"The structuring is directed towards having a sharper focus on compliance, supply chain and front-ends to provide the necessary growth impetus for its consumer facing formulations business," Strides said.
In a major overhaul of its business drug maker Strides Shasun Friday said it will be demerging its active pharmaceutical ingredient (API) business, and exiting lacklustre biotech and probiotic business in order to focus on high margin formulation business.
The company said it is seeking shareholders' approval to demerge the commodity API business into a new listed entity.
“As part of the same scheme, the human API business of SeQuent Scientifc is also proposed to be carved-out into this new company, thereby providing critical size to this business,” Strides said in a statement.
The transaction was in principle approved by the boards of both the companies and is subject to approval from shareholders and meeting customary closing conditions.
The combination will catapult the new company to be the largest standalone API companies in the country. The business will create value for its stakeholders with its differentiated strategy and highly compliant manufacturing facilities, Strides said.
The proposed API firm will have 5 manufacturing sites, including 3 sites approved by US FDA.
Strides said its board has formed a committee comprising of three independent directors to appoint valuers, merchant bankers, solicitors and other intermediaries to work out valuation and share swap ratios.
The merger is expected to be completed by October 1, 2017.
Strides said it will also be ending its investment in Stelis BioPharma, a company engaged in contract research and manufacturing in addition to development of biosimilars.
The capital outlay of the Stelis BioPharma was USD 118.8 million of which Strides total capital commitment was USD 56.9 million against which the company has so far invested USD 22 million. GMS Holdings a strategic partner in the business will hold 25.1 percent for total committment of USD 21.9 million.
With a few molecules in the biotech portfolio having crossed the initial milestones and entering into the clinical phase and combined with the scale up in the physical infrastructure including the upcoming bio-pharmaceutical facility at Bangalore, the biotech business is entering into a high investment phase.
Stelis Biopharma is still not ready for a separate listing yet as the commercial revenue generation is only expected to kick in significantly later and the current growth phase will require significant upfront investments.
Under the proposed structuring, Strides will cap its total equity infusion at USD 22 million for a significant minority stake. The remainder of the capital committment will be funded by the promoters of Strides and GMS Holdings.
Strides also said it will be selling its probiotic business to the promoters of the company. Strides acquired 51% stake in the probiotic business of Shriram group promoted Medispan as part of the emerging over-the-counter (OTC) franchise in India in December 2015 for Rs.10.2 crore.
The business had revenues of Rs 7.6 crore at acquisition. Strides said the business has de-grown substantially since then.
The divestment of the probiotic business will not result in any capital gain or loss for the company, Strides said.
Post the structuring the company will operate through its 2 divisions of regulated and emerging markets.
The regulated business will have a front-end presence across Australia, US and UK. The business will be complimented by 4 US FDA approved facilities in India, Europe and Singapore.
"The structuring is directed towards having a sharper focus on compliance, supply chain and front-ends to provide the necessary growth impetus for its consumer facing formulations business. This business is expected to have a superior margin profile, better asset turnover and a healthy return on capital," Strides said.
Strides had revenues of Rs 3177.6 crore in FY16, of which API segment contributed about 33% of the revenues. The company earns half of its revenues from formulation sales from regulated and emerging markets.
Shares of Strides rose 10.55 percent to close at Rs.1194.30 on BSE, the benchmark Sensex gained 0.05 percent to end 28,240.52 points.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.