Mon, Apr 14, 2014 page15

• Investors bet Sun Pharma can heal rival Ranbaxy

  • AFP, NEW DELHI
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  On the surface, Sun Pharmaceutical Industries Ltd’s US$3.2 billion purchase of Indian generics rival Ranbaxy Laboratories Ltd, which is in deep trouble with US regulators over safety lapses, may not look like a great deal.

  Yet Sun Pharm’s shares rocketed on last week’s announcement that it was buying Ranbaxy from Japanese drugmaker Daiichi Sankyo Co, which struggled unsuccessfully to resolve the Indian company’s regulatory woes after its 2008 US$4.6 billion acquisition.

  Investors gave the thumbs-up, banking on Sun’s history of nursing ailing companies back to health and the new clout it will gain in the fast-growing global generics market.

  

  Employees of Sun Pharma, India’s third-biggest pharmaceutical firm, walk outside its research and development center in Mumbai on Monday last week.

  Photo: AFP

  “It’s a risk, but well-calculated and backed by Sun’s track record of turning around troubled assets,” D.G. Shah, secretary-general of industry group Indian Pharmaceutical Alliance, told reporters.

  Sun, with its decades of experience in formulating knock-off drugs that have brought it alliances with US giants such as Merck, “is like a white knight to bail out Ranbaxy from the FDA [US Food and Drug Administration] mess,” Shah said.

  New Delhi-based Ranbaxy is unable to export drugs to its key US market from its four Indian manufacturing plants due to bans imposed by the FDA in relation to quality problems.

  Mumbai-based Sun, founded three decades ago by tycoon Dilip Shanghvi, a billionaire with a shrewd reputation, says it is aware of the “magnitude” of Ranbaxy’s regulatory woes.

  For Sun, pluses far outweigh minuses because the purchase will give it a broader range of drugs in its medicine cabinet, a robust pharmaceutical pipeline and a wider geographical reach, analysts say.

  With the acquisition, Sun will be the world’s fifth-largest generic pharmaceutical company and nearly double its annual sales to US$4.2 billion. The merged company will have operations in 65 companies and 47 plants across five continents.

  Crucially, it will also become the biggest Indian drugmaker by sales in the US and the largest domestically with a 9.2 percent market share, compared with Abbott Laboratories’ 6.5 percent, Mumbai’s Angel Broking said.

  That difference represents a “huge gap in the highly fragmented Indian pharmaceutical market” where demand is accelerating, Angel Broking analyst Sarabjit Kour Nangra said.

  Sun will also get much larger revenues from beyond India and the US, especially from emerging markets such as Russia and Brazil.

  “In high-growth emerging markets which are 50 percent of Ranbaxy’s sales, it provides a strong platform which is highly complementary to Sun Pharma’s strengths,” Nangra said.

  While Sun may have got a bargain, Daiichi Sankyo, which bought Ranbaxy to escape a saturating home market, is smarting from heavy losses from its Indian foray.

  Daiichi paid US$4.6 billion for the Indian company and then took a US$3.8 billion writedown over Ranbaxy’s quality issues. Last year, Ranbaxy paid a US$500 million US fine for falsifying drug safety records.

  Unable to clean up Ranbaxy amid what some analysts and observers termed “cultural issues” reflecting a clash of Indian and Japanese work cultures and geographic distance, Daiichi exited.

  Daiichi president Joji Nakayama conceded that the company lost money in the deal, but told Japanese reporters: “We’ve learned a lot of things and got lots of ideas.”

  Daiichi, which is set to obtain a 9 percent stake in the merged company, will also have “a partnership with a world-leading generic pharmaceutical firm,” Nakayama said.

  Analysts said Daiichi’s small exposure would not make a big difference to its fortunes.
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