Torrent to buy Unichem's domestic biz for Rs 3,500 cr; announcement today

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Ahmedabad-headquartered pharmaceutical giant Torrent Pharmaceuticals is likely to announce the acquisition of Unichem Laboratories' domestic business for a consideration of about Rs 3,500 crore after market hours on Friday. 

The company's board is meeting on Friday for approving the second quarter results. Sources in the know said that the announcement would come in after the board meeting ends in the afternoon. 

Interestingly, on October 24, Unichem, too, had said that it was postponing its board meeting (earlier scheduled for October 31) to November 3, the same day as that of Torrent Pharmaceuticals. 

For some time now, 73-year-old Unichem Laboratories has been on the block. 

News about the promoters wanting to sell Unichem's domestic business has been doing the rounds for the past three years or so. Names of some of the top pharma players in the world, including Mylan, Abbott, Sanofi, Teva, and even Pfizer, have been tossed around. 

Unichem's stock prices had hit a 52-week high of Rs 338.6 a share earlier this week on reports that Torrent Pharmaceuticals was in advanced stages of talks to buy its domestic business. 

The company is promoted by Prakash Amrut Mody, who owns a controlling 50.06 per cent stake along with his family. Public shareholding is at 49.94 per cent. 

Unichem's domestic business accounts for around 56-57 per cent of its overall sales. What makes the company lucrative to potential buyers is that only 10-12 per cent of its domestic drug portfolio comes under the National List of Essential Medicines. Also, around 60 per cent of Unichem's domestic revenues come from chronic therapies, an area all pharma majors are focusing on to ensure sustained revenue growth amid regulatory uncertainties in the domestic market. 

In 2016-17, Unichem had posted a revenue of Rs 839.5 crore from its domestic formulations business, up 11 per cent year-on-year (yoy). Torrent, on the other hand, recorded revenues worth Rs 1,977 crore from its domestic formulations business, up eight per cent yoy. 

Torrent's domestic business was hit in the first quarter this financial year, down nine per cent to Rs 464 crore owing to goods and services tax-related channel disruptions. The US business, however, dipped 37 per cent to Rs 272 crore.  

Analysts point out that the slowdown in the US business for the past few quarters has been a cause of concern for Torrent, which is investing in research and development (R&D) to shore up its pipeline for the US. 

"The company is thus focusing on the domestic formulations business in order to de-risk the overall business model. Acquisitions help to plug therapy gaps," said an analyst. Unichem has strong brands like Unienzyme in its portfolio. 

Unichem's domestic business has done well last year. "In the domestic formulations business, during the financial year 2016-2017, we have seen consistent improvement in performance; having reported a growth of 14.5 per cent as against Indian Pharma Market's (IPM) growth of 10.3 per cent," Mody has said in the company's annual report.

Unichem Snapshot:

  • It's a 73-year-old pharma company 

  • Key brands like Unienzyme, Unistar, Losar, Serta in its portfolio

  • Around 11 brands in the cardio/diabetology segment have sales of over Rs 100 crore

  • Only 10-12 per cent of its domestic formulations business comes in the NLEM-price control category

  • It has a 3,400-strong field force

  • Formulations manufacturing facilities at Baddi, Ghaziabad, Sikkim, and Goa

  • Market cap of Rs 2,831 crore as on November 2, 2017

  • Chronic therapies account for 60 per cent of domestic revenues; acute therapies account for 40 per cent

  • Domestic business stood at Rs 839 crore in FY17

Recent acquisitions by Torrent Pharma

December 2013: Torrent Pharmaceuticals acquired the branded domestic formulations business (30 brands in all) of Elder Pharma for Rs 2,004 crore. At the time of the deal, Torrent ranked 19th in the domestic market with 1.9 per cent share; it jumped to the 14th spot after the deal.  

February 2015: US Federal Trade Commission (USFTC) ordered Sun Pharma to divest its interest in a generic anti-bacterial medicine (Minocycline tablets) to Torrent Pharma for an undisclosed sum. The deal took almost a year to complete. 

May 2015: Torrent Pharma acquired Encore Group company Zyg Pharma for an undisclosed sum. Market sources pegged the deal at Rs 350-400 crore. It got some dermatological formulations and Zyg's Indore manufacturing facility as part of the deal. 

June 2016: Torrent Pharma signed an agreement to acquire Vizag-based API manufacturing unit of Glochem Industries for an undisclosed amount.   

May 2017: It acquired the Regestrone and Pregachieve brands for India from global pharma player Novartis AG, Switzerland.

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