Allecra deal to infuse USD 1m in cash: Orchid Chemicals

K Raghavendra Rao, chief managing director, Orchid Chemicals and Pharmaceuticals says the company will continue to supply Cephalosporin to regulated markets including US. Rao's statement comes on the back of the US Food and Drug Administration (USFDA) clearing Orchid’s Chennai based Alathur unit.

"This unit was inspected for current goods manufacturing practices (cGMP) complaint and the US Food and Drug Administration (USFDA) has given the approval for products to be produced from there to be sent to the US markets," adds Rao in an interview to CNBC-TV18.

On the road ahead, Rao says the company will be infused with a capital of USD one million due to its deal with Europe based venture capital funded Allecra Therapeutics. The collaboration will develop antibiotics to combat multi-drug resistant bacterial infections.

"This is a big shot in arm for our drug discovery programme because we have been investing in basic research and development (R&D) for sometime now. We will be holding around 20 percent shareholding into that company and molecule and as it progresses, we will get further revenues from it in the form of exit bonuses and further royalties," adds Rao in an interview to CNBC-TV18. 

Below is the edited transcript of Rao’s interview to CNBC-TV18.

Q: Can you take us through what this means to the company in terms of revenues and sales?

A: This means a continuation of our business in the regulated market. Alathur unit has been inspected in the past and every time we have come through with flying colours and this time it was no exception. This unit was inspected for current goods manufacturing practices (cGMP) complaint and the US Food and Drug Administration (USFDA) has given the approval for products to be produced from there to be sent to the US markets.

Therefore, it is a continuation of Cephalosporin business as we produce the active pharmaceutical ingredients (API) and that API goes into formulations and the formulation unit is also approved. So, it is a continuation of business for the regulated market and that is what it means.

Q: The other news is your partnership with Allecra. Could you explain to us what is this all about and how this will help you?

A: This is a big shot in arm for our drug discovery programme because we have been investing in basic research and development (R&D) for sometime now. This is a new novel antibiotic, which we are progressing in collaboration with Allecra, which is a Switzerland based company. Into that company, venture capital funders are putting in about USD 20 million, that is about 15 million euro to progress the molecule. We will be holding around 20 percent shareholding into that company and molecule and as it progresses, we will get further revenues from it in the form of exit bonuses and further royalties. We also get an upfront on signing this deal.

Q: What should we expect by way of revenue in FY14?

A: Immediately we are getting around million dollars in cash to start with and then it depends on the progress that this molecule makes. We are having a shareholding into that company with exit bonuses, royalty payments and manufacturing license as we go forward. This is an important collaborative programme to develop medicines, which are required for gram-negative bacteria. There are lots of resistant bacteria for which there is no cure at the moment. So, this a collaborative approach, which we have taken and this is a positive thing for Orchid.

Q: Any relief in your working capital constraints which was very reflected in your Q3 numbers?

A: We are still continuing with the deal with Hospira. We hope to conclude it as soon as possible now. So, as that is put in place, the whole position will ease. Therefore, we expect that easing to happen in this quarter.

Q: Your stock lost about 70-80 percent from highs of Rs 340 and the main concerns were on pledge shares. The data suggested that about 80 percent of promoter holding is pledged. We do not have the data for the March ending quarter yet on the exchanges. If you could take us through that and you are working in terms of revoking any of the pledges?

A: That is a continuous process. It has been steadily coming down and I expect that to come down significantly to less than half of my holding by end of this quarter. That is a continuous process for first generation enterprise and we are at it. So, I do not see that as a big issue. It will keep coming down as the time goes by.

Q: So from 78 percent what has it come down to now?

A: It is around 70 percent now, which we will pare it down to 50 percent by end of this quarter.