The Hindu Business Line : Ranbaxy goes for ‘alliance’ with Orchid

The ‘business alliance’ between Orchid Chemicals and Ranbaxy Labs seeks to leverage individual strengths of both companies. This tie-up reduces the probability of an open offer by the Ranbaxy group (which holds 14.7 per cent stake in Orchid), as this alliance supposedly builds in key safeguards preventing a hostile takeover.

Orchid is strong in antibiotics and has capacities in place to focus on high-end products like sterile injectables. Ranbaxy, the country’s largest drug maker with presence in 49 countries, has proven marketing strengths. The arrangement, which covers ‘multiple therapies’ and ‘multiple geographies’ for both finished dosages and bulk drugs could help Orchid find a larger market for its products.

In the absence of a strong front-end of its own, Orchid already had marketing tie-ups with Apotex, Hospira and Actavis for specific products in the US. But the tie-up with Ranbaxy will be for new products, not affecting the earlier ones. With Orchid also venturing into non-penicillin non-cephalosporin segments, the company does not need to build up distribution network from scratch, with Ranbaxy on its side. Time-to-market is crucial in highly competed products, where even a fortnight can make a difference. Under such agreements, the manufacturer is usually responsible for product development and regulatory filings, while the partner handles marketing and distribution.

One point, on which clarity might emerge over the next few weeks, is on how the revenue/profit on generic sales will be shared between the partners. Till now, Orchid has either had an equal or majority share of profit in all products sold through marketing agreements. In light of Solrex Pharma’s holdings in Orchid, it may not be surprising if Ranbaxy lands up with a favourable agreement in this case.

Cost savings

The Orchid management has confirmed that teams from both companies will sit and arrive at the therapies, drugs and regions where they can have synergies, which may lead to cost savings. Carbapenems (similar to penicillins), which are going off patent sequentially from 2009, is an area targeted by Ranbaxy. Orchid has completed capacity creation and, in most cases, filings in this segment.