Reddy's Medically Fit |
Dr. Reddy's Laboratories (DRL) has once again played its merger card by acquiring Cheminor Drugs (CDL). In fact, inorganic growth has been professed strategy at Reddy's over the past decade. The merger, which has been on the anvil for the past two years, became effective from April 1st 2000, thus making DRL the third largest pharmaceutical company (up from 25th position) in India after Ranbaxy and Glaxo. The merger also gives DRL the uniqueness of being a fully integrated pharma company covering the entire spectrum including bulk drugs, intermediates, finished dosages, chemical synthetics, diagnostics and biotechnology. But a first a background on the merger scenario in the pharma industry.
Historically, India has recognized only process patents. However, as per the WTO agreement, India would shift to product patents by 2005. The fact that high prices of under-patent drugs were causing a shift to generics, especially in USA and European markets are forcing the companies to spread their R&D costs over a larger base thus making pharma MNCs to consolidate through mergers/alliances. In this situation, companies with a large mass and presence across many therapeutic segments are more likely to withstand pressure leaving narrow chances to the smaller companies.
Research and development has been a major driver of growth in the pharma industry. DRL has a very strong Research Foundation that has given many products. In 1997, the Denmark-based Novo Nordisk tied up with DRL to widen the scope of its research base and to gain access to the compounds developed by DRL. The recent satellite research laboratory of DRL in the US is expected to benefit the company in biotechnology.
DRL, which started as a bulk drug company gradually shifted to formulations, and in 1999, the company derived about 59 per cent of its sales and about 82 per cent of the profits from formulations. DRL manufactures drugs in the categories of gastro-intestinals (25% of sales), cardiovasculars (15%), anti-infectives (37%), pain control (12 %) and specialty drugs (11%). DRL has a major presence in anti-infectives, gastro-intestinal and cardiovascular therapeutic segment. Some of its reputed brands include Ciprolet (Ciprofloxacin), Clamp (ampicillin and cloxacillin), Enam (enalapril), Lostatin (lovastatin) Omez (Omeprazole) and Nise (Nimesulide). DRL has formulated 3 new chemical molecules with two licensed to Novo Nordisk of Denmark. In international markets, DRL focuses on Brazil, China, Middle East, South Africa and South East Asia.
Since inception, DRL has reverse engineered many popular under-patent drugs, broad basing its therapeutic presence. Within a year, DRL became the first Indian company to export the drug to Europe. DRL plans to strengthen its position in the domestic formulations market, including the OTC segment and accordingly, DRL acquired stake in SOL Pharma, to augment its presence in antibiotics and cardiovascular segment.
In 1999, the company expanded its therapeutic reach with the acquisition of homeostatic/hepato-protective products. DRL has acquired Styptovit, Styptochrome, Styptomet, Doxt and Trichodol from Dolphin Labs. The company also acquired the marketing rights of Dicyene from OM Pharma, Switzerland. DRL consolidated its market share with the launch of various line extensions in the therapeutic segments of anti-infectives, cardiovascular and pain management.
Cheminor's business mix comprises of organic intermediates, bulk drugs and formulations (Bulk drugs contribute about 73 per cent of the turnover). Exports contribute nearly 75% of the turnover, while domestic sales account for the rest. Cheminor’s bulk drug portfolio comprises nearly 25 products with major ones Ranitidine, Naproxen, Ibuprofen. Major export destinations are regulated markets of Europe and US.
In February 1998, Schein Pharmaceutical Inc., a $ 500 million US company, active in the generic market, acquired 12.79% equity stake in Cheminor. The company along with its US partner has filed 6 Abbreviated New Drug Applications (ANDAs) including Omeprazole and Fluoxetine for which there is a tremendous export potential. It also plans to file applications for 12 more products in 2000 to various agencies such as FDA (US), MCC (South Africa), MCA (UK), TGA (Australia) and HPB (Canada).
Cheminor has alliances with Pharmaceutical Resources Inc. (PRI) for supply of bulk active ingredients and formulations and with Leiner Health Products for marketing and distribution of OTC products in US. Cheminor is developing and supplying products for Schein at its manufacturing plants. Schein's marketing skills would enable Cheminor to expand its presence in the US market. Cheminor Drugs largely caters to the generic market for drugs in the developed countries. DRL, on the other hand, is largely targeting emerging markets where Cheminor has no presence and on the other side Cheminor is strong in Europe and US markets where DRL has little presence. The merger will provide Cheminor's bulk drugs an access to emerging markets through DRL's facilities and Cheminor in turn would facilitate DRL's access to US and European markets. Cheminor, which is weak in R&D also can share the resources of DRL research foundation. So the merger gives the downstream support to DRL and upstream support to Cheminor by which both the companies would benefit and enjoy the real synergistic results. The investors of Cheminor who would be getting 9 shares of DRL for every 25 shares held are expected to benefit from DRL's global foray's and strong research. As for DRL shareholders the merger facilitates the company's unlimited growth in US and Europe.
As for the pharma industry this merger may be just the proverbial tip of the iceberg. The real action may perhaps be some time away. But the DRL Cheminor merger is definitely indicative of the shape of things to come.
K Venu Babu