The Hindu Business Line : Shasun’s deal may prove positive in the long term

The deal signed by Shasun Chemicals and Drugs with global pharma major Merck & Co may prove positive in the long term for the Indian company. The latest non-exclusive deal allows the American company the use of Shasun’s proprietary technology to make bulk drugs.

Shasun’s proprietary technology is increasingly becoming a useful tool to players such as Merck, who devote the key portion of their resources and effort to the discovery labs. In July last year, Shasun had entered into a similar agreement with Denmark based H Lundbeck A/S (engaged in drug discovery related to the central nervous disorders).

Although Shasun would receive a small upfront sum per year (possibly a maximum of $1 million per product) from this deal, the company is clearly looking at longer-term benefits. Merck would use this technology to manufacture and commercialise drug ingredients. Apart from the upfront revenues, Shasun may also get certain contractual rights from Merck in the event of a successful commercial launch. However, it is unlikely that meaningful revenues from the pact will trickle into the company’s books within the next 6-12 months.

If Shasun is able to bag the first right of refusal for the manufacture of bulk drugs that Merck may develop using this technology, this would indeed be a major positive. Merck may use the technology to develop three to four bulk drugs. Interestingly, the concerned technology was part of the 2006 buy-out of Rhodia Pharma Solutions, the UK-based custom drug development and manufacturing service operations of French specialty chemicals company Rhodia S.A.

On the BSE, shares of Shasun rose as much as 19.3 per cent on the news, accompanied by seven times the two-week daily traded volumes, reacting to this development. This move appears to capture a good portion of both medium-term and longer-term benefits from the deal. At the CMP of Rs 62, Shasun trades at a big discount to the valuation of its sector peers but that is inline with the valuation it has received in the past 12 months.

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