UK-based pharmaceutical giant GlaxoSmithKline (GSK) is likely to buy 5% stake in Indian drug manufacturer Dr Reddy’s Laboratories Ltd for $150 million.
This is a marriage between Western makers of branded drugs and Indian generic producers. However, the acquisition will not give GSK any control over Dr Reddy’s as the proposed stake is far lower than the limit of 15% and does not invite any open offer to the public.
Both GSK and Dr Reddy's are in a winning situation. Dr Reddy’s could expand its product profile in the UK and Europe as it can tap GSK’s huge network. In 2008-09, Dr Reddy’s generic revenue increased by 51% to Rs4,979 crore whereas total sales grew by 40% to Rs6,945 crore. In addition, “Dr Reddy’s will have first access to innovative products of GSK in India,” says Sarabjit Kaur, VP, Angel Broking. GSK will also get access to a basket of generics at a time when a large numbers of drugs are going off-patent.
“The acquisition of 5% is more of a strategic policy,” says Mrs Kaur and the move is in line with Glaxo’s recent acquisition in Africa. Global multinational companies are under pressure to maintain market share as their patented drugs are likely to lose sales when they become generic. Multinational companies having low number of new discoveries have to invest in other generic companies to maintain sales growth.
Multinational sales from new launches are also coming down. GSK’s new launches have contributed to only 0.8% of total sales in 2008. Since there is a limit to new launches in patented drugs, GSK may have to opt for generic drugs for growth. In addition, the company has to increase its business in other emerging areas. Dr Reddy’s can fulfill both of these conditions and is an attractive opportunity for GSK. For Dr Reddy’s, in its total sales of Rs6,949 crore, Europe’s contribution increased by 16% to Rs 1,189 crore.
GSK, a £25 billion UK company, has a strong presence in drugs for asthma, HIV, malaria, depression, migraine, cancer, diabetes and digestive conditions whereas Dr Reddy’s has a strong presence in painkillers, gastrointestinal, antibiotics and heart depression drugs. The combination of these drugs will enable both companies to expand their therapy areas.
GSK has expanded its Chinese presence and is also spreading its wings in Africa. In May 2009, GSK bought a 16% stake in Africa's biggest generic drug maker, Aspen Pharmacare, for $465 million.