Dr Reddy’s may sell 5% of founders’ stake to GlaxoSmithKline for $15o million: Reports

Dr Reddy may sell five percent of the company’s founders’ stake holding to GlaxoSmithKline for a consideration of nearly $150 million, according to sources.

The world’s second largest drug maker GlaxoSmithKline is reportedly in talks with its Indian associate in generic drugs business Dr Reddy’s to buy a 5 percent stake.

Dr Reddy’s shares peaked by 4.1 percent to 869.55 rupees in Bombay Stock Exchange after the reports.

Announcement of the transaction could happen in two weeks to two months, reports said.

In June, DRL had agreed to supply GSK with over 100 branded drugs to be sold in Africa, west Asia, Asia Pacific and Latin America.

As per agreed terms, the products will be manufactured by Dr. Reddy’s and will be licensed and supplied to GSK in various emerging markets  excluding India. Revenues will be reported by GSK and will be shared with Dr. Reddy’s . In certain markets products will be co-marketed by Dr. Reddy’s and GSK.

GlaxoSmithKline’s five percent stake in India’s second largest generic  firm Dr Reddy’s could strengthen the generic drugs deal which was forged as part of Glaxo’s Chief Executive Officer Andrew Witty’s ongoing strategy to make acquisitions and partnerships in emerging economies to offset the impact of competition from generic medicines.

Last week, it was reported that World’s leading drug makers including GlaxoSmithKline and Merck were  in race to buy 23% stake in India’s 2nd largest generic firm Dr Reddy’s.

Dr Reddy’s, however, denied the media reports saying that the promoters of the company have no intention to dilute or sell their stake.

Glaxo, Pfizer, Merck Or Sanofi-Aventis are listed as the possible suitors who were holding talks with Dr Reddy’s for the founders stake.

Glaxo was offering 950 rupees a share to buy a stake either from the promoters or an existing large investor, some unconfirmed reports said without quoting sources.

Dr Reddy’s Laboratories Ltd denied the media and market talk about a possible deal with a global pharma major saying that the founders of the company had no plans to sell their stakDr Reddy’s, stake sale.

Promoters’ stake in Dr Reddy’s Holdings stood at 25.12 per cent at the end of June quarter, while foreign institutional investors’ holding at 23.81 per cent.

Insurance companies’ stake in Dr Reddy’s also remained substantial at 12.65 per cent, while that of mutual funds including UTI holding in the company stood at 8.01 per cent. Retail investors have about 10 per cent stake in the company.

In August, last year, the promoters of Dr Reddy’s Laboratories hiked their stake through open market purchase.

The promoters group firm, Dr Reddy’s Holdings Ltd, increased its stake from 22.92 per cent to 23.75 per cent through market purchase, the company informed the BSE.

Dr Reddy’s Holding company’s stake was increased from 22.46 per cent to 22.92 per cent through open market acquisition executed by DSP Merrill Lynch. It acquired 1, 95,348 equity shares for Rs 11.6 crore.

Dr Reddy’s net profit decreased 26 per cent at Rs 134.6 crore in the first quarter ended June 30 2008 compared with Rs 182.5 crore in the corresponding quarter for last fiscal year.

Dr Reddy’s has been in financial troubles due to supply constraints for its German Subsidiary, Betapharm for quite some time.

However, Dr Reddy’s revenue growth was moderately good in North America, Germany and Russia, the total revenues grew by 25 per cent and the increase in formulations revenues in Russia could give impetus to further growth in market share.

Despite increased revenues, the 50 per cent increase in selling general & administration expenses (Rs 469.8 crore) and research and development costs had brought down the profitability of the company in the first quarter.

Dr Reddy’s has three core businesses: Pharmaceutical Services and Active Ingredients, Global Generics and Proprietary Products. Dr Reddy’s products are marketed globally, with a focus on India, US, UK, Germany and Russia.

Last year, Ranbaxy Laboratories had sold out to Daiichi Sankyo.

Recently, the owners of Shantha Biotech sold their stake to Sanofi Aventis.