M&A Critique
Strides Arcolab Ltd

Strides Arcolab Ltd Has Completed sale of Agila Specialties

Drug firm Strides Arcolab Ltd has completed sale of its specialties division Agila Specialties Pvt Ltd to the US-based generic drug major Mylan Inc for up to $1.75 billion. However, the company has agreed to Mylan holding back $250 million following a warning letter it received from the drug regulator US Food and Drug Administration (USFDA) for one of its injectable facilities in Bangalore.

The Bangalore-based specialties division of Strides will bring Mylan a broad product portfolio of over 300 filings approved globally and marketed via a network spanning 70 countries. These include 61 abbreviated new drug applications (ANDAs) approved by the US drug regulator. Presently, Agila produces drugs across nine manufacturing facilities in India, Brazil and Poland, eight of which have been approved by the USFDA.

Agila Specialties

  • A leading global specialty injectables company focused on oncolytics, penems, penicillin, cephalosporins, and ophthalmics.
  • Market-leading track record of filings and approvals, including approximately 82 approvals from the US FDA.
  • Nine world-class global manufacturing facilities, including one of the largest sterile capacities in India and amongst the largest lyophilisation capacities globally.
  • Marketing network covering 70 countries.

Strides Arcolab Ltd sells Agila Specialties to Mylan Inc for $1.75 billion

Agila Biotech

  • Agila Biotech marks the company’s foray into the biologics space.
  • Biologics represent the fastest growing market segment in Pharma accounting for six out of top ten selling global drugs, with patents on first generation biologics expiring by 2020.
  • Next-generation biologics facility in Johor, Malaysia – an advanced end-to-end multi-product facility for the production of recombinant therapeutic proteins and monoclonal antibodies (mAbs) from drug substance to drug product in vials, pre-filled syringes and lyophilised products. Expected to come on-stream by end-2014, with significant capacity already advance booked for partner operations.
  • R&D facility in Bangalore capable of handling high-end research activities, catering to an internal pipeline as well as partnering activities.
  • Developing an internal pipeline of biosimilars, utilising the latest bacterial and mammalian expression systems.

Pharma Generics

  • Leading generics platform focused on soft gelatin and immune suppressants for the US and European markets.
  • Strong R&D capabilities with US FDA approved manufacturing infrastructure.
  • Exhaustive pipeline focused on products with high entry barriers to drive growth.

Africa Business

  • Leading sales and marketing platform for branded generic pharmaceuticals and over-the-counter medicines across Central and Sub-Saharan Africa.
  • Growth driven by launch of new products, expansion into new markets, and establishing local manufacturing.

      India Brands

  • Emerging as a regional player in Southern India in niche branded pharmaceutical products.
  • Portfolio of recognized brands in fast growing therapeutic segments.


The company will be receiving an aggregate sum of US$1,600 million in cash and potential additional consideration of up to US$250 million. Of this the company will be retiring $250 million of the remaining debt to make the company debt free. The company will retain $200 million — $100 million for developing our biotech unit which is in start-up mode, and another $100 million for reps and warrants. The latter component will be repaid to shareholders after a few years. The company has set aside that amount towards minority interest and a one-time payout to employees. The latter component is up to $50 million though not yet frozen. About 1,700-odd employees will now move on with Mylan, leaving 600-700 people with existing businesses.


Based on the results for FY’12 for Agila division i.e. revenues of INR 1, 365 Cr. and EBIDTA of INR 460 Cr., Based on this the valuation turns out to be 6.3X the revenue and 18.75X the EBIDTA (not considering the potential consideration of approximately INR 1, 345 Cr.). Taking into this consideration the valuation would be 7.3X the revenue and 21.7X the EBIDTA. This is way more than the EBIDTA multiple for the complete company which as on March 20, 2013 is close to 13X.

The major reason for this sluggish performance can be analyzed from the figures below –     

As can be seen from above figures, Agila was main contributor towards revenue and EBIDTA. Though they have sold at a very high premium, considering Agila was Crown Jewel of the company and letting that go without having established other business lines to that magnitude certainly raises doubts in the minds of the shareholders for their expectations of the returns on investments from the company. Hence looking from that perspective the fall in share price made sense.

Future Perspective

Going ahead the company is left with the pharma division which as of now contributes 40% towards total revenues. The company will continue to operate in this business in India and Africa. The company is also banking on success of their launch of new products in the US market. The company will also focus on developing a fully integrated biotech business which is in startup mode and will  be funded from amount received from this transaction. This division has a strong focus on R&D for which they have employed more than 350 scientists for new product developments and filling of patents.


With the sale of major business, Strides Arcolab is looking to build upon their other business i.e. pharma division. The company needs to scale up the remaining business to levels so as to achieve the required rate of return that they promised to the shareholders for them to stick to the company. The company has the required resources i.e. human capability and capital to deploy for scaling up the business. Now it depends upon the management as to how to achieve the given targets.


M & A Critique