Hyderabad: Dr Reddy’s Laboratories Ltd has called off a $35 million (Rs 173.6 crore) deal to buy the pharmaceutical prescription portfolio of JB Chemicals and Pharmaceuticals Ltd (JBCPL) in Russia and other former Soviet republics, a decision analysts linked to new Russian regulations requiring foreign companies to have a manufacturing presence there and seeking to reduce dependence on imports.
In a statement, the Hyderabad-based drug maker said the deal has been “mutually terminated in the overall business interest of both parties”. JBCPL issued an identical statement to the stock exchanges.
Dr. Reddy’s, India’s second biggest drug maker by sales, entered into an agreement with JBCPL on 22 July to acquire 20 of the latter’s brands in Russia and other countries in its neighbourhood. The agreement included a supply agreement for the continued manufacturing and supply by JBCPL of products associated with the acquired brands.
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Russia contributed 19%, or Rs 1,090 crore, of Dr Reddy’s total sales in the year ended 31 March, making it one of the company’s key markets. Dr Reddy’s ranks among the top 15 pharma companies operating in Russia and the Commonwealth of Independent States (CIS), which groups former Soviet republics.
“Russia is one of Dr Reddy’s focus markets, where we continue to improve our market ranks and are committed to expanding our presence in the region,” the company said in a statement.
The agreement was terminated because the two companies couldn’t come to an agreement on operating terms, said an official at Dr Reddy’s, without elaborating. He declined to be named.
JBCPL said it will “continue to pursue its Russia-CIS prescription products business aggressively”. It has sold its over-the-counter business in Russia to Cilag AG, a subsidiary of Johnson and Johnson, for about $260 million.
The scrapping of the agreement with Dr Reddy’s follows policy changes approved by Russia to make public healthcare less dependent on drug imports by encouraging domestic manufacturers.
The changes will result in cost savings in government procurement of drugs and make medicines more affordable by giving consumers access to generics that are cheaper than patented drugs.
Following the change in regulations, drug maker Aurobindo Pharma Ltd formed an equal partnership with OJSC Diod, a Russian maker of healthcare equipment and nutrition supplements, to make and market generic (or off-patent) drugs in Russia, Belarus and Kazakhstan.
“Foreign pharmaceutical companies, who intend to sell drugs in Russia, need to have a manufacturing presence as per that country’s latest policy. The deal with JBCPL doesn’t provide Dr Reddy’s a manufacturing presence. This might be one of the probable reasons for calling off the deal,” said Surajit Pal, pharma industry analyst at Elara Capital India.
“Given the fact that Russia and CIS are important markets for Dr Reddy’s, the company will either look at building a new manufacturing plant or acquire a company having a manufacturing presence in Russia,” Pal said.
Dr Reddy’s shares declined by Rs 2.40, or 0.16%, and closed at Rs 1,483.15. JBCPL fell by Rs 4.45, or 5.91%, and closed at Rs 70.85 on a day the BSE benchmark Sensex declined 110.96 points, or 0.69%, to 16,051.10 at closing. The announcement came after trading hours.
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