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Bengaluru headquartered Strides Pharma Science is spinning off its contract development and manufacturing (CDMO) business along with the soft-gelatin business into an entity called ‘OneSource’ (currently Stelis Biopharma) that will be eventually listed in the next 12-15 months to have better synergies and unlock value.
OneSource is created by merging Strides’ soft-gel business and SteriScience CDMO injectables business into current Stelis. Strides Pharma stock reacted positively to the development—raced to a 52-week high of Rs 549 before closing at Rs 535.65, up by 7.42 per cent, on the BSE.
Strides noted that Strides Pharma shareholders will receive one share of ‘OneSource’ for every two shares of Strides at a swap ratio of 1:2. The implied value of OneSource for Strides shareholders is Rs 364 per share. Strides Shareholders will own 44% of the economics of OneSource.
“The new platform will be able to offer development and manufacturing services covering platform technologies, specialty injectables, complex generics, biosimilars and biologics,” it added. Strides noted in an investor presentation that they expect OneSource business in FY25 to achieve sales between $180 million and $200 million with around a 30 per cent Ebitda margin based on a strong order book. OneSource has the potential to double its scale in 3-4 years mainly from the momentum from biologics and high-end drug-device combinations in GLP-1 products, it added.
The Strides board on Monday approved a scheme of arrangement amongst Strides Pharma Science, SteriScience Specialities and Stelis Biopharma, Strides Pharma said in a stock-exchange notification.
Strides will demerge its oral soft gelatin business and the identified CDMO business (including investments held by Strides in Stelis) into Stelis. Upon demerger, the shares of Stelis held by Strides will be cancelled, and the shareholders of Strides will become shareholders of Stelis.
SteriScience (a promoter group company) will demerge the identified sterile injectables CDMO business into Stelis.
Pursuant to the demerger, Stelis will issue equity shares to the shareholders of Strides and SteriScience on the recommended share entitlement ratio determined by an independent valuer. After the approval of the scheme, Stelis (OneSource) will be listed on NSE and BSE.
The proposed demerger will be completed by 1 April 2024. Strides said in a statement that upon transfer of the businesses OneSource will have a revenue of Rs 7550 crore encompassing Rs 2435.5 crore of the softgel business of Strides Pharma, Rs 2195.8 crore of the Steriscience and Rs 2920.8 crore of Stelis.
Arun Kumar, executive chairperson and managing director of Strides, told reporters over a call that they had invested heavily in the biologics business, but some things did not go as planned. For example, Strides’ arm Stelis had tied up with the Russian Direct Investment Fund (RDIF) to make the Sputnik V vaccine for Covid-19. However, low demand for the vaccine in India, as well as the Russia-Ukraine war, derailed Stelis’ plans.
Stelis reported a loss of Rs 126 crore ($16 million) in Q4 FY23 and Rs 799.8 crore ($99 million) in FY23. Significant losses have been incurred due to provisions recorded for the write-down of Sputnik inventories, operating loss and impairment of certain intangibles associated with its products division.
Kumar, however, said that post-Covid-19 now they have several customers. He added that within the Strides Group, they decided to combine all the CDMO business—both private and public—under one platform—OneSource, a pure-play CDMO.
“We expect this company to be formed through the NCLT process in the next 12-15 months as several entities are being merged and demerged. We expect in the next three to four years we will emerge as a very powerful CDMO player. We are not into APIs or in normal oral dosage forms,” he said.
Strides Pharma has been working on reducing its debt levels. Strides reduced its total gross debt by Rs 252.8 crore to Rs 2208.9 crore in FY23. In July, Stelis Biopharma had sold its manufacturing facility at Bommasandra Industrial Area, Bengaluru, on a slump sale basis for a gross value of Rs 702 crore to Biocon arm Syngene International.
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