Financial Daily from THE HINDU group of publications
Tuesday, Mar 29, 2005
Corporate - Venture Capital
Dr Reddy's strikes $56 m deal with ICICI Venture Drug development for US market
Ms Renuka Ramnath, Managing Director & CEO, ICICI Venture, with Mr G.V. Prasad, CEO, Dr. Reddy's Laboratories, at a press conference in Mumbai on Monday. - Paul Noronha
Mumbai , March 28
DR Reddy's Laboratories Ltd has strengthened its war-chest to support research and litigation costs incurred by it.
The company has formalised a $56-million (an estimated Rs 245 crore) agreement with ICICI Venture Funds Management Company for the development and commercialisation of generic drugs filed in the US in 2004-05 and 2005-06.
The "unique" deal has come as a booster for Dr Reddy's, as it helps mitigate the risks faced by the company in research initiatives and in patent-related litigation, an analyst tracking the segment said.
Drug research is fraught with risk and Dr Reddy's has been among the more aggressive Indian drug companies taking on the multinationals through patent challenges.
However, over the last several quarters, the company's financial performance has been under strain.
Its research initiatives too saw pitfalls over the last several months.
A couple of licensing deals struck by Dr Reddy's for further development of drug molecules in the diabetes segment fell through, the analyst pointed out.
The agreement was important for the company as it was in the process of building different businesses, looking at geographical expansion and acquisitions in the generic space, said Mr G.V. Prasad, Vice-Chairman and Chief Executive Officer of Dr Reddy's.
As per the terms of the agreement, ICICI Venture will fund the development, registration and legal costs related to the commercialisation of abbreviated new drug applications (ANDAs) on a pre-determined basis.
It covers most of the ANDAs to be filed in 2004-05 and 2005-06, the drug company said.
On commercialisation of these products, Dr Reddy's will pay ICICI Venture a royalty on net sales for a period of five years. Specific financial details were not divulged.
Ms Renuka Ramnath, Managing Director and Chief Executive Officer of ICICI Venture, said that under the terms of the agreement, ICICI Venture will fund $22.50 million in the first phase with an option to invest an additional $33.50 million in the second phase.
Responding to a query, she said that the release of the second phase of funds was not dependant on any specific targets. The funds could fall through only if ICICI Ventures faced a "constraint" at its end, she said.
She added that they would have to create a structure or a special purpose vehicle to hold this investment and receive the subsequent royalty payments thereafter.
The deal covered over 30 products and the portfolio would be "a mix of patent challenges, difficult to formulate generics and vanilla generics," Mr Prasad said.
The cost of products developed in 2004-05 would be reimbursed, he clarified. The earliest a product under this deal would be launched is about a year away, he said.
The company's research spend would remain, "in absolute terms", at the same level as last year, he added.
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