Mumbai: Unichem Laboratories Ltd plans to return to its shareholders more than 50% of net proceeds it will receive from the sale of domestic formulations business to Torrent Pharmaceuticals Ltd. It will use the rest to expand its international business, particularly in the US.
“Post-tax, whatever funds we get from the Torrent deal will remain in the company. There are only two things we will do. One is that we want to return more than 50% to shareholders by way of enhanced dividend or buyback, and the other is (to) augment our international business. There is no third plan or idea to invest into anything else,” Prakash Mody, chairman and managing director of Unichem said in an interview.
On Friday, Unichem said it had entered into a definitive agreement with Ahmedabad-based Torrent Pharmaceuticals Ltd to sell its branded formulations business in India and Nepal for Rs3,600 crore. The boards of both companies have approved the deal, which is expected to close by end of December.
As part of the deal, Unichem will transfer its brands in India and Nepal, manufacturing facility in Sikkim and about 3,000 employees, which include domestic marketing field force and Sikkim plant workers, to Torrent Pharmaceuticals.
The Mumbai-based company will retain its international business, formulations plants in Goa, Baddi and Ghaziabad, the active pharmaceutical ingredients (API) plants in Roha, Kolhapur and Pithampur, the research and development (R&D) centre at Goa, the corporate office in Jogeshwari, Mumbai and employees related to these businesses.
Unichem plans to enhance its footprint in international markets by expanding manufacturing capacitates, improving R&D, developing complex molecules, and looking at acquisitions in the US.
In order to increase presence in the US, pharma firms need to file more abbreviated new drug applications (ANDAs) with the US Food and Drug Administration (FDA), which Unichem was not able to do due to lack of sufficient funds, but the Torrent deal gives it the opportunity to do so now.
“The big issue for us was to ramp up higher number of ANDAs. Now in the US space, there is big money involved. Not many companies can afford to pay the fees which are required every year. We are spending millions on just keeping the facilities up and going, inspections is another story. Now, we will focus on more ANDA filings,” Mody said.
The company plans to file a minimum of 20 ANDAs with the US FDA per year over the next three years, he said. In the current fiscal, Unichem may file about 15 generic drug applications.
Currently, Unichem has 27 generic drugs approved in the US and 15 applications are pending with the US regulator. Within three years, it expects that total applications filed in the US will be at least 100.
Apart from simple generic drugs, the company has certain limited competition and first-to-file opportunities in its pipeline for the US, he said.
With the rise in product filings in the US, the company’s R&D costs are likely to increase from about Rs150 crore currently but at the same time, it will save costs that it used to incur on marketing brands locally, and on employees engaged in the domestic business, Mody said.
In 2016-17, Unichem’s consolidated revenue stood at Rs1,535.5 crore, up 13.9% from a year ago. International business grew 19.5% to Rs679.9 crore. Sales in the US were $41.1 million or Rs267 crore.
“With this Torrent deal, Unichem will be able to invest more on R&D and increase presence in the US. Although the US market is going through structural changes, Unichem will still be able to derive benefits because of low base. Except the US, most of the overseas markets are not EBITDA positive for the company and this enhanced focus on international business will probably lead to some revival,” said Rashmi Sancheti, an analyst at Anand Rathi.
The company is also looking to expand its API and contract manufacturing business. “As of today, we have not expanded the API capacity to its full potential. There is room for expansion and there will be good turnover and profitability coming out of that, which as of today for whatever reasons we sacrificed to support our own formulations,” Mody said.