Dr Reddy’s Laboratories Ltd is buying a plant and a research center from a unit of Dow Chemical Co in the UK to gain technology for its contract manufacturing business.
Dr Reddy’s will buy the Mirfield and Cambridge facilities of Dowpharma Small Molecules, their contracts and intellectual property, and will gain 80 employees, the Hyderabad-based company said on Tuesday. The price wasn’t disclosed and the purchase is expected to be completed on April 30.
Dr Reddy’s wants a bigger share of the market as foreign companies source more ingredients and research from India to lower costs. This would help the company partly offset its fluctuating earnings from selling generic drugs in the US and Europe.
“Dr Reddy’s has got an extremely volatile earnings stream in the last few years, so it makes more sense to enter into businesses which are more visible and have higher margins,” said Vikas Sonawale, an analyst with Religare Securities Ltd in Mumbai, who has a “hold” rating on the company's stock.
Still, the benefit of the purchase would depend on the price the drugmaker pays for it, Sonawale said.
The acquisition will immediately add about $25 million in revenue to Dr Reddy’s sales from making drugs and ingredients specifically for other companies, said GV Prasad, chief executive officer of the company.
“A lot of business is coming this way so we want to build those relationships and also use technology platforms to strengthen the offering that we have,” Prasad said.
This is Dr Reddy’s second acquisition to increase the scope of its contract production business. The drugmaker in 2005 bought Roche Holding AG’s manufacturing unit in Mexico for $59 million.
Dr Reddy’s stock has declined 20 per cent this year.