What is backward integration?
Backward integration strategy employed to expand profits and gain greater control over production of a product whereby a company will purchase or build a business that will increase its own supply capability or lessen its cost of production. For example, a pharmaceutical manufacturer may purchase one of its suppliers of raw material to lessen the cost of raw materials and have more control over the delivery schedules of the finished product.
Backward integration is quite commonly seen in pharmaceutical industry.
Ipca’s latest acquisition:
Ipca Laboratories Ltd has acquired US-based drug manufacturer Pisgah Labs Inc. for US$ 9.65 millions free of debt.
The acquisition is aimed at establishing the company’s foothold in the US market in the field of contract research and small-volume manufacturing of active pharmaceutical intermediaries.
Pisgah Labs Inc., North Carolina, USA was originally founded in the year 1981 as a contract manufacturer and developer of active pharmaceutical ingredients (APls) and intermediates.
Pisgah Labs Inc. has been a chemistry solutions provider for over three decades and will continue to operate out of its North Carolina manufacturing facility under the Pisgah trade name.
Nature of the deal: Backward integration.
Pisgah’s capabilities will help Ipca in supporting Phase II to commercial scale programmes and also enable the it to manufacture small volume APls for US market. For Ipca indeed, this acquisition is backward integration to strengthen their presence in US market.