Guest post : DIL offloads stake in research arm to Evotec

7 Aug

DIL is selling a 70% stake in its contract research subsidiary to a European company Evotec AG, headquartered in Germany. DIL was earlier known as Duphar Interfran and it changed its name after its pharmaceutical business was hived off to Solvay. Of its consolidated turnover of Rs 70 crore in 2008-09, bulk drugs/chemicals contributed to over half, while research and development contributed to about a third at Rs 22 crore.
 
Its research business is done through its 100% subsidiary Research Support International Pvt Ltd (RSIP). DIL is selling a 70% stake in this company to Evotec, for up to 2.8mn euros or Rs 19 crore in cash. It includes a potential earn-out. Earn-outs are payments made subject to certain conditions being met. These conditions could be continuation of certain key personnel after the acquisition or certain sales and profit targets being met. Evotec and RSIP had formed a 51:49 joint venture Evotec-RSIL in 2007-08, to provide research services to pharmaceutical companies. Evotec apparently liked what it saw in RSIP, enough to buy a controlling stake.
 
Evotec has said that the transaction will increase its capacity in this space and also give it a cost effective base. The company, with 2008 revenues of 33mn euros or Rs 225 crore, claims to be a leader in the discovery and development of novel small molecule drugs and has tie-ups for long term discovery alliances with companies like Boehringer Ingelheim, CHDI, Novartis, Ono Pharmaceutical and Roche. Its CEO, Werner Lanthaler, said in a statement that it’s important to strengthen the strategic position of their discovery business with the best technology and most efficient global reach and cost strategy. DIL’s MD Krishna Datla believes Evotec will be able to add substantially to the growth of RSIP.
 
At just under 1x sales, the valuation seems on the lower side at first, but appears reasonable on seeing the profits earned by the research business. The research and development division managed a segment profit of just Rs 4.3 lakh in 2008-09. But it is still better than the sizeable losses incurred by Evotec, perhaps due to the nature of the business. Evotec’s main interest in this acquisition could be to get a good and cheap research base in India. That could be one way to be competitive in the marketplace and still make profits. Evotec has a strategic plan titled ‘Evotec 2012 – Action Plan to Focus and Grow’ which has lowering its operating costs as one of the major objectives. This acquisition will help it move closer to that goal.

Courtesy :  www.indiabusinessview.com  NEWS.ANALYSED. SIMPLIFIED.

 

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