Blackstone-Aurobindo Pharma talks over injectable business stake sale hit hurdle

Representative image.

The mega sale process of a majority stake in the injectable business of Aurobindo Pharma valuing the entire business between $4 billion and $4.5 billion has hit a hurdle due to differences emerging between the Hyderabad-based drugmaker and lead suitor private equity major Blackstone, multiple industry sources with knowledge of the development told Moneycontrol.

“Blackstone was seen as the frontrunner for this proposed transaction via which Aurobindo Pharma was looking to unlock value. But post due diligence the negotiations have hit a roadblock and the deal structure proposed by Blackstone is not agreeable to the sellers,” said one of the persons cited above.

On March 16, Moneycontrol had reported that the race for the injectable business which was being run by investment bank Kotak Mahindra Capital had entered the final leg with three shortlisted suitors. “Blackstone is aggressively pursuing this deal and is being viewed currently as a strong contender,” the report had added.

A second person said that Blackstone and Aurobindo Pharma differed on valuations and deal terms and that had led to discussions not moving ahead in the past few weeks.

A third person confirmed the above but added that Blackstone was “still in negotiations.”

“Another suitor, rival private equity firm Barings Private Equity Asia, is also in the fray for the deal, though the status of its discussions with Aurobindo Pharma is unclear,” added a fourth person.

All the four persons cited above spoke to Moneycontrol on condition of anonymity.

When contacted, Blackstone and Barings PE Asia declined to comment. Moneycontrol is awaiting an email response from Aurobindo Pharma and has sent multiple reminders. This article will be updated once we hear from the firm.

AUROBINDO PHARMA: THE INJECTABLE STRATEGY

In May 2021, in a move to improve operational efficiency , Aurobindo Pharma had approved the transfer of its injectable assets into a subsidiary called Eugia Pharma Specialities Limited for “greater focus, attention and specialization” and also to “ augment fund raise and strategic tie-ups in future through joint ventures etc” according to exchange disclosures.

The transfer of Unit IV, which manufactures generic injectables and ophthalmics, was done for Rs 876 crore. The unit clocked revenues of Rs 926 crore in FY21 and accounted for 5.86 percent of the firm’s turnover on a standalone basis.

In response to a query on investors eyeing the injectables business during an analyst call in February, the CFO Subramanian Santhanan said: “The BOD has constituted the committee of independent directors on November 8 for comprehensive evaluation of various options and alternatives, including the demerger for restructuring Eugia and related arrangement. Their evaluation by the COD is ongoing with inputs also being taken from certain advisors. We will inform the stock exchange once an option has been finalised and approved by the Board of Directors and as it is required by the applicable law and regulations. The company is fully cognizant of the need to create shareholders value and the Committee of Independent Directors is also aware of this.”

The management further added, “Eugia is all about not only injectable, it is a complete speciality business. It is general injectable, oncology injectable, oncology oral solids and hormonals. We are  clocking at a range of around $100-110 million every quarter; that is the last 3 to 4 quarters performance. We expect that it would go up to a double-digit growth next year.”

On May 10, the firm announced that the United States Food and Drug Administration (US FDA) had inspected Unit VII, an oral manufacturing facility situated at Jedcherla, Hyderabad, from May 2 to May 1o, 2022. At the end of the inspection, the firm was issued a 'Form 483' with six adverse observations.

A week later, the firm disclosed the following on the same case:

“Based on the inspection review and the written responses provided by the company, the agency has concluded that the assessment is completed with 'no remaining deficiencies'. A copy of the EIR has been received dated 17th May 2022.” EIR is establishment inspection report.

Aurobindo Pharma develops, manufactures, and commercialises a wide range of generic pharmaceuticals, branded specialty pharmaceuticals and active pharmaceutical ingredients globally in over 155 countries. The company has 26 manufacturing and packaging facilities that are approved by leading regulatory agencies including USFDA, UK MHRA, EDQM, Japan PMDA, WHO, Health Canada, South Africa MCC, Brazil ANVISA.

Its product portfolio is spread over seven major therapeutic/product areas encompassing CNS, AntiRetroviral, CVS, Antibiotics, Gastroenterological, Anti-Diabetics and Anti-Allergic, supported by an R&D set-up.