hospira) is a prudent decision given the situation for Orchid to monetise these verticals, and bring in cash to de-leverage its debt position and fund newer growth option.’’

“The business which is being transferred to Hospira now contributes 23 per cent (about Rs.450 crore) of Orchids’ sales (Rs.1,900 crore in 2011-12),” according to a company spokesperson. The total debt of Orchid at the moment is in the vicinity of Rs.2,200 crore. In this high-interest days, Orchid has to shell out a hefty Rs.70 crore in the first quarter towards servicing this debt. It is gleaned from sources that a substantial portion of the money from the sale, around Rs.800 crore, would go to retire a part of the debt. The rest would be used to fund the working capital needs and enter newer areas.

It may be recalled that Orchid had, in early 2010, sold its generic injectable and antibiotics formulations business to Hospira for a consideration of $400 million.

“The acquisition of the modern and U.S. Food and Drug Administration (FDA)-approved facility is expected to reduce Hospira’s costs, support continuity of supply of key antibiotic products and pave the way for future API development,” says a release hosted on the website of the U.S. firm. “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,” the release quoted C. Bhaktavatsala Rao, Managing Director, Hospira India, as saying.

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Printable version | Jan 24, 2022 5:29:44 PM |

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