Dr Reddy’s makes infra play in the US

HYDERABAD: Dr Reddy’s Laboratories is set to acquire the pharmaceutical contract manufacturing business of global chemical giant BASF in Shreveport, Louisiana, USA, for an undisclosed amount.

The deal will speed up Dr Reddy’s foray into the North American over-the-counter market and enable it to bid for the huge drug spending programme of the US government.

BASF’s contract manufacturing business makes generic prescription and over-the-counter products for branded and generic companies in the United States, Dr Reddy’s said in a statement. The business had sales of $43 million end of December 2007 but it has been sold to Dr Reddy’s at a little over $30 million, sources close to the deal said.

It comes with a state-of-the-art facility spread over 28,000 square metres on 42 acres, including production, 2700 square feet lab, warehouse and logistics unit. It comes with 150 employees, the relevant business, customer contracts, trademarks and related abbreviated new drug applications and new drug applications.

The transaction is expected to be completed within the first quarter of fiscal 2008-09 and will be funded from internal cash reserves or other committed credit facilities, Dr Reddy’s said in a statement.

“Basically we are looking at it as an infrastructure play for our US generics business,” GV Prasad, vice-chairman and CEO, Dr Reddy’s, told DNA Money from London.

Though Dr Reddy’s will continue with the contract manufacturing business and the customers of BASF, it will not be a major focus as the Shreveport facility will primarily drive our internal growth, Prasad added. The BASF facility currently caters to a few customers making ibuprofen and caffeine.

Dr Reddy’s OTC business in the US, which was kicked off in the 2nd half of 2007, has the potential to be a $100 million business in a few years, Prasad explained. Peptic ulcer drug ranitidine in 150mg and 75 mg tablet forms is the company’s first OTC product and is being sold under the brand name Equate by Wal-Mart across the country. Dr
Reddy’s is reportedly looking to launch another 10 odd OTC products over the next 12-18 months.

On the whole, the US generics business, which logged $200 million last year (2007-08), is seen as a major growth driver for Dr Reddy’s. Despite the highly commoditised nature of the segment, which has seen immense pricing and margin pressures, there is still a significant value play left in the segment, Prasad felt.

According to the latest available figures from the US Centers for Medicare & Medicaid Services (CMS), the total prescription drug spending in the US in 2006 was $216.7 billion compared with $199.7 billion in 2005. Public funding sources, including Medicare and Medicaid, accounted for 34% of the total drug spend, up from 28% in 2005.

Dr Reddy’s was not able to participate in this huge opportunity as Indian sites are not on the approved list. With the acquisition of the Shreveport facility this problem is now solved, he added.

This apart, the acquisition will also speed up Dr Reddy’s foray into the controlled substances market which it is planning to enter soon, Prasad said.

“The acquisition of BASF’s finished dosage manufacturing facility in the US will enable us to strengthen our supply chain for North America and provide a strong platform for pursuing additional growth opportunities,” managing director Satish Reddy added in the company statement.

p_chitti@dnaindia.net