The ‘Emcure model’ of Foreign Investment and Joint-Ventures

Over the last few years, we’ve seen an increasing amount of co-operation between Big PhRMA companies and Indian generics, mostly in the form of acquisitions such as the Abbot-Piramal deal or the Ranbaxy-Diachi deal. The aim of these deals, for innovator companies, was to build up capacities in the generics sector to cater to the growing market for generic medicines. The growing investment led to a clamour for a ban on 100% foreign direct investment in generic pharmaceutical companies. Apart from such investment, I think (and I’m no expert in these deals) there have been a fair amount of contract manufacturing deals between innovator companies and generics for mostly off-patent ingredients or drugs. 

What we have not seen, in the past, is substantial co-operation between innovator companies and generic pharmaceuticals in the field of patented, high technology medicines and this is what makes the Roche-Emcure deal interesting since it is a deal for complex pharmaceuticals like Herceptin and Pegasys interesting. According to most reports Emcure is responsible for only packaging and tech-transfer does not appear to be a part of the deal. The deal is still interesting because pharmaceutical patentees are always very reluctant to enter into any kind of licensing agreement which involves either a sale or transfer of patented technology. Once a contract is entered into with a local Indian company, it creates a set of legal obligations and in the case of a dispute, if a Court were to order specific performance of a contract, a patentee could lose control of its technology to its licensee. Given the level of mistrust in the pharmaceutical space, any decision to enter into a licensing agreement involving patented drugs obviously attracts a lot of attention and this is precisely why the Emcure-Roche deal generated so much interest. 

In the specific case of the Roche-Emcure deal, it appears that the deal itself was prefaced by the appointment of Dr. Girish Telang, who is the Vice-President of Roche India, to the Board of Directors of Emcure Pharmaceuticals. I’m presuming that Dr. Telang’s appointment was meant to act as extra-insurance and a guarantee against any surprise moves by the management of Emcure Pharmaceuticals. 

Emcure is no stranger to deals with innovator pharmaceutical companies for the manufacture of patented technology. Earlier in February, 2006 Emcure entered into a similar deal with Bristol Myers Squibbs (BMS) for the manufacture of atanzanavir. The deal appeared to be a royalty-free licence but still involved technology transfer. This was part of the effort by BMS to make its drugs available at a cheaper cost in Africa and India and Emcure was one of its partners in the venture. 

So what insurance did BMS take out before striking the deal with Emcure? 

I’m not sure of the answer to that question but it is interesting to note that a few months after the announcement of the BMS deal, in July, 2006 Blackstone, one of the most reputed private equity firms in the world, announced that it was going to invest US $50 million or Rs. 225 crores in Emcure Pharmaceuticals. I’m no whiz kid on the subject of Private Equity but I’m surprised that Blackstone would make its very first investment in India in Emcure Pharmaceuticals when there were so many other good deals out there. Emcure’s profit for the previous year 2004-05 was Rs 18.94 crores, which is respectable but still peanuts for a PE firm like Blackstone. 

Eventually Blackstone did make an investment in Emcure, although according to the share-holding disclosure filed with the Registrar of Companies (RoC), it does not look like it invested a sum of Rs. 225 crores in Emcure. The shareholding breakup for the year 2010-11 indicates that Blackstone owns about 303035 equity shares at Rs. 10 per share and another 17931642 preferential shares at Rs. 10 per share. You can access the link over here. The total value of that investment comes up to a sum of Rs. 18,23,46,770 (Rs. 18.23 crores – less than U.S. $ 4 million). According to the 2010-11 filings with the RoC, foreign investors, of which Blackstone is the largest, own only 15.39% of Emcure, with the promoter family owning more than 50%.. This investment was enough to get Blackstone a position on the Board of Directors at Emcure. There has been some talk of Blackstone exiting the deal but I don’t think that ever happened.