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      Nicholas inks drug supply deal with foreign firm

      Posted AtDNAIndia.com

      Nicholas Piramal Ltd, India's sixth-biggest drugmaker by market value, agreed to supply medicines to an unidentified "global hospital products company" for 10 years.

      Such deals, also called "custom manufacturing", are normally confidential in nature, and a slew of them have been struck between Indian pharma firms and multinationals that are trying to cut costs.

      Nicholas expects initial sales from the products to be between $12 million and $15 million a year. The revenues are expected to kick in from the middle of 2007. Sales from the company's so-called contract manufacturing business will account for 50% of total revenue by 2010, chairman Ajay Piramal said in a September interview.

      The agreement with the hospital company can be extended annually after 10 years, and can be expanded to include additional drugs.

      Nicholas already has agreements to supply health-care products to companies including Irvine, California-based Allergan Inc and Santa Ana, California-based Advanced Medical Optics Inc.

      After its second-quarter results, the company had said it expected to sign five such deals before December end. With Thursday's announcement, Nicholas has now signed two deals in two months. The first was with AstraZeneca in late October, under which it will develop active pharmaceutical ingredients used to make medicines.

      Under custom manufacturing, the whole process from development to commercialisation of a drug is customised according to the client's needs.

      Whereas in contract manufacturing, only the job to produce an active pharma ingredient is farmed out.

      In terms of revenue, custom manufacturing is lucrative, affording 20-25% margins. Apart from Nicholas, Hyderabad-based Dr Reddy's Laboratories, and the New Delhi-based Ind Swift Laboratories are some of the companies following the path.

      The advantage of this strategy is that revenue is assured, and the legal hassles that follow moves to produce patented drugs are avoided.

      November 25, 2005


       

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