Orchid seeks ally for product development

Orchid Chemicals and Pharmaceuticals is now scouting for a new foreign partner to invest and collaborate with it in product development and processes filings for a new range of products.

"We should be freezing on this partner in six months, " K Raghavendra Rao, managing director, said.

"We are not looking at equity participation. But the financial investments made by the partner can be tied into our marketing arrangement with them," he added. The patent filings will also be exclusively owned by Orchid.

The need for foreign collaborator arises as Orchid will be directly targeting regulated markets with its lifestyle drugs, instead of graduating from the less-regulated to the regulated market, as it had done with its cephalosporin range.

Currently, Orchid has marketing tie-ups with the $1-billion Apotex Corp for its sterile cephalosporin formulations and with $800-million Par Pharmaceuticals for its oral cephalosporin formulations, to tap the US market. The agreement with Apotex has been extended to cover Canada.

The company has identified 50 products in the non-antibiotic segment to develop and market in the regulated market, when they go off-patent between 2008 and 2012. These are essentially drugs related to central nervous system (CNS), cardiovascular ailments and diabetes.

"We have already developed 10 of these products and commercialisation of their production should happen by December 2005," Rao explained.

This, he said, is necessary so that Orchid can then initiate its exercise of validation and filings and hope to have the abbreviated new drug applications (ANDAs) in place in 2006.

"Starting with good manufacturing practices (GMP) certification followed by the drug master filings (DMF) and the ANDAs, the various approvals take about 18 months to happen, " he pointed out. The idea is to be ready for the market in 2007.

As part of the project, Orchid will be setting up a bulk drug plant with an installed capacity of 60 tonne per annum, adjacent to its existing non-cephalosporin bulk drug facility at Aurangabad.

Beside its formulations plant at Chennai, the company will be setting up another plant for making 100 million tablets and 100 million capsules per annum of lifestyle drugs. This time round, Orchid will focus only on the manufacture of the key intermediates and outsource other building blocks from domestic manufacturers and from China.

Besides the 10 products already developed, the company plans to develop another 10 products every year in the subsequent years to cover its target of 50 and tap the regulated markets as the products go off-patent.

The company is waiting to float its $75 million foreign currency convertible bonds (FCCBs), half of which will be used to fund basic investments in the plants for the project.

Mid-July Orchid suspended its FCCB plan in wake of the uncertainty in the global capital market. With market picking up, it has revived the plan but is taking the wait and watch approach for now.

Rao hopes that the bonds can be floated in September-October, so that the investments are made in time for the manufacturing schedule drawn up.

"If we are not able to raise this money by the close of the calendar year, it will impact our project schedule," Rao admitted.

The plan-B is to raise the money from the domestic banks. But for the company, which is also aiming to lower its debt costs, the FCCB float is still the preferred route.

"Our average debt cost is 7.6 per cent. We are looking to attain 5-6 per cent savings in our interest outgo, effectively amounting to about $2 million," he said.