Sun Pharmaceutical’s announcement to acquire Ranbaxy Laboratories has been welcomed as a positive for both companies. The deal could signal a new trend of consolidation among large Indian pharmaceutical companies, felt D. G. Shah, Secretary-General, Indian Pharmaceutical Alliance (IPA). “From Sun’s perspective, overnight it gives it a presence in several new markets, adding many new products to their portfolio”.
“It is a big development for both Indian pharmaceutical sector and for the global generic pharma industry as both companies are dominant players in that market,” S. V. Veerramani, President, Indian Drug Manufacturers’ Association (IDMA) told this correspondent. “It is a matter of pride that an Indian company has acquired the company. Indian companies have to increase size to be globally competitive”.
Sun is paying a much lower price for Ranbaxy than what Daiichi Sankyo paid in 2008. Daiichi paid the promoters Rs.746 per share while this deal was at Rs.457 per share and was very attractive deal for them, felt analysts.
“The cost of doing business in the sector has been only rising with requirement for regulatory approvals etc. The entry price in any large transaction is very important,” Avinash Gupta, Senior Director and Head, Financial Advisory, Deloitte in India, said, adding, “if it is wrong then the company has to work very hard to set things right”.
Mr. Shah said the challenges for Sun would be cultural integration as the companies are “miles apart at all levels” and U.S. FDA (Food & Drug Administration). Ranbaxy had found the going difficult with the U.S. drug regulator and would have found it very difficult. “There is a trust deficit between Ranbaxy and U.S. FDA, but whenever there is a need, it provides fast-track approval to Sun indicating significant confidence”.
“It is a win-win deal for all,” said Gaurang Shah, Vice-President, Geojit BNP Paribas, an broking outfit said, “Daiichi got an exit route as things could not have been worse between U.S. FDA and Ranbaxy. Given the acquisitions and turnarounds executed by Sun in the past, seeing through this deal successfully should not be difficult for it”.
On the Bombay Stock Exchange (BSE) on Monday, Sun Pharma shares closed higher by 2.68 per cent (Rs.15.35) at Rs.587.25 while Ranbaxy reacted after opening strong at Rs.505 to close trading at Rs.445.2, down 3.12 per cent.
“The deal will create a domestic powerhouse with a combined market share in excess of 9 per cent in the domestic branded formulations space; this would provide a significant lead over the second-largest player’s market share, which would be less than 6 per cent,” said V. KrishnaKumar, Partner-Transaction Advisory Services (Life Sciences & Healthcare) at EY. In addition to size and benefits of scale, the domestic portfolios of the two companies complement each other well, he added.
“Sun’s domestic portfolio has a bias towards specialities (such as cardio-vascular and oral anti-diabetes), while Ranbaxy’s domestic portfolio has large primary-care and OTC segments as well,” Mr. KrishnaKumar said.