Hospira, the American pharma firm, has decided to buy the core business segment, ‘generic injectable pharmaceuticals,’ from the Chennai-based Orchid Chemicals & Pharmaceuticals Ltd, in a deal worth $400 million.

The Orchid Chemicals & Pharmaceuticals Ltd had started the company 4 years back with an investment of Rs 650 crore. But, due to the liquidity problems and the increasing competition in the sector, the company had to sell the unit.

The managing director of Orchid, K Raghavendra Rao has informed that at one stage of the life time of the unit, the segment was a major revenue earner and has set a target to become a billion dollar company by the year 2012.

At the later point of time, Hospira got difficulties in raising the required funds and in the positioning of the products at the places where the Hospira has major presence, which include the US and Europe.

Mr. Rao further explained that this sale of the unit will enable the company to payback a long term debt of Rs 1,200 crore, which will resulting in the saving of $40 million in interest costs. Rs 550 crore will be utilized as working capital, while the left amount will be invested in the existing business including, drug discovery, API, biotechnology.

Under the deal, Orchid will be getting around $380 million in the march 2010 and the rest $20 million in the next 18 to 24 months.

Moreover, the Orchid has expected to earn significant revenues by the sale of an antibiotic product in the short term, for which the company has been the sole vendor for the last six months, in the US market.

As the company has a de-leveraged balance sheet, it can freely explore the new growth areas. However, Orchid’s long-term growth prospects will depend on how well it develops its remaining business and the new areas it selects to generate fresh growth.