Dr. Reddy’s, American Remedies merger through - Views on News from Equitymaster

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Dr. Reddy’s, American Remedies merger through

Mar 7, 2000

The legal merger between Dr Reddy’s Laboratories (DRL) and American Remedies (ARL) is through. The merger ratio has been fixed at 1:12 i.e. 1 share of DRL for every 12 shares of ARL. DRL is one of the fastest growing companies in the pharmaceutical sector having a 1.4% market share in domestic formulations. The company has grown from being a bulk drug company to a respected formulation based company. It has products such as omeprazole (gastro–intestinal), ciprolet (anti–infective) Nise (pain and fever), Enam (cardiovascular) etc.

ARL’s product range includes Mucolite, Becozinc, Antoxid, GLA, BioE, which account for 60% of the company’s estimated Rs 1 bn sales (FY 2000 estimates). More importantly, ARL has a prescription base of around one lakh doctors which provides DRL with another channel to sell its own products in the domestic market.

DRL acquired a 45% stake in ARL a few months back and has already acquired a further 15–20% stake from the associates of ARL’s promoters. An open offer for to acquire another 20% from the company’s shareholders enabled DRL to take its holding to 84% of the equity of ARL. In a way the legal merger is a formality for DRL since the company has already integrated the manufacturing as well as the marketing network of ARL into its operations.

Market View:
Analysts are convinced of the seriousness of the R & D efforts of the company and have rated the stock as a buy. The company has three new original molecules in its research pipeline. One is an anti–cancer compound, another is a Cox II inhibitor (anti–pain) and third was a compound indicated for metabolic disorders. The company foresees licensing out two of these to MNCs for clinical trials in the near future. Perhaps the only dampener could be the fact that 20% of its earnings from its exports to Russia would come under the tax net.

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