Japanese firm set to take a controlling stake in India's biggest pharma company

Japan’s Daiichi Sankyo is to acquire a controlling stake in India’s largest pharma company, Ranbaxy. The non-hostile cash deal, worth up to $4.6 billion (?2.4 billion), will create the world’s 15th largest drug firm. The Indian company will retain the Ranbaxy name, and chief executive Malvinder Singh will remain at the helm. 

Daiichi Sankyo has bought the 35 per cent stake owned by the Singh family. The Japanese company is tendering to buy up to a further 20 per cent of the company’s stock, in line with Indian stock market rules, which would give it overall control.   

The combination of the two companies - one focused on research and the other predominantly on generics - bucks the trend for research-based companies selling off or spinning out their generics businesses. Of the pharma majors, only Switzerland’s Novartis still has a business model that embraces both, having resurrected the Sandoz brand in 2003 for its generics franchise, which has since grown rapidly by acquisition. 

The deal, which would see one of India’s largest industrial giants go to a foreign company, has caused some surprise in India, with many more accustomed to seeing Indian firms making big acquisitions abroad. Dilip Shah, secretary general of the Indian Pharmaceutical Alliance, believes there are several possible reasons for the timing of the deal: market conditions are getting tough; it’s good value for shareholders; emerging interest of brand-name companies in the generics business; and frustration with Pfizer’s ongoing litigation over its Lipitor patents. 

Singh has defended the deal, saying that the combination of his company’s strength in generics with Daiichi Sankyo’s focus on patented medicine would allow Ranbaxy to ’go to the next level’. He believes that other companies may now follow suit in broadening their scope.   

Shah says it is ’obvious’ that Daiichi has acquired Ranbaxy, and will call the shots. ’The plans spelt out by both seem to be short term arrangements,’ he says. ’It is a moot point whether Ranbaxy will retain its identity or will be merged with Daiichi in the long term. Whatever the outcome, its business is complimentary to the business of Daiichi and will help Daiichi to capture the growing generic business in the domestic market.’ 

He also believes that this deal will inevitably open the floodgates for unsolicited bids by other drug giants, global generics companies and investment bankers. ’On the positive side, it would also encourage consolidation of the industry within India,’ he adds. ’This is, for sure, a new beginning. Until now, most people thought the leading Indian companies were committed to establishing their global presence. However, the message now is that it is not impossible to persuade them to sell a stake in their business.’ 

Meanwhile, there is speculation in the market that another company will be spurred to make a hostile counter-bid, possibly Pfizer. Shares in Ranbaxy have posted gains as a result of the rumours but Pfizer has refused to comment. 

Sarah Houlton