Mumbai: Ranbaxy Laboratories Ltd, the country's largest drug company by sales, has entered into a business alliance with Chennai-based Orchid Chemicals & Pharmaceuticals whereby Orchid would manufacture both finished dosage formulations, and active pharmaceutical ingredients (APIs) for marketing by Ranbaxy.
 
The two companies said in a regulatory filing with the exchanges that the business alliance involved multiple geographies and therapies for both finished dosage formulations and active pharmaceutical ingredients. Additionally, this agreement would establish a framework for enhanced future co-operation between the two companies.
 
"Orchid is a niche player in the global pharmaceutical industry with an impressive track record, particularly in sterile products. We are pleased to enter into this long-term strategic alliance with Orchid. The agreement will be mutually beneficial and synergistic, allowing both organisations to leverage each others inherent strengths," Malvinder Mohan Singh, CEO and managing director of Ranbaxy, said.

Orchid is the world's fifth largest maker of the antibiotic cephalosporin.
 
In the last fortnight Ranbaxy built up a sizable 14.65-per cent stake in Orchid through its subsidiary Solrex, which had emerged a bulk acquirer of Orchid's shares through open market transactions, leading to speculation of a possible hostile takeover of Orchid by Ranbaxy.

Ranbaxy said Solrex, the firm which had acquired the stake in Orchid, is a partnership between its two wholly owned subsidiaries, Solus Pharmaceuticals Ltd and
Rexcel Pharmaceuticals Ltd.

Earlier Ranbaxy had refused to comment on its relationship with Solrex even as the latter continued buying up Orchid shares from the open market.

"We are happy to join hands with Ranbaxy, India's largest pharmaceutical company. Ranbaxy's global scale and market reach and Orchid's state-of-the-art development and manufacturing capabilities would expand the business of both companies,'' a statement quoted K Raghavendra Rao, managing director of Orchid Chemicals, as having said on the developments. ''We believe that this will be a win-win arrangement for both companies."
 
Rao said the deal is only on the business side and not on the equity side. ''No separate company is to be formed for the alliance,'' he said. Malvinder Mohan Singh too had denied comment on questions whether he intended to increase his stake in Orchid.

Rao insisted that the current agreement is a marketing arrangement specific to certain products, which Orchid will produce, and Ranbaxy will market. However, there won't be any cash infusion by the bigger company to help Orchid reduce its debt.
 
''We are in no stake sale discussion with Ranbaxy,'' Rao told CNBC TV, adding, ''the stake is not a part of our discussion at all. That is an independent transaction that happened''.

Ranbaxy has also acquired strategic stakes of just under 15 per cent in Krebs Biochemicals and Industries Ltd and Jupiter Bioscience Ltd.

Had Solrex reached a 15-per cent stake in Orchid, it would have automatically triggered an open offer for acquiring another 20 per cent shares from other shareholders.

This is because Indian regulations require an open offer  to buy a minimum of 20 per cent shares from other shareholders if an acquirer other than the promoter group takes a 15-per cent stake in a firm. 

Acquiring Orchid would be distinctly beneficial to Ranbaxy, providing it expertise in areas it did not have, as well as several approvals from regulatory bodies. (See: Why Ranbaxy fancies Orchid) 

However, Solrex seems to have stopped short of stepping in to the 15-per cent threshold in Orchid. This has now given rise to the impression that the management of Orchid may have been been coerced into the agreement with Ranbaxy.

Ranbaxy, meanwhile, reported a dismal fourth quarter (Jan-April 2007-08), posting a net profit of Rs103.42 crore against Rs115.28 crore in the previous corresponding quarter, down 10.3 per cent. The company's net sales during the period stood at Rs987.28 crore compared to Rs988.17 crore.