Dr. Reddy’s Laboratories will acquire select divisions of Wockhardt's branded generics business in India and a few other international territories of Nepal, Sri Lanka, Bhutan and Maldives for a consideration of Rs 1,850 crore.
The two sides have signed a definitive agreement, according to a statement issued on February 12.
The portfolio acquired by Dr Reddy's comprises of 62 brands in multiple therapy areas such as respiratory, neurology, VMS, dermatology, gastroenterology, pain and vaccines. Besides, it would also take over the related sales and marketing teams and the manufacturing plant located in Baddi, Himachal Pradesh with all plant employees. The business undertaking is being transferred on a slump sale basis.
The domestic branded generics business that Dr Reddy's acquired from Wockhardt had revenues of Rs 594 crore in FY19. For nine months of FY20, the revenues of the acquired business stood at Rs 377 crore.
Domestic formulation business contributed Rs 2,620 crore or 17 percent of Dr Reddy's Rs 15,385 crore revenues in FY19 registering a growth of 12 percent over previous year.
“India is an important market for us and this acquisition will help in considerably scaling-up our domestic business," said GV Prasad, the Co-Chairman and Managing Director of Dr. Reddy’s.
The acquired portfolio shall enhance Dr. Reddy’s presence in the high growth therapy areas with market-leading brands such as Practin, Zedex, Bro-zedex, Tryptomer and Biovac.
The acquisition will help Dr Reddy's to jump two places to 12th position on rankings of Indian pharmaceutical market by sales, and will eventually help it to break into top-10.
"We believe the portfolio holds a lot of potential and will get an impetus under Dr. Reddy’s. We welcome the team joining as part of the deal to the Dr. Reddy’s family,” Prasad added.
The transaction is expected to be closed in the first quarter of the financial year 2020-21.
Sale to help Wockhardt to repair balance sheet
Wockhardt said the sale of a major chunk of domestic formulation business will help Wockhardt strengthening its balance sheet by significant debt reduction.
The long term outstanding debts as on September 20, 2019 were Rs 2,098 crore. The company's gross debt to equity ratio as on December 2019 stood at 0.95.
"The intended sale of the 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 etc. and also to its niche antibiotic portfolio of NCEs," said Habil Khorakiwala, Founder Chairman of Wockhardt Group.
"The divestment will also ensure adequate liquidity to bring in robust growth in the chronic domestic branded business,
international operations, investments in biosimilars for the US market apart from the company's global clinical trials of breakthrough anti-infectives (NCEs approved under coveted QIDP1 program of United States Food & Drug Administration) and R&D activities" Khorakiwala said.
Following the sales, Wockhardt will be left with chronic and speciality business that includes diabetes and biosimilars; international operations in UK, USA, Ireland and other locations.
Formulation plants located at Waluj, Shendra and Chikalthana in Aurangabad, Bhimpore and Kadaiya in Daman; bulk drugs plant at Ankleshwar, India and manufacturing facilities at all existing international locations. Research & Development centers located at Chikalthana, Aurangabad, India and existing facilities in the international locations.
Shares of Dr Reddy's rose 0.49 percent and were trading at Rs 3206 on BSE at 1.15 pm, while Wockhardt declined 2.55 percent to Rs 383.40. The benchmark Sensex rose 0.81 percent to 41,549.43 points.