The Hindu Business Line : Ranbaxy stake sale

Till recently, Ranbaxy was in the thick of its acquisitions strategy, even prowling around for a catch in the domestic market. Not for a moment did it cross people’s minds then that the predator could turn prey and hand itself over to a foreign drug company, says P. T. JYOTHI DATTA.

In 2002, Ranbaxy rolled out Vision Garuda to expand the home-spun drug company’s international horizons by 2012. Whether that included a scenario of the promoters selling their equity to an overseas buyer six years down the line, is the proverbial million dollar question.

Even two years ago, when Ranbaxy was in the thick of its overseas acquisitions, its Chief Executive and Managing Director, Mr Malvinder Singh, told media-persons that more acquisitions were on the radar for the Gurgaon-based company and that, this time, they were prowling around for a catch in the domestic market.

“Soft” reasons were inhibiting local acquisitions, he said, elaborating that promoters were not willing to allow an outsider access to the family silver, so to speak. Not for a moment did it cross people’s minds then that the predator could turn prey, and that India’s largest drug company would indeed agree to allow Japanese drug major Daiichi Sankyo to pick up majority stake in it.

Shock, and a little dismay

And that accounts for the shock with which Ranbaxians, past and present, pharmaceutical industry big guns and others in the corporate world have reacted to the Ranbaxy promoters’ decision to sell their entire stake in the company. A reaction similar to when Bisleri’s Ramesh Chauhan sold popular home-spun brand Thum’s Up to Coca-Cola India in 1993.

Shock, and maybe even a little dismay — shock that they did not see it coming from the biggest in the segment; and dismay because a carefully built up Indian brand is being handed over to a foreign player.

Isn’t this a let-down of Project Garuda, and is this what Dr Parvinder Singh (Mr Malvinder Singh’s father) would have wanted for the drug major he helped build, are some thoughts being voiced by investors.

But, to quote from The Godfather, it’s business, not personal. And when there is rough terrain ahead, as there is for drug companies, managements will have to resort to what is best for the company. In this case, Mr Singh told the media that the decision, an emotional one for the promoter family, was to help take Ranbaxy to the next level of growth.

It was common knowledge that consolidation was at the door-step of the estimated Rs 60,000-crore pharmaceutical industry, and all it took was one successful sell-out for others to follow suit.

But, somehow, that did not seem to happen after United States drug-maker Mylan picked up 71 per cent in Hyderabad’s Matrix Laboratories in 2006. The consolidation drum started beating again when Ranbaxy made predatory overtures towards Chennai-based Orchid Chemicals.

This, coupled with Ranbaxy’s equity purchase in Zenotech Laboratories Ltd, Krebs Biochemicals & Industries Ltd and Jupiter Bioscience Ltd, further fuelled the frenzy on Ranbaxy’s aggressive intentions for the local market. But the Orchid story came to a tame end with the two companies announcing a strategic alliance.

Re-assessing challenges

Given this sequence of events, Ranbaxy’s decision to sell strategic equity to Daiichi, does not just flummox industry observers, but forces them to re-evaluate challenges facing the industry.

The local pharmaceutical environment is fraught with risk, with the Government threatening to slap price controls on more medicines.

With India honouring the product patent regime from 2005, generic drug companies are finding it more difficult to make similar versions of innovative drugs.

Local drug companies are being forced to focus on researching new or innovative drugs. And that is easier said than done, as drug research and development is an expensive and time-consuming task that may or may not bear fruit.

Globally too, life is only getting more difficult for drug companies. The US drug market, the Holy Grail for global generic drug companies, is competitive, with several companies making a rush to get a piece of the market when any drug outlives its patent life. And this means up to 90 per cent price erosion on the drug that goes off patent.

With the global pipeline of new drugs coming into the market also being squeezed, innovator drug companies are fiercely protecting their drugs — litigation and extending the life on an existing drug patent, being just some of the avenues they adopt.

Ranbaxy’s protracted multi-country battle over Pfizer’s $12-billion cholesterol drug Lipitor is an indication of the time and energy the Indian pharma company was spending over just one drug.

Tough times ahead had forced global generic majors to merge or buy to become generic behemoths: Israel firm Teva’s merger with US company Ivax, or Sandoz’ acquisition of German company Hexal in 2005, for instance. But could these market factors have influenced and finally triggered Ranbaxy’s decision to sell out?

Great promise

Old hands in the industry say that Ranbaxy as a company had shown immense potential and promise. The vision of Ranbaxy founder Bhai Mohan Singh and subsequently his son, the visionary Dr Parvinder Singh, had made Ranbaxy the poster-boy of the Indian drug industry.

But then, again, the pressure of maintaining and delivering on the promise of being a successful Indian brand in the overseas market could have only made the road ahead look more difficult for Ranbaxy to take on its own.

Some of Ranbaxy’s old war-horses, such as former Chief Executive Officer Mr D. S. Brar and the subsequent CEO Dr Brian Tempest, are no longer with Ranbaxy or have peripheral roles. Incidents in the US — where Ranbaxy’s plant was searched, the company was involved in a voluntary drug recall, etc., — were fresh challenges for the company.

And though Mr Malvinder Singh had shown Ranbaxy’s aggressive face in its several overseas acquisitions, the future might hold more difficult situations requiring a seasoned team, observe industry sources close to Ranbaxy’s promoter family.

Though Mr Malvinder Singh will continue to remain at the helm of Ranbaxy, which will now be a Daiichi subsidiary, some industry observers say that the promoter family may focus more on its financial services company Religare.

But whatever the trigger for the decision taken by the Ranbaxy promoter family, and never mind the several interpretations, all eyes will now be on the flight that Project Garuda will take in the changed business environment.