Citi Venture, ICICI Venture Take Hair Cut In Perlecan Pharma

Hyderabad-based Dr. Reddy’s Laboratories’ is set to buy back the shares of Perlecan Pharma, its demerged arm dedicated to new drug development, from private equity investors ICICI Venture and Citigroup Venture Capital International (CVCI). The share buyback from ICICI Ventures and Citigroup, both of whom hold 43 per cent each in Perlecan, will be for $18.5 million. The buyback will be in cash and will be funded through existing reserves and internal accruals.

GV Prasad, Vice Chairman and CEO of Dr Reddy’s, told CNBC TV18 that they would buy back shares from both the investors for a total consideration of $18.5 million. “The net of the cash in Perlecan is about $9 million. So, roughly we would be paying $18.5 million to acquire shareholding from both the investors,” Prasad said.

Both the funds are taking a significant haircut on the deal as they had invested $22.5 million each in September 2005. Dr. Reddy had contributed the rest $7.5 million and holds 14 per cent stake. Both the funds will get $9 million each. Perlecan will cease to exist as an independent entity once the takeover process is completed and Dr Reddy will control 100 per cent.

While reporting its first quarter results, the pharma company reported a decrease of 26 per cent in net profit at Rs 134.6 crore compared with Rs 182.5 crore in the corresponding quarter for last fiscal year. The fall in the profits is reportedly due to Dr Reddy’s under performing Germany-based Betapharm unit which the company had acquired in 2006 for $572 million. Perlecan had abandoned the development of three molecules at pre-clinical stage itself, causing concern to investors, and is left with only one molecule.

Drug Research Deals

Earlier, it was also reported that Mumbai based Piramal Life Sciences Ltd, a newly formed company for drug research, is planning to divest 9-10 per cent of its stake to private equity players. The funds in reckoning were ICICI Ventures and UK-based Actis. Other companies also have drug research arms - Sun Pharmaceuticals has Sun Pharmaceutical Advanced Research Company and Ranbaxy Laboratories has Ranbaxy Life Science Research.

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