Dr Reddy’s Laboratories (DRL) acquired a majority of Wockhardt’s domestic formulations business for Rs 1,850 crore, underscoring the company’s commitment to the India market as it seeks to de-risk itself against regulatory pressure in the US. With this buyout, DRL is set to become the 11th largest pharmaceutical company in the Rs 14 lakh crore India market, up from 14.
Wockhardt has been trying to reorganise its business for months, and had pursued the idea of a stake sale as it looks to reduce debt.
The sale process had seen interest from investors including private equity firms such as Chrys Capital, KKR and PAG.
Strategic Shift
DRL will buy 62 products from Wockhardt in the therapy areas of respiratory, pain management and anti-infectives, apart from manufacturing facilities in Baddi, Himachal Pradesh, which is a tax-free zone.
India is an important market for Dr Reddy’s and the acquisition will help scale up the domestic business, said CEO GV Prasad. DRL gains popular brands such as Practin, used for pain management, Zedex, a cough syrup, Brozedex, Tryptomer and Biovac, a vaccine. Moelis was the financial advisor in the transaction.
“The intended sale of business portfolio is in line with the company’s strategic plan to shift from acute therapeutic areas to more chronic business like anti-diabetes, CNS (central nervous system), etc. and also to its niche antibiotic portfolio of new chemical entities,” said Wockhardt chairman Habil Khorakiwala.
Wockhardt’s India business recorded Rs 377 crore in sales in the nine months to December 2019. The proposed divestment is 3.8 times the annualised revenue of the business being transferred.
The Wockhardt share had risen 30% in the past month in anticipation of the sale but on Wednesday it dropped 7% on the BSE, closing at Rs 367. DRL was marginally up.
Wockhardt said the deal will give the company adequate liquidity for “growth in international operations and investments in biosimilars for the US market, shift focus in chronic segment with differentiated product portfolio.”
DRL has said in the past few years that it will be moving its focus to markets beyond the US. The company has been grappling with regulatory actions by the US Food and Drug Administration (FDA), leading it to look toward emerging markets, as was reflected in the December quarter numbers. While the North America market grew 8%, recording sales of Rs 1,600 crore, emerging markets surged 31% to Rs 700 crore, driven by new launches and improved volume, according to DRL management. The India business posted a 10% growth to Rs 600 crore, despite the overall market growing in single digits.
“This deal shows that DRL is going to build up the company aggressively in non-US markets and in markets like Brazil, India, Russia,” said Surjit Pal, a pharma analyst at Prabhudas Lilladher, a brokerage firm.
Source: Economic Times