Aurobindo to divest stake in China arm

HYDERABAD: Generic drugmaker Aurobindo Pharma has decided to divest its stake in loss-making Chinese subsidiary , Aurobindo (Datong) Bio Pharma (ADBPL) to China National Pharmaceutical Group Corporation (Sinopharm).

The Hyderabad-based firm said the initial offload will be 51% and its stake will subsequently come down to 19.5%. Sinopharm will acquire the shares through its unit, Sinopharm Weiqida Pharmaceutical. Aurobindo Pharma will also receive the entire loan of $23 million that it had given to the Chinese subsidiary, according to a release on Tuesday. Aurobindo’s minority stake will be strategic in nature to ensure supply of raw materials at a competitive price to the Chinese joint venture.

The $9.7-billion Sinopharm group will infuse sufficient funds to relocate the plant as required by local government in China and significantly enhance capacity and downstream products leading to better economies of scale and reduced cost of production.

“It is part of our effort to unlock non-core assets as we want to focus on formulations. We were not successful with our operations in China. We feel a strong player like Sinopharm will be able to invest and expand in the market. It will also be able to improve operational efficiency,” said an Aurobindo Pharma official.

“The move will help reduce losses to the tune of $10 million. This subsidiary was not engaged in any high-value product. In fact, in China it was at the lowest end of the value chain. So, it was a strategic decision to divest stake and focus on formulations,” said Sarabjit Kaur Nangra, V-P research (pharmaceutical ), Angel Broking. The Chinese unit is engaged in manufacturing of 6APA, a derivative of Penicillin-G and most of its production is consumed by Aurobindo India.

Aurobindo’s product portfolio is spread over six major therapeutic areas including antibiotics, anti-retrovirals , cardiovascular, CNS, gastroenterologicals, and anti-allergics . “Over the past six years, Aurobindo has undertaken a paradigm shift from active pharma ingredient (API) to formulations business. Hence, the board feels that the said divestment is in the best interest of the company . This will strengthen the overall cash flow and operating margins,” the firm said.

Sinopharm plans to build an antibiotic manufacturing centre in Datong and the ADBPL investment will be the core of its antibiotic manufacturing in Datong. China National Pharmaceutical Group (Sinopharm ) is the largest pharmaceutical and healthcare group in China with core business in pharmaceutical distribution, scientific research and manufacturing of medical and biotech products.