Claris to sell Baxter its generic injectables business for US$ 625 million

Ahmedabad: Claris Lifesciences Ltd will sell its global generic injectables business to US-based Baxter International Inc. for $625 million (Rs4,238 crore), the Ahmedabad-based company said on Thursday. The company said it intends to share a significant majority of net cash proceeds from the sale (post expenses and taxes) with shareholders.

The deal size is twice Claris’s market capitalization of Rs1,956 crore at Thursday’s closing prices. The transaction is expected to close by the second half of 2017. While the firm hasn’t specified how much it will return to shareholders, even if 50% of the money from the sale is shared, that translates into a one-time cash bonanza of Rs388 per share, higher than the current share price of Rs358.45.

But in return, shareholders are also signing away a good portion of the company’s earning capacity. For the last fiscal year, the global generics injectables business generated revenue of Rs623 crore in the year ended March 2016, contributing 78% to the consolidated sales of Claris. At the end of March, Claris had gross debt of Rs602 crore and net debt of Rs205 crore, according the firm’s investor presentation.

“The plan to return cash to shareholders is likely to boost sentiment. The stock price is expected to get adjusted to the per share amount the shareholders will actually get from the deal and how much earnings the company will give up,” said an analyst with a domestic brokerage, declining to be named.

In the fiscal year ended 31 March, Claris operated the global generic injectables business through several wholly owned subsidiaries. It has a total of 40 abbreviated new drug applications filed with the US Food and Drug Administration (FDA), of which 16 are approved, the firm said in a statement. The company markets its products in more than 75 countries.

The injectables business has also been one of the fastest growing for Claris expanding in double digits annually over the last several years driven by new product launches and geographic expansion. In 2016, Claris Injectables’s revenue is expected to be in excess of $100 million.

Thus, the deal has been valued at 6.25 times sales.

“Globally, the capacity of injectables assets is experiencing a shortage. Therefore, there will be a demand and premium for high-quality and scaled assets like Claris,” said Gautam Kothari, associate director at Equirus Capital.

The demand for injectable generic drugs in the US is likely to surge as injectable drugs worth $16 billion are expected to go off-patent in the US during the 2015-19 period. A July report by rating agency Icra Ltd said that the US generic injectables market will grow at an annual average of 10% over the next five years.

Indeed, Claris has been trying to sell its injectable business for the past two years. Sale talks were held up after the US FDA issued a warning to its Ahmedabad plant in May 2015.

There have been a couple of other big deals in this space. In 2013, Strides sold its injectables unit, Agila Specialties, to US-based Mylan for $1.6 billion. In July, Shanghai Fosun Pharmaceutical (Group) Co. Ltd said it will acquire India’s Gland Pharma Ltd, an injectables specialist, for $1.3 billion (Rs8,700 crore).

In a separate statement, Baxter said that the acquisition will provide it with a robust pipeline, marketed portfolio, research and development expertise and three FDA-registered manufacturing units. Claris Injectables will add proven capabilities in production of essential generic injectable medicines, such as anesthesia and analgesics, renal, anti-infectives and critical care in a variety of presentations including bags, vials and ampoules.

With the addition of Claris’s portfolio, Baxter plans to launch seven to nine new products annually over the next few years and 10-15 per year beyond 2019.

Credit Suisse and Jefferies acted as the financial advisers to Claris; Herbert Smith Freehills LLP, Veritas and AZB were legal advisers.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.