has ensured Orchid Chemicals and Pharmaceuticals Ltd is blooming globally. On April 10, days after Rao's Orchid was in the news as a hostile takeover target, the company announced its entry into the world's toughest pharma market "" Japan. The wholly-owned Japanese subsidiary of the Chennai-based firm is to offer low-cost versions of medicines whose patents have expired. As Kunihiko Iwata, CEO of Orchid Japan says, the company is out to replicate the successes it has had in the demanding US and European markets. As one of the early entrants from India in Japan, Orchid is positioning itself to meet a broad spectrum of acute and chronic therapy needs of the growing Japanese healthcare market.
In fact, Orchid was designed to serve the world market right from its inception 16 years ago. Set up as a 100 per cent export-oriented unit, Orchid has grown from a Rs 30 crore company in 1995 to over Rs 1,000 crore in 2008. The product basket has also grown, from a single antibiotic, cephalosporin, to a variety of medicines in oral and injectable forms. The company, which is one of the largest cephalosporin producers in the world, employs over 3,700 people, of which over 600 are scientists, technologists and other professionals. Cephalosporin, Rao says, was chosen for its complicated manufacturing process, as it helped Orchid carve a niche in the highly competitive off-patent drug market.
Rao, a 48-year-old IIM-A alumnus, began his career with Kwality Ice Creams, moved on to Ashok Leyland and then to Standard Organics before joining a west Asian company to help it set up a major chemical and cement manufacturing facility in Oman. It was his earnings from Oman, along with the pooled-in resources of fellow NRIs (about Rs 10 crore), that became the seed capital for Orchid. It was among the country's few pharmaceutical companies that decided to go public right from its inception (in 1993). Orchid has always had high levels of investment by both domestic and global players.
As a first-generation entrepreneur from a modest background, Rao has never hesitated to dilute his equity stake to help finance Orchid's growth. Rao's stake in Orchid has never crossed 30 per cent. The last time he decided to increase his stake in the company was during March-June 2007, and Rao managed to hike his stake in the company from 17 per cent to 24 per cent after pledging shares with India Bulls and Religare.
Little did he know that these shares would, almost a year from then, put him in the unenviable situation of facing a hostile takeover challenge. The recent stock market crash, which saw US equity major Bear Stearns selling Orchid stocks in bulk, resulted in the company's stocks plummeting on the BSE. The decline in share prices triggered a margin call by India Bulls and Religare, resulting in Rao's stake falling to 17 per cent. Meanwhile, a little-known investment firm, Sorex Pharmaceuticals, supposedly linked to the cash-rich Ranbaxy group, has been increasing its stake in Orchid. The latest disclosures indicate Solrex has acquired a 12.84 per cent stake in Orchid. Even though Ranbaxy has denied any plans for a hostile takeover, Solrex just needs another 2.16 per cent of Orchid shares to make an open offer to acquire it.
Rao, busy with his Japan subsidiary, remains cool. He feels Solrex has made a wise investment in a fast-growing company and says he will welcome manufacturing collaborations, and not acquisition proposals, from other pharmaceutical firms (Ranbaxy?). It is too early to decide which direction Orchid will take. But whichever way it goes, Rao wants the company to live up to its name "" a family of flowers known for their beauty, rarity and up-market value.
