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BL Research Bureau

Glenmark on Tuesday sought shareholder approval to sell its domestic generic and active pharmaceutical ingredients (API) business to its subsidiary Glenmark Generics for a consideration of not less than Rs 698 crore. This move marks a significant step forward in the re-alignment of its business into two segments, but creates some uncertainty about the structuring of this demerger and distribution of benefits to the company’s stakeholders.

As a part of the realignment, Glenmark Pharmaceuticals will have a specialty portfolio (branded formulations business) as well as innovative drug assets. The non-branded generic and APIs business in India as well as sales units in the US, EU, Argentina oncology operations will move into a 100 per cent subsidiary - Glenmark Generics Ltd (GGL). In addition, a research-based division focused on API and formulation development will also move to the generics company.

The company has indicated that generics and API divisions cumulatively are slated to clock revenues of $173 million (Rs 692 crore) in financial year 2008, as against around $130 million in financial year 2007. This represents around one-third of undivided Glenmark’s expected revenues in FY08. Today’s announcement, thus in a way, provides a benchmark for valuation of Glenmark’s domestic API and formulations business.

The results of the postal ballot sent to shareholders will be announced on February 5. The role of Glenmark’s sales units in the US and the UK and the Argentina oncology operations, mentioned earlier, is as yet unclear.

Unlike it peers such as Sun Pharma, Nicholas Piramal, Ranbaxy and Dr Reddy’s who have hived off/plan to hive off their innovative drug unit — Glenmark has decided to de-merge its generics business from its specialty business, following the foot steps of international peers such as Novartis.

While Glenmark Pharmaceuticals will house the drug discovery business (the more risky one), the structuring of the move, listing and eventual valuation of Glenmark Generics, expected in June-July, may hold the key to Glenmark’s stock price movements.

Glenmark expects not to dilute more than 30 per cent of GGL by way of an initial public offer or any other route. The money raised will be used to acquire front-end specialty company in the US and to expand GGL’s footprint in the global generics arena.

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