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Glaxo seen eyeing 5% stake in Dr Reddy’s

Glaxo seen eyeing 5% stake in Dr Reddy’s
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First Published: Fri, Sep 18 2009. 03 09 PM IST
Updated: Fri, Sep 18 2009. 03 09 PM IST
Bangalore / London: GlaxoSmithKline is in talks to buy a 5% stake in Indian drugmaker Dr Reddy’s Laboratories in a deal likely to be valued at $150 million, an Indian newspaper reported on Friday.
The report lifted Dr Reddy’s shares to a 3-1/2-year high.
Analysts said such a move would fit well with British-based Glaxo’s declared strategy of building up its presence in key emerging markets and provide a fillip for Dr Reddy’s.
Dr Reddy’s and Glaxo, the world’s second biggest drugmaker, declined to comment on the story in the Economic Times, which cited sources privy to the development.
A transaction could be clinched in two months if talks stay on track, the newspaper said, adding Glaxo could get the first right of refusal if the founders of the Indian firm decide to sell their stake in the future.
Dominic Valder, an industry analyst at Evolution Securities in London, said buying a stake in Dr Reddy’s looked a sensible move for Glaxo and in keeping with the British group’s strategy of taking a minority position in partner companies.
Dr Reddy’s shares gained 3.6%, after earlier rising as much as 7.8%, while Glaxo added 2%.
“Both the parties, Dr Reddy’s and Glaxo, will benefit from a deal. There is a lot of synergies between the two companies,” said R K Gupta, portfolio manager at Tarus Asset Management Company, which holds Dr Reddy’s shares in its portfolio.
“Dr Reddy’s will get a lot of mileage in terms of selling their products in new markets, while Glaxo will get access to a basket of generics at a time when a large numbers of drugs are going off patent.”
The two companies already have close ties, reflecting the increasingly friendly connections between Western makers of branded drugs and Indian generic producers.
In June, the two firms signed an alliance that gave Glaxo access to Dr Reddy’s portfolio and future pipeline of more than 100 branded pharmaceuticals.
India’s drug industry, which is dominated by home-grown generic firms, is drawing overseas firms as they look to sustain growth and quickly build a generic presence.
The Indian firms had thrived on booming global demand for generic drugs as nations around the world battle rising healthcare costs, but they are now facing stiff pricing pressure as more drug makers jump into the generics.
Increased scrutiny of manufacturing standards by overseas regulators is also a worry as it could delay new launches.
“There is a lot of consolidation happening in global pharma sector because of the changing business model, and India will be a key part of that,” said Manoj Garg, drug research analyst with brokerage Emkay Global Financial.
“The growth in the sector is going to shift from western part of the world to the eastern part of the world and any company offering a strategic fit in the emerging markets for the multi national firms will be a target,” he said.
Glaxo has also been spreading its wings in Africa.
In May, it bought a 16% stake in Africa’s biggest generic drug maker, Aspen Pharmacare, in an asset-transfer deal worth 3.47 billion rand ($465 million).
“The deal they did with Aspen included them taking an equity stake, so if you use that as a model then taking a stake in Dr Reddy’s would be entirely consistent,” Evolution’s Valder said.
Drug sales in emerging markets are expected to grow at a mid-teens percentage rate through 2013, against low single-digits for mature markets, according to IMS Health, the leading tracker of prescription drug data.
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First Published: Fri, Sep 18 2009. 03 09 PM IST