Singh is (Sin)King???

“Ranbaxy is my life, my blood ”, was how the CEO and MD of Ranbaxy Laboratories Limited, Malvinder Mohan Singh chose to describe his relationship with the company at a press conference in New Delhi yesterday. This statement was made on the eve of Japan’s third largest drug-maker, Daiichi-Sankyo’s takeover of Ranbaxy at an estimated $4.6 billion at a price of Rs.737 per share pursuant to a Share Purchase and Share Subscription agreement which brings its holding in Ranbaxy to 51.1%. The Business Standard reports that this deal will increase the fortunes of the largest and controlling shareholders- the Singh family- by $2.32 billion. Reportedly, Mr. Singh will continue as the CEO and MD of the company and will also assume the position of Chairman of the Board upon closure of the agreement.

Asked what this deal, which incidentally is the largest ever in Indian pharmaceutical industry, means for Ranbaxy’s future, Mr.Singh replied:

“It marks a very important step to the next level of growth, a new orbit,”

While we have a set of observers who share Mr.Singh’s optimism and believe that this marks the beginning of a new chapter in Indian pharma history where a synergy of core competencies of innovator companies and generic manufacturers could prove to be a lethal combination, there are others who believe that Mr. Singh has cashed in on his chips and call this transaction a “sellout”.

However, the third generation scion of the Ranbaxy Group differs:

“This is not a sellout… this is a chance to do something transformational. This will allow us to grow further, faster and be better.”

He also felt that this deal would help turn Ranbaxy into a research-based international pharmaceutical company and further added that the company could not afford to rely on generics alone to survive and grow in an intensely competitive non-branded drugs market. Malvinder said the takeover was part of a global shakeout in the drugs industry with players under pressure to consolidate and diversify.

As for the Daiichi-Sankyo group, this deal, which is slated to close by March 2009, would make it the 15th largest pharmaceutical company in the world, up from 22nd, with a global presence in 60 nations. The top honchos in Daiichi- Sankyo stressed that Ranbaxy would remain a “stand-alone” company.

What does this deal mean for the Indian pharma industry both in the short-term and long-term? Probably, it is too premature to draw conclusions; however, this is certainly a reversal of sorts given the recent trend of acquisitions by Indian companies like Nicholas Piramal. Also, if consolidation and diversification were the primary objectives as Mr.Singh claims, a merger of two Indian companies such as Dr.Reddy’s and Ranbaxy too would have helped achieve the same objectives (but will that not bring in issues relating to competition law?). Seems like not everyone believes that Indian generic manufacturers alone can do the trick for Indian consumers.

One of our articulate and well-informed readers pointed out that in the natural course of things, imitation as a form of “fair” competition was necessary for capital formation so that the companies could plough back profits into research. Accordingly, one would have expected Ranbaxy, India’s largest generic maker and arguably one of the few entities with enough financial muscle, to undertake research either on its own or by entering into strategic partnerships assuming that it must have raked in enough moolah (capital formation it is) in the 40 and odd years of its existence……….Whether the present deal between Daiichi and Ranbaxy proves to be a strategic “partnership” remains to be seen. One of my colleagues called this deal a “panic-selling” for he felt that this was the consequence of the product patent regime that had sowed seeds of doubt in the minds of generic manufacturers about their ability to stave off competition from global majors. One is sure that such an opinion is bound to draw flak from certain quarters, but then as one of our regular readers beautifully pointed out- everyone has a right to his or her opinions- subject to them being backed by reason.

Also, it is surprising that of all the global pharma majors (Read Big Bad Pharma; does this fear have racial undertones to it?), a Japanese entity has pried open the Indian market with a Katana-like precision and has succeeded in getting more than a foothold in the Indian market through a non-patent route. Is this a wake-up call for other manufacturers to look out for competitors both from the West and the East (for now Far East)?