Strides shares fall on lower settlement amount

The shares of Bangalore-based Strides Arcolab on Thursday fell almost 10% to Rs 635.55 after the company announced that it has agreed to receive $150 million as the full and final settlement as part of its earlier signed divestment deal in Agila Specialities from the US-based Mylan Inc.

Strides, in December last year, announced it has completed the sale of Agila Specialities to Mylan for $1.75 billion. Of this, Mylan was expected to pay $250 million later if the injectable unit of Agila in Bangalore was able to meet the FDA norms. In September last year, one of Agila's Bangalore units received a warning letter from the United Stated Food and Drug Administration (US FDA) over violation of manufacturing norms following an inspection in June, 2013.

The company, in its earlier filing on the BSE, had said that "the board of directors approved final transaction terms to include a hold-back of $250 million contingent upon satisfaction of certain regulatory conditions." It had also said that "it expects those contingent conditions will be satisfied sometime in 2014." However, since the company failed to meet the regulatory norms as set by FDA in regards to its Bangalore facility, it will now incur a loss of $100 million.

In a filing on Thursday on BSE, it said, "Strides Arcolab has informed BSE that the company has agreed to receive from Mylan Inc., USA, an amount of $150 million as the full and final settlement against the contingent holdback of up to $250 million."

It further said that the company will provide further updates on or before October 07.

According to pharma analyst Hitesh Mahida of Antique Stock Broking, the agreed settlement was possibly because the warning letter did not escalate to an import alert. "But Mylan may have faced some commercial loss and that could be a reason behind the company not paying the remaining $100 million." Mahida, however, does not see any impact of this on Strides' current business.

According to another sector analyst, the impact could be on the dividends as it will get reduced.

Recently Gilead Sciences has licensed to Strides to produce generic sofosbuvir and investigational single tablet regimen of ledipasvir/sofosbuvir for treatment of chronic hepatitis C, for distribution to 91 developing countries including India, Egypt and Indonesia.

According to an analyst, Strides will launch the hepatitis C drug in India and Africa from which it can enjoy a 20-25% ebitda margin. "Strides may also bid for some tenders likely to be floated in Africa. They have around 800 MRs in India and about 500 MRs in Africa."