The Hindu Business Line : Dowpharma deal: Positive for Dr Reddy’s

Dr Reddy’s acquisition of a portion of Dowpharma Small Molecules business will give it manufacturing capabilities (facilities at Mirfield) and a technology platform through the lab at Cambridge (both in UK).

These may supplement the company’s R&D and commercial infrastructure and help it to become an important player in Custom Pharmaceutical Services (CPS), which involves making drugs and ingredients specifically for other companies.

Growth area

The manufacturing facility generated around $25 million in revenues. The R&D facility gives Dr Reddy’s access to process technology, intellectual property and trademarks. The company’s CPS business, last year, grossed around $145 million, contributing 10 per cent of its revenues. With this acquisition (financial terms for which were not disclosed as yet), Dr Reddy’s CPS business can be expected to be an important growth area as Dowpharma’s business gives it around 4-5 new customers.

The acquisition is to be completely funded by cash. The profit margins for the acquired business is in line with Dr Reddy’s bulk drugs business at around 12-15 per cent.

At the two sites there are about 80 people employed, who are expected to be retained by Dr Reddy’s, as there is no intention to relocate the facilities.

Intellectual property

Dr Reddy’s will also have a non-exclusive licence to Dow’s trademarked Pfenex Expression Technology for biocatalysis development, which essentially means that both the companies can use the technology. Dr Reddy’s has indicated that it can also use the intellectual property acquired from Dowpharma in its generic business.

This acquisition may aid Dr Reddy’s bulk drugs and CPS business, which have been through challenging times in recent quarters.

The CPS business in Mexico (Roche Holding AG’s bulk drug plant in Cuernavaca bought in 2005) was hit by raw material problems and shrinking volumes in the second and third quarters.

Better performance

An exclusive product at the same period last year has also created a high base for the quarter ended March 2008. Any contribution from Dowpharma acquisition may help this business turn in better performance in the quarters ahead.