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It has been a rocky path for Japanese pharma major Daiichi Sankyo ever since it acquired a 63.5 per cent stake in Indian drug maker Ranbaxy in June 2008.
The deal was then hailed as a landmark acquisition in the history of Indian pharma. Daiichi, in all-cash deal, paid $4.9 billion (Rs 21,070 crore based on the prevailing exchange rate) for this stake, valuing the company at $8.5 billion (Rs 36,550 crore), almost five times its annual sales. Currently, Ranbaxy’s stock trades at nearly half the acquisition price of Rs 737.
Daiichi misled
Ranbaxy’s stock has lost over 16 per cent over the past four trading sessions alone. This follows reports suggesting a possible probe into Ranbaxy’s drug filings and approvals by the Indian regulator, Drug Controller General of India (DGCI). This was quickly followed by a claim by Daiichi that certain former shareholders of Ranbaxy had concealed material facts about a US regulatory investigation at the time of the stake sale.
In a press release assuring investors that moves would be made to improve Ranbaxy’s business and quality assurance, Daiichi also added that it is pursuing available legal remedies against certain former shareholders.
Regulatory trap
Soon after the deal was inked, in September 2008, the US drug regulator - Food and Drug Administration - accused Ranbaxy of misrepresenting data and manufacturing deficiencies. It issued an import ban on Ranbaxy, prohibiting the export of 30 drugs to the US, within three months after Daiichi announced the acquisition. Following this, Ranbaxy’s sales in the US shrank almost by a fourth, and its stock price slumped to over a fifth of the acquisition price.
It has since taken Ranbaxy four years to reach a settlement with the US regulatory authorities. The company recently agreed to pay a fine of $500 million after admitting to false representation of data and quality issues at its three Indian plants supplying to the US market. The company’s problems in the US are far from done with. It continues to face challenges in securing timely approval for its exclusive products in the US markets.
Ranbaxy’s recent inability to get timely approval for its generic version of the hypertension drug Diovan is a classic example.
While the company has reassured investors that it will take action to ensure the safety and efficacy of all its products, Ranbaxy’s sales ramp-up in the US will be critical to improve its financial performance in the near term.
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