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Aurobindo sells Chinese API unit to Sinopharm

Published on 13/01/11 at 11:46am

Indian company Aurobindo Pharma intends to sell off a loss-making active pharmaceutical ingredient unit to Sinopharm, the largest pharmaceutical company in China.

The move comes as Aurobindo continues to shift the balance of its business away from selling APIs and other fine chemicals towards formulations and generic pharmaceuticals, from which it can capture a greater return on investment.

The unit, called Aurobindo (Datong) Bio Pharma (ADBPL), manufactures 6-APA (6-aminopenicillanic acid), a derivative of penicillin G which serves as the base material for most semi-synthetic penicillin-type antibiotics.

The unit has been something of a drain on Aurobindo in the past because it lacks economies of scale, and has been incurring losses, even though almost all its output is bought by Aurobindo itself for use in manufacturing its generic antibiotics.

In the initial phase Aurobindo will sell 51% of ADBPL to the Chinese drugmaker, with the intention to ultimately transfer 80% ownership over the coming months. The Indian firm says it will retain a 19.5% stake in the API unit in order to "ensure uninterrupted supply of raw materials at competitive price".

When the transaction is completed, majority ownership in the company will transfer to Sinopharm Weiqida Pharmaceutical.

For its part, Sinopharm says it intends to invest in the ADBPL operation by relocating the production plant and boosting its capacity and portfolio of products, improving the facility's economies of scale and cost of production, according to analysts at Angel Broking.

Financial terms of the agreement have not been disclosed, other than the new owners will pay back around $23 million in loans provided by Aurobindo to ABDPL.

"The board feels that the said divestment is in the best interest of the company," said Aurobindo in a statement. "This will strengthen the overall cash flow and operating margins."

Phil Taylor

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