Chennai-based Orchid Chemicals and Pharmaceuticals, which sold its injectable drug business to US-based Hospira for Rs 1,850 crore about six months earlier, is planning more buyouts in the US and Europe. It has charted a new global strategy to maintain 15-20 per cent annual growth.
This week, the company acquired the New Jersey-based Karalex in an all-cash deal for an undisclosed amount. Orchid expects the acquisition to add revenues of $20 million (Rs 90 crore) during the current year and $100 million (Rs 460 crore) next year through sale of Orchid’s own products launched in the US market.
Expansion plans
Orchid, one of the top five producers of cephalosporins and difficult-to-make carbopenams and oral antibiotics, is planning to expand its product basket to less competitive speciality drugs in non-penicillin-and non-cephalosporin antibiotic drugs in cardio-vascular, central nervous system, anti-diabetic and anti-inflammatory segments. Aggressive marketing strategies have been planned for the US and Europe markets, with direct front ends, besides partnership sales arrangements.
Its Rs 105-crore domestic formulation business, powered by a team of 600 medical representatives, is also expanding the domestic base. This business is likely to grow to Rs 150 crore this year. The company has filed 35 marketing applications for the US market and of this, 23 have been approved and another 12 are pending with the US Food and Drug Administration. Orchid’s 700-scientist-strong research and development team is working to file an average 25 new applications every year.
The company has repaid debts worth Rs 1,400 crore and now has a cash balance of Rs 322 crore. After the payout, the debt to equity ratio has come down to a healthy 1.3:1 from 4.6:1. Debts have come down to Rs 1,250 crore, including a Rs 600-crore working capital loan. The company has to repay foreign currency convertible bonds worth Rs 650 crore. Of this, Rs 100 crore has to be repaid by October and the remaining Rs 550 crore by February 2012. The de-leveraged balance sheet will help to open up more aggressive expansion in international markets, K Raghavendra Rao, chairman and managing director of Orchid told Business Standard this week.
Outlook
He said divestment of the injectable business will not impact Orchid’s sales revenues in the coming years. The Rs 1,345-crore turnover (2009-10) Orchid, which had revenues of Rs 1,315 crore in the previous year, will post 15-20 per cent annual growth in sales in the coming years. The company divested the injectable business worth an annual $90 million (Rs 422 crore) to Hospira, but retained a long-term contract with them to supply $40 million (Rs 190 crore) worth of bulk drugs (active ingredient), thus reducing the difference in revenues to only $50 million (Rs 235 crore). This difference will be covered up by new product launches and aggressive expansion in developed and emerging markets.
Rao said he planned to raise his stake in the company to 31 per cent this year, from the current 26 per cent. Rao and family, who pledged almost 80 per cent of their holding earlier, had increased their stake in Orchid to about 22 per cent through a conversion of warrants in August 2008, from a low promoter holding of about 18 per cent. Solrex Pharmaceutical, a Ranbaxy-owned company, had bought close to 15 per cent in the company two years earlier, causing speculation of a hostile takeover attempt. Raghavendra Rao said Solrex’s shareholding in the company had come down to about 12 per cent as Ranbaxy had shed over two per cent in stock market transactions. “It is up to them to decide”, he said.
