Chennai, Dec 16 (IANS) City-based Cephalosporin bulk drug major, Orchid Chemicals and Pharmaceuticals Limited, will utilise $400 million received from selling its generic injectible business to pay off debt, expand its plants and look at inorganic growth opportunities, said a top company official.
“We will pay off long term debt of $260 million and also reduce the working capital borrowings. The tax component will be $20 million. The balance will be used for growing the other business,” K. Raghavendra Rao, the managing director, told reporters here Wednesday.

The Rs.1,191-crore turnover Orchid Chemicals sold its generic injectible business (cephalosporin, penicillin, carbapenem and research and development facilities located at Irrungattukottai near here) to US drug major Hospira Inc.

The business generated a revenue of $90 million and an EBITA (earnings before interest, tax and amortisation) of around $40 million.

“The generic business will plateau in the years to come as competition increases. The rationale for selling the business is to improve the balance sheet, expand the relationship with Hospira and look at inorganic growth options,” Rao added.

As per the deal, the US company will source the active pharmaceutical ingredients (API) exclusively from Orchid Chemicals for 10 years to be supplied from its two other plants.

“Once the long term debt is paid the company can leverage its balance sheet to raise debt for organic or inorganic growth,” Rao added.

Orchid Chemicals will receive $380 million from Hospira by the end of this fiscal and the balance $20 million over a period 12 months after that.

“With this acquisition Hospira not only gets a cost competitive plant that has been certified by various regulatory authorities but also platform for future commercial growth in India,” said Terry Kearney, chief operating officer, Hospira.

He said a new company will be incorporated which will own the acquired business.