Why Wockhardt Needs A Strategic Partner
A little over a year after selling a portfolio of generics, Wockhardt Ltd. is again looking to either sell more assets or get an equity partner.
Wockhardt plans to sell its nutrition business, according to its annual report for FY21. "During the year, the group has reassessed the commercial prospects of nutrition business and has classified the related assets as held for sale."
Separately, media reports said the company is planning to sell stake to the Serum Institute of India. The company didn't respond to emailed queries citing the silent period ahead of its earnings for the quarter ended September. But it had informed exchanges that it’s evaluating various fundraising options, including equity, for which it’s in initial negotiations.
The Mumbai-based drugmaker has posted a loss in each of the four financial years through FY20. And that's when U.S. regulatory action has hurt business.
Nearly five of Wockhardt’s manufacturing units are under import alert by the U.S. Food and Drug Administration at present.
That has not only put curbs on some of its facilities in India, but also prevented it from launching newer products in the market that contributes 16% of its global revenue. Two of its anti-infective products, on which it had invested huge sums for development, are awaiting approval from the U.S. Food and Drug Administration.
“Certain manufacturing facilities, having net book value of Rs 293.38 crore (previous year Rs 183.55 crore) and capital work in progress amounting to Rs 285.81 crore (previous year Rs 426.14 crore), of the group continue to be affected due to regulatory alert from U.S. FDA and are currently not being used for alternate purposes,” the FY21 report said.
Investments were made in these facilities considering market feasibility and the potential of existing and future products in pipeline, it said. "Upon approval from regulatory authority, the group would be able to utilise the above mentioned manufacturing facilities to produce and supply products to U.S. market.”
While the company said it’s undertaking remedial work, it’s uncertain when these facilities will be cleared for production for the U.S. market.
In February 2020, the company its domestic branded generics division comprising a portfolio of 62 products and a manufacturing facility at Baddi in Himachal Pradesh, to peer Dr Reddy's Laboratories Ltd. Terms of the deal were in June and it was completed in FY21, improving its performance.
But with that, it also lost a revenue-generating business. So while sale of subsidiaries helped Wockhardt pare debt, its revenue fell. Between FY17 and FY21, the top line shrank 32.5% to Rs 2,708.3 crore.
The remaining operations of Wockhardt is a nearly Rs 900-crore revenue business. As of quarter ended June:
Net loss from continuing operations of Rs 6.58 crore against a loss of Rs 106.8 crore in the quarter ended March.
Revenue up 36% sequentially to Rs 859.6 crore.
Debt-to-equity ratio was 0.55 times.
U.K. business contributed 47% of global revenue, followed by Indian business at 18% and U.S. at 12%.
What's In It For Serum Institute
Brokerages say Wockhard's penetration in certain markets makes it a worthwhile investment.
Citing media reports about talks with companies including including Adar Poonawalla-led Serum Institute of India, Gaurav Jain, vice president and sector head at ICRA Ltd., said it could be "the birth of another strategic partnership for SII".
The proposed deal is akin to Serum Institute's partnership with Bengaluru-based Biocon Ltd., helping it gain manufacturing infrastructure in lieu of a fixed revenue stream to its partner, he said.
The Serum Institute declined to comment in response to BloombergQuint's emailed queries.
Wockhardt had signed an agreement with the U.K. government to fill empty Covid-19 vaccines, including Oxford-AstraZeneca shots (Covishield in India), it said in its annual report.
The company's global facilities, the report said, can produce over 1 billion doses of the vaccine annually and it has been exploring opportunities to tie up with developers to make or provide fill-finish facilities for Covid-19 dosages.
Surajit Pal, vice president-pharma at Prabhudas Lilladher, said the company’s relationship with AstraZeneca Plc. and its penetration in E.U. and U.K. markets would enable Serum Institute to divert the manufacturing and export of Covishield vaccine to Wockhardt's Indian facilities.
“This would enable Serum to shift its focus towards manufacturing of other vaccines like Novavax (Covavax in India) and Sputnik Light while providing a stable revenue stream to Wockhardt," Pal said.