Investors bet Sun Pharma can restore Ranbaxy to health

April 13, 2014 by Penelope Macrae

On the surface, Sun Pharma's $3.2-billion purchase of Indian generics rival Ranbaxy, which is in deep trouble with US regulators over safety lapses, may not look like a great deal.

But Sun Pharmaceutical Industries' shares rocketed on last week's announcement it was buying Ranbaxy from Japanese drugmaker Daiichi Sankyo, which struggled unsuccessfully to resolve the Indian company's regulatory woes after its 2008 $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.

"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 AFP.

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 mess", Shah said.

New Delhi-based Ranbaxy is unable to export drugs to its key US market from all four of its Indian manufacturing plants due to bans imposed by the US Food and Drug Administration (FDA) over 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.

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

With the acquisition, Sun will be the world's fifth-largest generics pharmaceutical company and nearly double its annual sales to $4.2 billion.

The merged company will have operations in 65 companies and 47 plants across five continents.

Also crucially it will become the biggest Indian drugmaker by sales in the United States and the largest domestically with a 9.2 percent market share, compared with Abbott Laboratories' 6.5 percent, Mumbai's Angel Broking said.

'A good, cheap buy by Sun'

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

Sun will also get much larger revenues from beyond India and the United States, 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," said Angel's Nangra.

Industry observers said Shanghvi would have done his homework on Ranbaxy and not overpaid.

"It's absolutely a distress sale by Daiichi and a good, cheap buy by Sun," the former India managing director of US pharma giant Pfizer, Kewal Handa, told India's CNBC.

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

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

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

Daiichi president Joji Nakayama conceded the company lost money, but told Japanese reporters, "We've learnt a lot of things and got lots of ideas".

Daiichi, which gets a nine percent stake in the merged company, will also have "a partnership with a world-leading generic pharmaceutical firm," Nakayama said.

But analysts said Daiichi's small exposure would not make a big difference to its fortunes.

Shanghvi said Sun had shown its ability to integrate 16 acquisitions, including recently Taro Pharmaceutical Industries.

With its 2010 Taro purchase, Sun boosted Taro's profitability from "underperforming" to "consistent growth", Shanghvi said.

Sun's first priority with Ranbaxy, Shanghvi said, will be complying with FDA norms at the Indian plants. With Sun's experience in meeting FDA requirements, it can "guide" Ranbaxy staff.

"They want to be on the winning team, they just need the opportunity (and) direction," Shanghvi said.

Explore further: India's Sun Pharma buys troubled rival Ranbaxy for $3.2 bn (Update)

Related Stories

India's Sun Pharma buys troubled rival Ranbaxy for $3.2 bn (Update)

April 7, 2014
India's third-biggest drugs company Sun Pharma announced Monday a $3.2-billion deal to buy larger domestic rival Ranbaxy from Daiichi Sankyo, ending the Japanese company's costly run as owner.

Indian drug giant Ranbaxy trims losses but future is bleaker

February 5, 2014
Ranbaxy Laboratories, India's biggest generic drugmaker by sales, reported a narrower quarterly loss on Wednesday thanks to rising sales in key markets and currency gains.

Shares of India's Ranbaxy slide 19% on new US FDA ban

January 24, 2014
Shares in one of India's biggest drugmakers, Ranbaxy Laboratories, slid 19 percent Friday after the US Food and Drug Administration suspended imports from a fourth manufacturing plant of the firm.

Ranbaxy taking 'stringent steps' to end US FDA ban

September 21, 2013
India's biggest drugmaker by sales, Ranbaxy Laboratories, has assured shareholders it is taking "stringent steps" to resolve a US ban on imports of medicines made at its newly renovated showcase plant.

India's drugmaker Ranbaxy swings into quarterly net loss

October 29, 2013
India's biggest generic drugmaker Ranbaxy Laboratories swung into a net loss in the third quarter ended September from a profit a year earlier, owing to a weak rupee and foreign exchange losses.

More pain for Japan's Daiichi hit by Ranbaxy fraud

June 9, 2013
Daiichi Sankyo believed it had scored a coup in 2008 when it outbid rivals to buy Indian generics giant Ranbaxy for $4.6 billion but its foray into the high-growth copycat drugs arena has brought the Japanese drugmaker only ...

Recommended for you

Study suggests ending opioid epidemic will take years

July 20, 2017
The question of how to stem the nation's opioid epidemic now has a major detailed response. A new study chaired by University of Virginia School of Law Professor Richard Bonnie provides extensive recommendations for curbing ...

Team-based model reduces prescription opioid use among patients with chronic pain by 40 percent

July 17, 2017
A new, team-based, primary care model is decreasing prescription opioid use among patients with chronic pain by 40 percent, according to a new study out of Boston Medical Center's Grayken Center for Addiction Medicine, which ...

Private clinics' peddling of unproven stem cell treatments is unsafe and unethical

July 7, 2017
Stem cell science is an area of medical research that continues to offer great promise. But as this week's paper in Science Translational Medicine highlights, a growing number of clinics around the globe, including in Australia, ...

Popular heartburn drugs linked to higher death risk

July 4, 2017
Popular heartburn drugs called proton pump inhibitors (PPIs) have been linked to a variety of health problems, including serious kidney damage, bone fractures and dementia. Now, a new study from Washington University School ...

Most reproductive-age women using opioids also use another substance

June 30, 2017
The majority of reproductive-age and pregnant women who use opioids for non-medical purposes also use at least one other substance, ranging from nicotine or alcohol to cocaine, according to a University of Pittsburgh Graduate ...

At-risk chronic pain patients taper opioids successfully with psychological tools

June 28, 2017
Psychological support and new coping skills are helping patients at high risk of developing chronic pain and long-term, high-dose opioid use taper their opioids and rebuild their lives with activities that are meaningful ...

0 comments

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.