Strides Pharma To Spin Off Contract Manufacturing Unit Into Stelis Biopharma

Strides Pharma Science Ltd.'s board approved spinning off oral soft gelatin contract manufacturing business into Stelis Biopharma.

The company intends to "build a one-of-a-kind specialty pharmaceutical contract development and manufacturing powerhouse with capabilities in biologics, oral soft gels, complex injectables, sterile injectables, and other complex drug delivery systems", according to an exchange filing. The new entity will be called OneSource.

Shareholders will get one share of OneSource (Stelis Biopharma) with a face value of Re 1 apiece for every two shares of face value Rs 10 each held in Strides Pharma. There is no cash consideration involved. The implied value of proposed shares issued by OneSource to Strides shareholders is Rs 364 per share.

Post-demerger, the promoter is expected to hold 39% in Stelis Biopharma, while 61% will be owned by the public.

It proposed to combine the following CDMO businesses under Stelis Biopharma:

• CDMO business of Strides—oral soft gelatins business at the plant located at KRS Gardens, Bangalore

• CDMO business of Steriscience—sterile injectables business carried on by Steriscience in the Special Products Division and Beta Lactam Division located at Bangalore

This business combination is expected to result into the new entity being one of the top five Indian CDMO players, the company said.

The new platform, the company said, will be able to offer CDMO services covering platform technologies, specialty injectables, complex generics, biosimilars, and biologics.

The proposed scheme, according to the company, will:

• Result in the integration of synergies and enable better supervision of the business.

• Allow the management to devise, implement, and pursue independent business strategies for the CDMO business.

• Enhance business potential and result in an increased capability to offer a wider portfolio of products.

• Lead to efficient utilisation of the infrastructure facilities and optimum utilisation of the available resources.

• Create and enhance stakeholders' value by unlocking the intrinsic value and increasing long-term value for shareholders.

The demerger is expected to be completed by April 1, 2024, and is subject to necessary regulatory approvals.

The turnover of Strides Pharma's entity proposed to be demerged was around Rs 235 crore in FY23, accounting for 13% of the total standalone turnover of the company.

On transfer of three businesses, OneSource will have an equity value of Rs 7,550.1 crore encompassing Rs 2,435.5 crore of softgel business of Strides Pharma; Rs 2,195.8 crore of Steriscience; Rs 2,920.8 crore of Stelis. As a result, Strides shareholders will eventually own 44% of the economics of OneSource, the company disclosed.

Eventually, Strides Pharma intends to list Stelis Biopharma on both exchanges—BSE and NSE—within the next 12 to 15 months.

Key Highlights Of OneSource:

• OneSource to have proforma revenue between $140 million and $150 million (around Rs 1,100 to 1,200 crore) in FY24.

• To deliver between $180 million and $200 million (around Rs 1500 to 1700 crore) revenues in FY25

• Around 30% Ebidta margin and a potential to double the scale in three to four years.

• Ebidta to improve from FY26 onwards to over 35%, driven by GLP-1 contracts and significant synergies in combined CDMO business.

• Four state-of-the-art U.S. FDA facilities, process development and manufacturing space for soft gelatins, biologics and complex products.

• 1,200+ employees with 200+ scientists and techno-commercial leader.

Shares of Strides Pharma closed 7.42% higher on Monday at Rs 535.7 apiece compared to an almost unchanged benchmark Sensex.