After Ranbaxy and Piramal Healthcare, will there be some deal action from the quarters of Anji Reddy-promoted Dr Reddy’s Labs, one of India’s top deck pharma firms?  MNC pharma giants have resumed exploring a potential deal at the Rs 7,000-crore Hyderabad-based company even though a transaction may not be imminent, sources tracking the development said.

Speculation regarding Glaxo Smithkline (GSK)'s interest in DRL's domestic formulations business returned with force last week. The integrated pharma company—which occupies the spectrum of drug discovery, bulk drugs and generics—has looked at hiving off its domestic formulations business, which accounted for Rs 1,000 crore revenue in FY10, for a strategic sale in the recent past.

Sources familiar with the development told VCCircle that Glaxo Smithkline (GSK) —which inked a strategic alliance with Dr Reddy’s last year for marketing 100 branded generic products in the emerging markets—may be a frontrunner for the domestic business. GSK’s emerging markets president Abbas Husain has been on the prowl for acquisitions and strategic business alignments in India.

Commenting on a VCCircle query related to this information, a spokesperson from GSK said, “GSK does not comment on market speculation”. Dr Reddy's also said, “it does not comment on market speculation.”

Weeks back, US-based Abbott Labs struck a similar deal with Piramal Healthcare to snap up the latter’s domestic formulations business for nearly $3.72 billion to gain leadership in the growing $8-billion Indian drug market.

While GSK, like its peers, is keen on deals in this market, it believes promoter expectations are at a significant premium in India and will not walk into an expensive deal similar to the recently clinched Abbott-Piramal deal, sources said.

A pharma industry observer says, about the growing significance of the Indian market, “The market share of emerging markets is expected to dramatically climb over the next few years. With most pharma companies now embracing generics, increasing their presence in India is inevitable.”

Besides, from an Indian promoter stand point, they are at a cross roads in terms of determining whether they have an appetite to invest further or to monetise their investment, he adds.

The buzz about a deal at Dr Reddy’s has been on for quite some time now. Last year, DRL explored two options to raise cash for facilitating a part-exit for the promoter family. The two options considered then were sale of domestic formulations or getting a long-term strategic investor into the promoter holding company. This saw GSK exploring both options which included actively pursuing acquisition of a little over 5% stake in the investment holding vehicle.

These moves did not fructify with the DRL promoters postponing their fundraising plans.

Meanwhile, analysts said, they did not expect the promoters to offload any part of the business at less than Rs 1,800 per share, which one of them called a conservative figure following the Piramal sale. DRL has a strong line-up in domestic formulations which has been eyed by multiple big pharma firms including Pfizer in the past.

Speculation was also abuzz that Glaxo has started looking into the synergies between Dr Reddy’s and its own products at the retail stockist level, which signalled a possible deal in the making.

In India, Dr Reddy’s has a product portfolio of over 200 brands in major therapeutic areas such as gastro-intestinal, cardiovascular, pain management, oncology, anti-infectives, probiotic, pediatrics and dermatology. The domestic formulations business has been growing at a CAGR of 18% in the last five years. Dr Reddy’s counts its strong brand equity with doctors and new product launches as strengths in the Indian market place.

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