The recent acquisition of GlaxoSmithKline Pharmaceuticals (GSK)'s decade-old API plant by city-based Glenmark Pharmaceuticals Ltd is a positive for both the seller and the buyer, according to industry sources.

While Glaxo can save on operational costs for the plant, Glenmark, whose goal is to emerge as a leading research-based, global formulation and bulk drugs company, would be able to save money and time for setting up a new bulk drug plant for its exports business.

According to an industry source, Glenmark has saved considerable time and spared itself of permission hassles by picking up a readymade plant. Since Glenmark is a smaller company, it can operate the plant at a cost much lower that that of GSK, thereby raising the plant yields. As for GSK, he said, they have managed to get a good amount for the plant that is over 10 years old.

Glenmark had on November 18, 2002 announced the acquisition of the state-of-the-art active pharmaceutical ingredient (API) manufacturing facility of GlaxoSmithKline based at Ankleshwar, Gujarat for Rs 14 crore. Glenmark already has a specialized bulk drug plant in Kurkumbh, Pune which was commissioned in July 2001. It also has an USFDA-approved formulations plant at Goa for production of generics and a WHO-GMP approved formulation manufacturing facility at Nashik.

"The Ankleshwar plant was a global sourcing plant for GlaxoSmithKline and has approvals from the international team of Quality Assurance group, Glaxo SmithKline. The facility in its current state complies with the regulatory requirements of developed markets and meets the global standards," Managing Director Glenn Saldanha told Pharmabiz.com.

Given the large generic opportunity in the US market, Glenmark is aggressively working on establishing a strong presence in the US market. Glenmark plans to be operational in the US market in early 2003. The company is also hoping to file its first ANDA in 2003.

Acquisition of the Glaxo plant is expected to give a fillip to Glenmark's export plans as setting up and commissioning its own plant would have been a costly exercise (Rs 16-18 crore) apart from delaying the export programme till commissioning. "We are confident of commencing production from February 2003," Saldanha said.

According to an analyst, this is probably the first time that a plant has been sold after taking care of the VRS burden.

This means that Glenmark has got a clean plant and can immediately undertake upgradation or modification. Usually, when such deals are done, it involves resolution of the tricky issue involving VRS expenses for the serving plant workers.

Says a leading analyst, "This only goes to show that quality bulk assets located out of India are in demand, not only by US generic companies, but also by Indian companies eyeing the generics space. As regards the sale of the facility minus men, it is the seller's call to unlock full value by structuring the deal appropriately even if it implies bearing some separation costs."

Most analysts seemed to be upbeat about the Glenmark purchase. However, one analyst said this would not move the stock market which is awaiting developments on the novel chemical entity front.

Glenmark, it may be recalled, has two promising molecules in late pre-clinical development - GRC 3015, a PDE4 inhibitor for the treatment of asthma, and GRC 1087, a beta3 agonist for the treatment of diabetes and obesity. The company plans to complete pre-clinical studies and then license the compound to a partner and is willing to conduct phase one studies too.

The Glaxo plant does not have any US FDA approval as of now. Considering the sophistication of the plant, it can easily get such approvals, a source formerly associated with the plant said. One analyst said he expected Glenmark to apply for US FDA approval soon, and follow it up with drug master filings.

An industry leader, who exited Ankleshwar after selling his plant due to stiff pollution control norms there, said dedicated plants require tremendous modification in equipment to produce other products, and this could be quite expensive. Nobody wanted to buy GSK's idle plant in that location, he said, adding this was why the buyer got it for a song. However, a source associated with the plant in the past said that it had the best of effluent treatment plants to avoid any pollution problem.

The plant, spread over 50 acres, consists of three manufacturing blocks that includes fermentation, a multi purpose reactor set-up and a full-scale plant. "Since the plant meets the regulatory requirements of developed markets, we anticipate an additional expenditure of only Rs 2-3 crore to upgrade certain equipment to meet US FDA standards," Saldanha said.

The plant will cater to both domestic as well as export markets The products manufactured here will cater to both regulatory and non-regulatory markets (like Africa, Russia, East Europe). "We expect a turnover around Rs 30-40 crore in the API business from Ankleshwar and Kurkumbh plants," Saldanha said.

"The new manufacturing facility will now be the cornerstone of Glenmark's foray into the regulated markets for APIs as it gives us the vertical integration required to be cost-competitive in the regulated markets. We expect the plant to contribute around 10 per cent of the turnover in the future," Saldanha said.

A small bulk drug producer said Glenmark has overpaid for the plant. "They should not have paid more than Rs 8 crore. Bulk drug plants do not command a good price after they cross five years. The benefit for Glenmark is that he can save one year's time in setting up a new plant, and apply for US FDA approval now and get it in three years."

"Presently, the facility in its current state complies with the regulatory requirements of developed markets and meets the global standards. We have plans to apply for USFDA approval. We are hopeful of receiving the approval by mid 2004," Saldanha said.

A GSK spokesperson did not agree with this assessment, and said GSK was incurring an operational expense of Rs 11.3 crore per annum at the plant. With the sale of the plant, this expense will vanish, and GSK's bottomline will improve.

Another aspect that has gone in favour of selling the plant at the current price is that there is no hunger for bulk drug plants. Moreover, according to the Glaxo spokesperson, the 50-odd acre land on which the plant is situated in on lease from Gujarat Industrial Development Corporation, the rights of which has been transferred to Glenmark. Which means the actual sale is of just the plant building and machinery.

It may be noted that the company spent Rs 17 crore towards VRS for the 214 workmen at the plant. The VRS for the 50-odd management staff at Ankleshwar is still on. "We have got a very good deal," the GSK spokesperson claimed.

Saldanha says Nateglinide, Esomeprazole are the two products which will be manufactured at the new plant. The plant will also manufacture some of the existing products like Valdecoxib and Linezolid.

It may be noted that the company had launched esomeprazole under the brand name Esoz in 2001-02, which has registered a sales of Rs 2.24 crore. It also launched linzolid under the brand name Lizolid in the same financial year, and the product has recorded a sales of Rs 1.53 crore.

The Glaxo factory has been engaged in the manufacture of the bulk drugs ranitidine, griseofulvin, salbutamol and cephalexin. According to Glaxo, the cost of manufacturing these drugs at Ankleshwar has been an issue for many years, despite various projects undertaken for increasing productivity. This had resulted in products manufactured at the Ankleshwar factory being grossly uncompetitive and uneconomical.

In 2001, the utilisation of the Ranitidine plant and Griseofulvin plant was much below the installed capacity. Hence the production of these plants was curtailed and eventually, ceased at the end of August 2002.

The source close to Glenmark expressed confidence that Glenmark will be able to turn around the plant.

GlaxoSmithKline Pharmaceuticals has four more manufacturing plants, at Nashik (formulations), Thane (bulk drugs), Mysore (formulations) and Bangalore (formulations), but no more sale is under consideration now, the spokesperson added. Saldanha said Glenmark too had no more acquisition plans for now.