Glaxo Investing $1 Billion to Raise Stake in Indian Unit

GlaxoSmithKline Plc offered to spend $1 billion to raise its stake in its Indian prescription pharmaceuticals unit to tap growing demand for medicines in the second-most populous country. GlaxoSmithKline Pharmaceuticals Ltd. surged to the highest in more than two decades.

Glaxo will pay 3,100 rupees apiece to buy as many as 20.6 million shares of the Mumbai-based business to raise its stake to 75 percent from 50.7 percent, London-based Glaxo said today in a statement. That’s 26 percent more than the Indian drugmaker’s Dec. 13 closing price of 2,460.15 rupees.

The increased holding would expand Glaxo’s role in India’s market for drugs that PricewaterhouseCoopers estimates at about $12 billion. The stake increase follows a 48 billion-rupee ($775 million) investment in Glaxo’s Indian over-the-counter consumer health business, completed in January.

“With the two transactions together, we’re bringing over $2 billion into India,” Chief Strategy Officer David Redfern said in a telephone interview today. “We are positive about the future of India and therefore want to increase our economic exposure.”

Stock Jumps

Glaxo Pharmaceuticals jumped as much as 20 percent and was trading up 19 percent at 2,924.3 rupees at 3:08 p.m. in Mumbai, heading for the highest closing price since at least January 1991. Glaxo rose 0.1 percent to 1,572 pence in London.

The U.K. company withdrew a proposal in July to increase its stake in its Nigerian business after the market value rose during negotiations.

The Indian pharmaceuticals business makes, distributes and sells respiratory, cardiovascular and cancer drugs, antibiotics and vaccines. Its top four products in the country are the antibiotic Augmentin, Calpol, Zinetac and Ceftum, according to the company’s website. The consumer health-care unit sells Horlicks and Boost nutritional drinks, Sensodyne toothpaste and Eno antacid, among other products.

Glaxo Pharmaceuticals’ sales totaled 26 billion rupees in 2012. It employs 5,000 people and is investing 8.6 billion rupees in a new plant, which will probably be built in Bangalore and completed by 2017, Redfern said.

Price Controls

Prices of essential medicines have been capped since July at the average of all brands that have a market share higher than 1 percent. The Glaxo unit’s profit in India is likely to drop for a third straight quarter, according to analyst estimates compiled by Bloomberg.

“The price controls have had an impact this year, but we take a long-term view,” Redfern said. “We’re focused really on the volume opportunity, and we see lots of potential there.”

Protection of intellectual property has been a concern for drugmakers operating in India after the country’s Supreme Court denied Novartis AG’s request for patent protection for its Gleevec cancer treatment in April, ending a seven-year legal process.

“We spend over $5 billion globally on research and development for very innovative new drugs and vaccines, and it’s important that that’s underpinned by a robust intellectual property framework,” Redfern said. “We’re very focused on innovation, but we’re also very focused on access. We clearly price differently in India to the United States or to Europe, and the differences are substantial.”

HSBC Securities & Capital Markets (India) Pvt. will manage Glaxo’s offer for the Indian unit’s stock, and the drugmaker plans to begin the transaction in February. Glaxo intends to keep the division on the stock exchange, Redfern said. Indian law requires listed companies to have a least 25 percent of their shares publicly traded.

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