Claris Lifesciences sells injectables business to Baxter for Rs 4,237 cr

Claris promoter Arjun Handa likely to exit pharma business; start new venture

In another big domestic pharma deal, yet another Ahmedabad-based company Claris Lifesciences has entered into a definitive agreement with US-based Baxter International Inc. to sell its wholly owned subsidiary Claris Injectables for approximately $625 million ( Rs 4,237 crore). 

The injectables business roughly comprises about 70-80 per cent of Claris Lifescience's business, the remaining coming from pass-through sales of Claris-Otsuka. 

As per sources in the know, Arjun Handa, the executive vice chairman and group managing director of Claris Lifesciences Limited is likely to exit the pharma business and start a completely new venture. 

 "First, we would continue to run the company till the deal is closed formally, which might take around five to six months from now. The idea is to repatriate a sizeable portion of the funds generated to the shareholders and then whatever money Arjun has with him, he will start looking at new businesses," said a source close to the developments. 

The current deal is valued at Rs 4237 crore, of which a sizeable portion would go to pay shareholders, around 85 per cent or so. "We have not thought, whether it will be a dividend, a buyback or whether we want to de-list the company," said the source. Handa has a 50 per cent shareholding of Claris Lifesciences, and the remaining 50 per cent is with public. Around seven to eight institutional investors hold around 22 per cent of public shareholding. 

Handa, however, is likely to start a new non-pharma venture. Pharma does not excite him anymore, said someone close to Handa. 

Coming back to the deal, Baxter said that it plans to fund the $625 million deal with cash on hand, debt or a combination of both, and hopes to close it by the second half of 2017, subject to customary closing conditions. The company also said in its investor presentation that the deal is likely to be accretive to revenue growth and EBITDA, and is likely to give a double-digit return on invested capital by the fifth year. 

Jose (Joe) Almeida, chairman and chief executive officer, Baxter said, “Global demand for high-quality cost-effective generic injectable pharmaceuticals is growing rapidly; and Claris Injectables’ differentiated portfolio, technologies and expertise strongly complement Baxter’s own world-class products and capabilities. This combination will strengthen Baxter’s presence and potential as a market leader in this space.”

The combined Baxter-Claris portfolio is likely to have over 100 launches over the next five years, in segments like analgesics, critical care, anti-infectives. Claris Injectables had clocked $100 million in sales in 2016, with a 30-35 per cent EBITDA margin, Baxter added in its presentation. Around 50 per cent of its revenues come from the US market, about 20 per cent from other developed markets, and 30 per cent from emerging markets.

Revenues for the H1FY17 has grown by around 32 per cent for the comparable period to Rs 387 crore, mainly on account of improvement in US sales. EBITDA for H1FY17 has grown by 43 per cent and margin has improved from 30 to 32 per cent.

Commenting on the deal Handa said, "We have been focused on the injectables segment and have created a world class integrated business model from research to marketing and a platform with high entry barrier specialty products and technology, R&D capability and world-class manufacturing infrastructure with a quality team having best in class knowledge."

While this happens to be the second biggest injectables deal in the recent times, the industry feels that regulatory and compliance issues could be the reason behind the company selling its injectables business. According to Kewal Handa,  former managing director of Pfizer India, "Regulatory and compliance issues and an inability to leverage business in the US could be the reason for Claris selling its injectable business."

Earlier, in December 2012, Claris Lifesciences had entered into a joint venture with Japan's Otsuka Pharmaceutical Factory Inc and Mitsui & Co Ltd for its infusion business in India and emerging markets. The business was valued at Rs 1313 crore, and Claris had received total cash consideration of Rs 1050 crore over multiple agreements.

Claris had transfered the common solutions, anti-infectives, plasma volume expanders and parenteral nutrition therapies of Claris for India and the emerging markets to the Claris-Otsuka JV.Claris holds a 20 per cent stake in the joint venture, while Otsuka will hold 60 per cent and the remaining 20 per cent will be with Mitsui. Claris-Otsuka co-brand its products in India and across emerging markets utilising the manufacturing and marketing backup of the Claris.

A source close to the development said that of the Rs 1000 odd crore from that deal, around Rs 360 crore went for debt repayment, another Rs 300 crore for dividends and buyback to shareholders, and Rs 100-150 crore was for deal expense and taxes. The company thus has around Rs 200 crore or so from that deal on its books.