Dr Reddy's sells US antibiotics manufacturing facility to UAE's Neopharma

Dr Reddy’s Laboratories has sold the antibiotics manufacturing facility and related assets it had acquired in Bristol, Tennessee, from GlaxoSmithKline (GSK) seven years ago.  

On Monday, Dr Reddy’s announced the closure of the sale of this facility to United Arab Emirates-based Neopharma. “The sale is in line with our stated priority to streamline and optimise our global cost structures and help us focus on other business priorities to drive growth,” said Erez Israeli, chief operating officer (COO). Financial details of the sale were not disclosed. 

The Hyderabad-based company had taken steps on cost control in recent times, particularly after Israeli came in April as COO. It had scaled down the expense on research and development, as also capital expenditure. 

In 2010, GSK and Dr Reddy’s signed an agreement to transfer the ownership of its penicillin manufacturing site and the rights for its Augmenting and Amoxil brands in the US to Dr Reddy’s. The transaction was completed in 2011. At the time, Dr Reddy’s said the acquisition was aimed at entering the US penicillin-containing market segment and increase its generics business in North America. However, commoditisation of oral penicillin in the US rendered some of the product approvals at this facility less attractive in terms of price margin, even as the firm was focusing on complex products to sustain growth and margins of its global generics business.

Dr Reddy's scrip closed Rs 19 lower on Monday at Rs 2,511.25 on the BSE.

For Neopharma, this will be the first regulator-approved facility in the US to produce Augmentin, a frequently prescribed variant of penicillin. Suresh Nandiraju, its COO, said the acquisition was synergetic and would help drive long-term and sustainable growth.

The plant and associated facilities focus on manufacturing or packaging Amoxicillin-based products, which include semi-synthetic penicillin. The 390,000 sq ft facility is dedicated to secondary oral-solid dose penicillin manufacturing. A separate 24,000 sq ft processing facility in Bristol is also included in the transaction.

Dr Reddy's also announced it was terminating a licence granted to Armis Biopharma (formerly known as CHD Biosciences) for an investigational antibacterial product, DFA-02, for prophylaxis of surgical site infections. Last year, the firm had out-licensed this bioresorbable drug candidate to CHD Biosciences for $100 million. 

As a result, Dr Reddy's has regained the worldwide rights to DFA-02, which had undergone phase-1 and 2 clinical studies. It says it is evaluating options on taking the programme forward.