Shares of Orchid Pharma was up 3.36 percent after the company said it will sell various assets including active pharmaceutical ingredients (API) business and a R&D facility to the US-based Hospira Inc for $200 million (nearly Rs 1,112 crore).
The Chennai-based firm's business transfer agreement (BTA) with Hospira includes sale and transfer of Aurangabad API facility, an associated Chennai based-R&D facility and Penicillin and Penem API business.
"The proceeds from this business transfer will be utilised for de-leveraging Orchid's debt position and also pave the entry for the company's foray into newer product verticals," Orchid Chemicals said in a statement.
As on date, Orchid's debt stood at Rs 2,200 crore. As part of the deal, nearly 830 employees of Orchid would be transferred to Hospira, it said. "...This business transfer agreement with Hospira will help us fast-track our future growth while maintaining a healthy debt profile in our balance sheet," Orchid Chemicals & Pharmaceuticals CMD K Raghavendra Rao said.
On getting necessary approvals, the transaction is expected to be completed in the third quarter of Orchid's 2012-13 fiscal year, corresponding to the fourth quarter (October-December) of the calendar year 2012.
An active ingredient is the substance in a pharmaceutical drug that is biologically active. Given the current scenario, it is a prudent decision for Orchid to monetise these verticals and bring in cash to de-leverage its debt position and fund newer growth horizons, he added.
Orchid said it would continue to supply its cephalosporin APIs to Hospira in accordance with the long-term supply contract. Further, Hospira would supply certain ingredients from the Aurgandabad facility to Orchid under a long-term agreement that both companies have entered into, Orchid said.
"This agreement builds on the existing product development and commercialisation relationship between Hospira and Orchid," it added. "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," Hospira India MD C Bhaktavatsala Rao said.
Latham & Watkins acted as the international legal advisor and Amarchand, Mangaldas & Co. acted as the Indian legal advisor to Orchid. Orchid Chemicals & Pharmaceuticals Ltd develops, manufactures and markets various bulk actives, formulations and nutraceuticals.
Lake Forest-headquartered Hospira is one the world's leading provider of injectable drugs. In India, the company has a wholly owned subsidiary-Hospira Healthcare India.
more in Investing