What is Backward Integration?
Backward integration refers to the process in which a company purchases or internally produces segments of its supply chain. In other words, it is the acquisition of controlled subsidiaries or external company / organization, aimed at the creation or production of certain inputs that could be utilized in the production.
One of the recent example of backward integration is Micro Lab’s acquisition of majority controlling stake in R A Chem Pharma Limited.
R A Chem Pharma Limited
The mid-sized Hyderabad-based company is a USFDA approved manufacturing facility for active pharmaceutical ingredients (APIs). It is also engaged in the production of formulations and has a CRO.
Micro Lab is basically focus on formulations. Therefore RA Pharma’s forte in API capabilities strengthens Micro Lab’s operation. This is a classic example of backward integration.
Other Benefit of the acquisition:
1. US FDA approved facility gives us an additional production site.
2. RA Pharma is the company based on Hyderabad. Hyderabad is the bulk drug capital of the country, known for competitive costs.
3. This acquisition will take the total head count of the Micro Lab to approximately 10,000.