J&J And India’s J.B. Chemicals On Collision Course As Sale Of Russian OTC Business Hits Snag
This article was originally published in PharmAsia News
Executive Summary
J&J’s sudden claim for funds from an escrow account has sparked speculation on the future of the deal with J.B. Chemicals.
MUMBAI – A much-hyped deal signed last May between India’s JB Chemicals & Pharmaceuticals Ltd. and Cilag GMBH International – a wholly-owned subsidiary of Johnson & Johnson – for JB Chemical’s OTC business in Russia seems to have run into trouble.
Mid-sized drug manufacturer J. B. Chemicals informed Indian stock exchanges on Oct. 11 that J&J’s group entities have claimed funds held in an escrow account for the deal.
Although details are fuzzy, a market source told PharmAsia News issues may have surfaced related to the Russia sales figures claimed by JB Chemicals. On questions from PharmAsia News, JB Chemicals officials referred to its Oct. 11 statement and refused to share insights on the nature of the dispute. Questions to J&J were still unanswered at deadline.
Shrouded In Mystery
An escrow account is a safety plug incorporated in most deals where either party has the right to stake claim in the event that certain clauses of the terms are breached within a stipulated period. The amount kept in the Cilag-JB Chemical escrow account was not confirmed, but an analyst put it at INR 1.6 billion ($30.18 million).
A JB Chemicals official said the company is in constant discussions with J&J and hopes to resolve the present stalemate through negotiations, noting that legal recourse may not be necessary. At the same time, the company seems firm in preparing for unexpected damages in a bid to save a deal that it last year termed as a “milestone event.”
“The company and its board of directors consider this action (of J&J) untenable, do not accept the claims and are seeking appropriate legal advice in relation to the same,” J.B. Chemicals said in a statement to India’s main stock exchanges. “The company shall spare no efforts to protect the interest of all its stakeholders.”
J.B. Chemicals, Indian analysts say, cannot afford to be on a path of confrontation for a prolonged period. It has also signed a five-year agreement to supply all its products to J&J for the Russian and CIS markets.
Last May, the Indian company sold among its top brands Rinza and Docktor Mom to the U.S. drug giant for a deal valued at more than $245 million. Rinza is Russia’s leading multi-symptom cough and cold medication and Doktor Mom stands as Russia’s second-best-selling cough brand (Also see "J&J Expands Russian OTC Foothold Via J.B. Chemicals Portfolio Acquisition" - Scrip, 30 May, 2011.).
The deal closed in July 2011, nearly three months after it was signed, and in that time the transaction value dropped by $15 million from $260 million at the May 23 signing to $245 million. A source explained the diminished value pertained to certain receivables reported by J.B. Chemicals.
For JB Chemicals, deals in Russia appear to be jinxed. Last year, the company terminated an agreement a few weeks after it announced to sell its Russia non-prescriptions businesses to Dr. Reddy's Laboratories Ltd., describing the decision as being in the overall business interest of both parties (Also see "Back To Square One: India's J.B.Chemicals, Dr. Reddy's Terminate Russa Rx Deal" - Scrip, 26 Sep, 2011.).