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Elder to sell drugs to Torrent to cut debts and focus on CMO and OTC biz

By Gareth MacDonald+

16-Dec-2013

Elder Pharmaceuticals has agreed to sell its branded drug portfolio to Torrent Pharmaceuticals in a deal that will refocus the firm as a CMO and anti-infectives producer. 

The proposed INR20bn ($322.5m) acquisition will see Torrent add around 30 branded products to its portfolio, which Elder will continue to manufacture under contract for the next three years.

Elder CEO Alok Saxena told the Bombay Stock Exchange that selling the drugs to Torrent “addresses our recent challenges and will significantly help Elder de-leverage its balance sheet” and confirmed that the firm will aim to grow its in-licensing, anti-infectives and exports business.

The “recent challenges” include debts of INR13bn built up as a result of various investments and acquisitions – notably the purchase of UK-based over-the-counter (OTC) drug firm Max Healthcare in July.

Elder said the deal will “involve the transfer of employees engaged in sales, marketing and operations” although the firm did not respond to a request for more information ahead of publication.

Elder operates six manufacturing facilities that will form the core of its CMO business, which include an active pharmaceutical ingredients (API) plant in Patalganga, a liquid drug production site in Dehradun and an R&D lab in Nerul district of Mumbai. 

Sources close to the development

Elder mooted the idea of selling off its branded drugs business this summer, telling the BSE on July 11 that with a view to reducing debt the board has approved a restructuring plan “involving either raising of capital, hiving off of assets or other strategic options and have decided to appoint advisors for this purpose.”

Subsequently, various Indian publications reported that Elder was in talks with a number of potential bidders – including French drugmaker Sanofi and the Carlye Group – although none of these reports was substantiated by anyone other than ‘people close to the matter.’

Prior to announcing the Torrent deal Elder remained tight lipped about the divestiture plan and even went as far as denying any deal was imminent after more rumours were reported by the Times of India on November 22 .

The response now the deal has finally confirmed has been mixed. Ranjit Kapadia, an analyst at Centrum Broking Pvt, told the Wall Street Journal’s Live Mint that while the divestiture will let Elder reduce debt, it would also see it lose some top revenue generators.

The cream of the business is gone. These were the company’s most profitable brands, and with their sale, overall margins will certainly be reduced,” said Kapadia, adding that the formulation business in India and Nepal contributed 50-60% of Elder's sales.

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