Ranbaxy Ups Zenotech Stake To Tap Biotech

Ranbaxy Laboratories Ltd, India’s second-biggest drugmaker, has agreed to take control of Zenotech Laboratories Ltd to gain access to the $65 billion market (about Rs 2,50,000) for biotechnology treatments.

Ranbaxy will buy shares from founders of the Hyderabad-based company as well as new stock to increase its stake to 45 per cent, it said in a statement today. The Gurgaon-based drugmaker will offer to buy an additional 20 per cent from investors under stock exchange takeover rules, it said.

The acquisition gives Chief Executive Officer Malvinder Singh control over research and production of drugs based on generic biotechnology, or living cell-based products, that are harder to make than chemical medicines. Companies including General Motors Corp are pushing the US to allow copies of biological medicines as a way to reduce healthcare costs.

The acquisition “provides Ranbaxy with a skill into a business which has higher entry barriers, allowing for greater profitability,’’ said Sarabjit Kour Nangra, an analyst with Angel Broking Ltd in Mumbai, who has a “hold” rating on Ranbaxy’s stock.

Zenotech shares rose by their daily limit on the Bombay Stock Exchange. The stock has more than doubled this year, valuing the drugmaker at about $121 million (about Rs 480 crore). Ranbaxy fell 0.5 per cent, eroding its 13 per cent gain this year.

Ranbaxy will pay Rs 214 crore to increase its stake to 45 per cent. The drugmaker will buy 22 per cent from Zenotech’s founders, including Chief Executive Officer Jayaram Chigurupati, and an additional 16 per cent in preferential stock.

The drugmaker, which owns 7 per cent of Zenotech, will pay Rs 160 a share, compared with the stock’s closing price today of Rs 167.30. Ranbaxy already has collaborations with Zenotech in developing generic drugs for sale across the world.

Zenotech has two biotechnology-based cancer treatments in India with another eight being developed.

The medicines will be sold in Europe by 2011 before tapping the US, Singh said.

The four-year-old company’s drugs are copies of treatments that have a global market of $23 billion (about Rs 92,000 crore).

Chigurupati said he reduced his holding because Ranbaxy has experience in marketing drugs and legal expertise in filing patent-applications and gaining regulatory approval.

“This will take us to the next level,” said Chigurupati, who will remain at the drugmaker as managing director.

Sales of cancer drugs increased 21 per cent globally to $34.6 billion last year, the highest growth among the top 10 therapeutic areas, according to IMS Health Inc, a research company in Fairfield, Connecticut.

Ranbaxy, which has bought six companies including India’s Cardinal Drugs Ltd since the start of last year, is seeking to buy “a couple” of drugmakers in India, Singh said last month.

That would help it lower costs and increase its capacity to sell generic medicines in the US and Europe. Active ingredients account for about 80 per cent of the 24-year-old drugmaker’s production costs.

Europe leads the US in approving biogenerics, which are copies of medications made through biotechnology. US law allows the Food and Drug Administration to approve generic versions of conventional drugs, made mostly through chemical synthesis, after their patents expire. There is no similar legal process for most biotech medicines.

“The increasing importance of biologics in the global pharmaceutical industry and the opening up of the generic biologics in the regulated market makes it opportune for Ranbaxy to enhance its presence in this area,” Singh said in a statement in New Delhi.