Glenmark to hive off generics arm

Mumbai-based Glenmark Pharmaceuticals, which envisages itself as a research-driven company with focus on new drug discovery, is following in the footsteps of global drug major Novartis by hiving off its generics business into a new subsidiary, Glenmark Generics Limited.

Currently, Novartis is the only large pharmaceutical company in the world that has a separate subsidiary handling generics (Sandoz) leaving the parent free to focus on specialty products and new drugs.

Glenmark Generics will inherit the parent company's generics and active pharmaceutical ingredient businesses that together generate $197 million in turnover. It will become operational by April next year and offload 30 per cent equity through an initial public offer within the next 12 months.

The move comes in the wake of announcements by domestic drug companies - Dr Reddy's, Sun Pharma, Nicholas Piramal, Ranbaxy and Orchid - to put their research and development activity into separate subsidiaries.

The move is designed to insulate investors in the parent company from the risks associated with new drug research.

"Both our specialty and generics businesses have grown immensely and are contributing almost equal revenues. It is a challenge to manage these two large diverse businesses. The decision will benefit shareholders by creating more value," said Glenn Saldanha, the company's chief executive officer and managing director.

Terrance Coughlin, currently president (US operations) and head of sales, will take over as the chief executive of the new company while Saldanha will be the chairman.

The proceeds from the stake dilution and the capital gained by Glenmark from its new molecule outlicensing model businesses will be utilised to expand the businesses of the parent company and the subsidiary via acquisitions and organic growth.

Glenmark Generics will have in its fold the parent company's Goa plant for formulations, three active pharmaceutical ingredient making plants in India, sales units in the US and the UK and the oncology operations in Argentina. The R&D team focused on API and formulation development will also move to the new entity.

The branded formulation business and revenue from outlicensing deals will remain with Glenmark Pharma, which has 11 new chemical entities and five new biotech drugs under development and has earned over $105 million as milestone payments from four outlicensing deals. The molecules under development are estimated to have the potential to earn $6 billion, according to Saldanha.

Glenmark's stock closed on the Bombay Stock Exchange today at Rs 486.45, one per cent lower than yesterday's close.