Dr Reddy's Cheminor merger: A pharma wedding finalised

Dr Reddy's Laboratories (DRL) is to merge its sister concern Cheminor Drugs (Cheminor) with the merger ratio set at 9 shares of DRL for every 25 shares of Cheminor. The merger will make Dr. Reddy's the third largest pharmaceutical player in India, with a post- integration turnover of above Rs. 8 billion in FY 2000. The management aims at a turnover of over Rs 10 bn in FY 2001 which it should it able to achieve if the growth in its main brands viz. Omez (anti-ulcer), Nise (anti-pain), Stamlo (cardivascular) and Ciprolet (anti-infective) in FY2000 are any indication. These brands contributed over 40% of the company's turnover and will continue to be a major driver for the merged company's topline.

Another driver of the topline would be the generics business in the regulated markets, which was being undertaken via Cheminor. (Cheminor recently entered the global generics markets with the export of Ranitidine-75Mg and Flouxetine to North America.)

The third driver of the integrated company's turnover would be the revenues from any Novel Drug Discovery (NDDS). At present, DRL itself is working on three new molecules. One is an anti-cancer compound, another was 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. Besides, the company is also working on a new class of diabetes products called PPAR, expected to have considerable potential.

The main promoter of the group companies, Dr. Reddy's Holdings (DRH), currently holds 25.40% in DRL and 35.34 % in Cheminor. The holding of DRH in the merged entity will be 27.59%. In their individual capacities, Dr. Anji Reddy and his immediate family members hold 1.76% in DRL and 13.42% in CDL. In the merged entity their combined holding will be 3.86%.

The merger ratio too seems to be slightly weighted in favour of the Cheminor considering the fact that its turnover was Rs 2154 m in FY 2000 i.e. around 36% of the DRL's turnover. (DRL's turnover inclusive of American Remedies' numbers amounted to Rs 5870 m in FY2000.) Moreover growth in the domestic bulk actives market has actually been negative. However weightage seems to have been given to the fact that 67% of Cheminor's turnover is accounted for by exports and the company has already filed six abbreviated new drug applications (ANDAs) in the US, four in the European Union apart from another six, which are in the pipeline.