Wockhardt Agrees To Sell Select Branded Generics Business To Dr. Reddy’s For Rs 1,850 Crore

Wockhardt Ltd. agreed to sell select divisions of its branded generics business and a manufacturing facility to Dr. Reddy’s Laboratories Ltd. as the Mumbai-based drugmaker looks to raise cash for fresh investments and paring debt.

The board of Wockhardt considered and approved the transfer of business in India and a few other international territories of Nepal, Sri Lanka, Bhutan and Maldives through a slump sale to Dr. Reddy’s for Rs 1,850 crore, according to an exchange filing.

The business comprises a portfolio of 62 brands in multiple therapy areas such as respiratory, neurology, VMS, dermatology, gastroenterology, pain and vaccines along with related sales and marketing teams; and the manufacturing plant located in Baddi, Himachal Pradesh, with all plant employees, it said.

The sale comes when the U.S. market’s contribution to Wockhardt’s overall revenue has fallen to almost nothing in the last five years as the U.S. Food and Drug Administration issued an import alert for three of its key plants—Waluj and Chikalthana in Maharashtra and Ankleshwar in Gujarat.

Shares of Dr. Reddy’s gained for the second straight trading session as they rose close to 0.65 percent, while Wockhardt dropped as much as 4.6 percent. That compares with a 0.76 percent gain in the benchmark Sensex.

The business being transferred, according to Wockhardt’s filing, reported a revenue from operation worth Rs 377 crore for the nine month ended December 2019. That’s around 15 percent of its business, it said, adding the proposed divestment is 3.8 times of annualised revenue of the business being transferred. This transaction is expected to be completed in May 2020, subject to approvals.

The intended sale of business portfolio is in line with Wockhardt’s strategic plan to shift from acute therapeutic areas to more chronic business, said Habil Khorakiwala, founder chairman of the group. The divestment, Khorakiwala said, will also ensure adequate liquidity to bring in robust growth in the chronic domestic branded business, international operations, investments in biosimilars for the U.S. market.

The company also said in the filing that the deal would strengthen its balance sheet. The drugmaker’s debt stood at Rs 2,560 crore as of September 2019.

After the deal, Wockhardt will continue to own all international operations in the U.K., the U.S., Ireland and other locations through its step-down subsidiaries, the filing said. The company will also own the formulation plants located at Waluj, Shendra and Chikalthana in Aurangabad, Bhimpore and Kadaiya in Daman; bulk drugs plant at Ankleshwar, India and manufacturing facilities at all existing international locations. A significant part of its domestic branded business constituting chronic and specialty portfolios, too, will be retained by Wockhardt, according to the filing.

GV Prasad, co-chairman and managing director at Dr. Reddy’s, said the acquisition would help the company in considerably scaling up its domestic business—that constituted 18 percent to its top line in the third quarter. “The acquired portfolio shall enhance Dr. Reddy’s presence in the high growth therapy areas with market leading brands such as Practin, Zedex, Bro-zedex, Tryptomer and Biovac.”

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