Forbes India 15th Anniversary Special

Glenmark might be selling its API business. Why?

Sekhmet Pharmaventures and the Nirma group are reportedly competing to buy Glenmark Life Sciences

Naini Thaker
Published: Jun 13, 2023 03:20:57 PM IST
Updated: Jun 13, 2023 03:25:05 PM IST

Glenmark might be selling its API business. Why?Sekhmet Pharmaventures and the Nirma group are reportedly competing to buy the subsidiary. Glenmark owns 82.85 percent of GLS; Image: Shutterstock

According to recent news reports, Glenmark Pharmaceuticals might be selling Glenmark Life Sciences (GLS), which manufactures active pharmaceutical ingredients (APIs). Sekhmet Pharmaventures and the Nirma group are reportedly competing to buy the subsidiary. Glenmark owns 82.85 percent of GLS. In FY23, GLS’s total operating revenue stood at Rs 2,161 crore. Experts reckon that Glenmark has been one of the better performers in the API market. Forbes India breaks down this development:

Why is Glenmark planning to sell the business?

Glenmark has an immediate need to repay a debt that has been on their balance sheet for a long time now. Though the company is profitable, it is being used as capital expenditure every year. “Glenmark Pharma has a net debt of around Rs 2,900 crore, and their immediate priority is to settle this. Additionally, the company is building more of an innovation-led business now, and hence the API business doesn’t fit this strategy. Also, only 11 to 12 percent of Glenmark's sales come from the API business,” explains Vishal Manchanda, senior vice president, Institutional Research, Systematix Group. With debts cleared up, the investments that are currently being made into the API business, could be used in research and development of innovator drugs.

Additionally, experts suggest that the company’s US business, like that of many other pharma companies, has been seeing mid-single-digit growth. “With innovation as its focus, Glenmark probably doesn’t want to put too much effort into its generics business either,” adds Manchanda.

There are two kinds of innovator drugs: One, completely novel innovative drugs and the second, where existing molecules are tweaked to offer a better value proposition for customers. After an initial investment in R&D, a company can sell the drug as a brand and charge a premium for it. Focussing on innovator drugs in developed markets helps pharma companies achieve scale, which is limited with the generics business. “I think once their debts are cleared, it will give them capabilities and more bandwidth to invest and focus on such opportunities. It will also help the company improve its existing valuation,” says Manchanda.

What are some of the challenges in India's API market?

Glenmark has been doing quite well with its API business. But experts believe it is also a very competitive space and one never knows if the return ratios will persist in the long run. Also, the competition from Chinese API imports continues to be high. According to news reports, nearly 70 percent of India’s APIs are imported from China; this dependence is around 90 percent for certain life-saving antibiotics such as cephalosporins, azithromycin and penicillin.

Additionally, as per data from the Ministry of Chemicals and Fertilisers, the import of bulk drugs or APIs and drug intermediates from China rose 20 percent from FY21 to Rs 23,273 crore in FY22, which was 66 percent of India’s total imports of medical products. However, India is trying to incentivise domestic API manufacturing to reduce its dependence on China via the Production Linked Incentive (PLI) scheme.

Also read: How to fix Indian pharma's Chinese import problem

Which are the companies competing for the Glenmark's API business?

The two large companies who have reportedly shown interest in buying the API business are Sekhmet Pharmaventures and the Nirma group.

Mumbai-based Sekhmet Pharmaventures is the Indian arm of a Singapore-based platform, Gamot API Pte Ltd. It was launched by PAG along with Indian private equity firms CX Partners and Samara Capital to buy stakes in fast-growing pharma companies. In October 2020, it acquired Chennai-based API manufacturer Anjan Drug Pvt Ltd and in September 2022, Hyderabad-based Optimus Drugs, which manufactures APIs and finished drugs.

The Nirma group, on the other hand, first entered the life sciences market in 2006-07 by acquiring injectables business Core Parenterals, reportedly for Rs 300 crore. The group’s health care subsidiary, Aculife Healthcare sells medical devices and critical care medicines under its Nirlife and Oneuse brands. In an attempt to expand its health care presence in April 2023, the group acquired Bengaluru-based Stericon Pharma Pvt Ltd, a maker of eye drops and contact lens solutions.

Reports also suggest that PE firm ChrysCapital is also looking at the opportunity, but is yet to make any binding bids.