Dr Reddy’s stocks surge on stake sale to GSK report

Dr Reddy’s stocks surge on stake sale to GSK report

Bangalore: Shares in Dr Reddy’s Laboratories Ltd jumped to a 3-1/2-year high on Friday on a report GlaxoSmithKline was in talks to buy a 5% stake in the drug maker in a $150 million deal.

A transaction could be clinched in two months if talks stayed on track, the Economic Times said, citing sources privy to the development. It said Glaxo could get the first right of refusal if Dr Reddy’s founders decide to sell their stake in the future.

A spokesman for Dr Reddy’s reached by Reuters said the firm would not comment on market speculation.

Earlier in September, Dr Reddy’s said its founders had no plans to sell their stake in response to media and market talk about a possible deal with a global pharma major.

The stock opened up 7.8% at Rs900 on Friday, its highest since 5 May 2006, the day it hit its lifetime high of Rs958.30.

At 01:45 pm, shares in Dr Reddy’s, which has a market value of $2.9 billion, were up 3.7% at Rs865.70 on a Bombay Stock exchange (BSE) that was down 0.3 percent.

“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."

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 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.

Last year, Japan’s Daiichi Sankyo paid more than $4 billion for control of Ranbaxy Laboratories.

US-based Mylan Inc expanded into a large global player with its acquisitions of the generics business of Germany’s Merck KGaA and a controlling stake of India’s Matrix Laboratories.

In July, Sanofi-Aventis boosted its presence in emerging markets by agreeing to take control of unlisted Indian vaccines maker Shantha Biotechnics in a deal valuing the group at €550 million ($808 million).

Dr Reddy’s chief operating officer Satish Reddy told Reuters last month the no. 2 Indian generic drug maker planned to launch six to seven new generics in the United States in 2009-10, including blockbuster omeprazole.