Daiichi’s exit from Sun and its signals of caution

Could Daiichi’s decision to sell its equity in Sun Pharmaceutical and in the process exit the country dent the India sentiment in Japan?

Reading the signals from Daiichi Sankyo’s decision on Monday to sell its shares in Sun “entirely or partially”, industry-watchers say it may not be a vote of no-confidence against the Indian market, but it would temper Japanese investors’ approach with much “caution”.

Daiichi had ended up with close to nine per cent in Sun, following the recent closure on Sun’s $4-billion all-stock acquisition of Ranbaxy. The Japanese drug-maker was the erstwhile owner of Ranbaxy after it had bought the company in 2008 for over $4 billion from its Indian promoter family.

But its experience subsequently soured as the extent of Ranbaxy’s regulatory troubles with the United States Food and Drug Administration revealed itself. Daiichi had to pay $500 million to settle criminal and fraud charges against it in the US market. Today, four of its plants are banned from making and selling products in the US.

Daiichi was definitely “scarred” by the experience, say industry insiders, who did not want to be named. But the timing to exit Sun has them perplexed, as the market had expected Daiichi to stay invested for sometime given Sun Pharma promoter’s credentials in growing businesses.

Looking at it differently is Sujay Shetty, Executive Director and India Leader (Pharma, Life Sciences & Medical Devices) with PricewaterhouseCoopers (India). If India had given Daiichi a difficult experience, it also gave it a suitable exit option, and that’s not possible everywhere, he says.

But it is clear Daiichi had decided to exit India following the Ranbaxy experience, he adds, as a statement of fact.

Former head of multinational Pfizer, Kewal Handa, who has seen several deals unfold in India during his tenure, says that Daiichi had a minority holding in Sun and its decision to exit may be driven by its philosophy to not stay in a deal where it is a minority holder. Daiichi has managed to cut its loses, so now it remains to be seen who picks it up, he says, confident nevertheless that as governance improves in the country, more Japanese companies will come in.

Shetty also points out that as confidence builds between the Governments of India and Japan, the graph of looking at India leans from neutral to mildly-positive.

Wait and watch

A pharma-sector analyst, though, points out that Japanese drug companies will take a wait and watch approach. Daiichi was able to cut its losses, but at the end of the day, it lost money on this investment. And that will not be lost on companies looking for big ticket buys here, he says.

There is Japanese presence in the pharma sector, through Eisai or Takeda, and there will continue to be sourcing deals or even fresh manufacturing deals in business friendly States – but not at the level of optimism the two countries had shown in each other some years ago with trade agreement discussions etc, he adds.

Companies will possibly look to structure their deals differently, observes Adeesh Nargolkar, Partner with Khaitan & Co, adding that it is unlikely Japanese companies will recoil from the Indian market. In addition to structuring their deals legally, there could be more effort into understanding the “practical” lay of the land, he observes.

jyothi.datta@thehindu.co.in

COMMENT NOW