UK-based pharma giant GlaxoSmithKline (GSK) is in talks to pick up a 5% stake in Hyderabad-based Dr Reddy's Laboratories (DRL) Pharma in order to strengthen its association with the Indian firm with whom it had signed a marketing alliance four months ago.
"The deal may be priced around $150 million and could be clinched in two months, if talks stay on track," said sources privy to the development. The contours of the discussion suggest that the foreign company may acquire fresh shares of DRL, which will impact the promoters shareholding marginally, and it may reserve the right of first refusal should the promoters decide to sell their stake in future. The Reddy family, the promoters, hold a 26% stake.
The persons close to the development said the Reddy family is not holding talks with anyone else. The spokespersons for DRL and GSK India separately declined to "comment on market speculation".
Ranjit Kapadia, vice president (institutional research) at HDFC Securities said, "GSK does not have a generic arm like Novartis and Pfizer. So, if the company feels the need to have one, it might look at DRL. But it just signed a long-term marketing agreement, so it may prefer to pick up a small stake, rather than going for a full-blown acquisition."
GSK has effected a similar deal in May 2008 when it bought a 16% stake in South African pharma firm Aspen for $410 million with whom it had a marketing agreement. "There are a lot of synergies between the two companies. DRL's biopharma and global branded formulation businesses are especially attractive to GSK," said a leading industry analyst who did not want to be named.
Most MNCs are focusing on India and emerging markets to sustain their growth as the US and Europe markets slow down. In June, GSK inked a marketing deal with DRL to sell the latter's more than 100 branded products in the emerging markets outside India.
The 10-year pact envisages that the companies will share revenue to be generated from marketing drugs in fast growing therapeutic segments such as cardiovascular, diabetes, oncology, and gastroenterology and pain management.
On Thursday, the DRL stock gained marginally to close at Rs 835.15 on the BSE. At this rate, its market capitalisation is pegged at nearly Rs 14,000 crore. The stock gained around 5.5% in a month. The recent run-up in the scrip after rumours that Glaxo and other MNCs were in the fray for a buyout was responsible for the spurt.