Strides had a net debt of around Rs 1,820 crore as on December 31, 2018.
Drug maker Strides Pharma, which announced the sale of its Australian generic business, says its plans to use the proceeds generated from sale to pare debt and expand business in US and other regulated markets through acquisitions.
Strides on January 29 told stock exchanges that it has entered into an agreement to sell its entire Australian generics business (Arrow) to entities owned and operated by Dennis Bastas, Executive Chairman and co-founder of Arrow for 394 million Australian dollars.
Strides will receive AUD 300 million as upfront payment at the closure of the transaction, while the balance AUD 94 million to be deferred through a secured instrument.
Arrow will merge with Apotex to create the new entity Arrotex.
Strides will retain Portfolio IP and enjoy a ten-year preferred supply agreement with Arrotex.
Strides said it will use the proceeds to pare $150-160 million of term debt to strengthen balance sheet and infuse $90-$100 million as growth capital for other operating markets.
Strides had a net debt of around Rs 1,820 crore as on December 31, 2018. With repayment of loans, the company='s debt equity ratio it expected to come down to 0.4 percent.
But the sale of the Australian business also means that the drug maker will lose nearly one-third of its revenues and EBITDA of around 45-50 percent.. Australia sales constituted Rs 920 crore of Strides' revenue in FY18.
To make-up for the loss in revenue due to sale of Australia business, Strides is betting big on US generics business expansion.
The US business achieved break-even in Q2FY19 and has now begun to generate profits. It registered 30 percent growth to $41 million in Q3FY19 on YoY basis, outperforming Australia to become the largest market for Strides in the third quarter.
To further accelerate the business Strides announced purchase of Vensun Pharma for $93 million, of which $75 million will be paid over a period of six years.
This acquisition provides access to competitive generic therapy designated products of size $400 million in the US, in addition to 16 commercialized abbreviated new drug applications (ANDAs) and 12 pending approvals to its pipeline.
Competitive generic therapy is a new programme launched by USFDA to encourage generic drug development for products with inadequate generic competition.
Strides also bought out partner Vivimed's stake for Rs 75 crore to take full control of USFDA compliant Alathur manufacturing site in Tamil Nadu that gives access to 10 approved products with sales of $25 million, including the much needed backward integration capabilities for US business.
The company said it is re-calibrating its distribution strategy in US, by bringing more than half of its products sold under its own front end, instead of partners to improve profit margins."While Strides would retain 40-50 percent of its current Australia EBITDA via product supplies to the merged entity, the US generic market now becomes the key value and growth driver for the company. Acquisition of Vensun Pharma and residual 50% stake in the Vivimed JV will improve the US business mix and profitability. Given that Strides US business has already broken even, these acquisitions and operational leverage from new launches, would help to bridge the EBITDA loss from the
Australia business," IIFL said in its post earnings research report.
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