ranbaxy merger daiichi sankyo
TRANSCRIPT
Ranbaxy & Daiichi Sankyo Co. Ltd. Merger
The present study discusses the implications of the merger between Ranbaxy and Daiichi
Sankyo, from an intellectual property as well as a market point of view. This analysis is
particularly important at this point because of a variety of reasons including the growing
preference for generics, increasing dominance of emerging markets such as India, fast
approaching patent expiry etc. Also, given the fact that this involves between 2 players who are
among the largest among their respective markets, this deal is of great significance.
Background
Daiichi Sankyo Co. Ltd. signed an agreement to acquire 34.8% of Ranbaxy Laboratories Ltd.
from its promoters. Daiichi Sankyo expects to increase its stake in Ranbaxy through various
means such as preferential allotment, public offer and preferential issue of warrants to acquire a
majority in Ranbaxy, i.e. at least 50.1%. After the acquisition, Ranbaxy will operate as Daiichi
Sankyo’s subsidiary but will be managed independently under the leadership of its current CEO
& Managing Director Malvinder Singh.
The main benefit for Daiichi Sankyo from the merger is Ranbaxy’s low-cost manufacturing
infrastructure and supply chain strengths. Ranbaxy gains access to Daiichi Sankyo’s research and
development expertise to advance its branded drugs business.
Daiichi Sankyo’s strength in proprietary medicine complements Ranbaxy’s leadership in the
generics segment and both companies acquire a broader product base, therapeutic focus areas
and well distributed risks. Ranbaxy can also function as a low-cost manufacturing base for
Daiichi Sankyo. Ranbaxy, for itself, gains smoother access to and a strong foothold in the
Japanese drug market. The immediate benefit for Ranbaxy is that the deal frees up its debt and
imparts more flexibility into its growth plans. Most importantly, Ranbaxy’s addition is said to
elevate Daiichi Sankyo’s position from #22 to #15 by market capitalization in the global
pharmaceutical market.
Synergies
The key areas where Daiichi Sankyo and Ranbaxy are synergetic include their respective
presence in the developed and emerging markets. While Ranbaxy’s strengths in the 21 emerging
generic drug markets can allow Daiichi Sankyo to tap the potential of the generics business,
Ranbaxy’s branded drug development initiatives for the developed markets will be significantly
boosted through the relationship. To a large extent, Daiichi Sankyo will be able to reduce its
reliance on only branded drugs and margin risks in mature markets and benefit from Ranbaxy’s
strengths in generics to introduce generic versions of patent expired drugs, particularly in the
Japanese market.
Both Daiichi Sankyo and Ranbaxy possess significant competitive advantages, and have
profound strength in striking lucrative alliances with other pharmaceutical companies. Despite
these strengths, the companies have a set of pain points that can pose a hindrance to the merger
being successful or the desired synergies being realized.
With R&D perhaps playing the most important role in the success of these two players, it is
imperative to explore the intellectual property portfolio and the gaps that exist in greater detail.
Ranbaxy has a greater share of the entire set of patents filed by both companies in the period
1998-2007. While Daiichi Sankyo’s patenting activity has been rather mixed, Ranbaxy, on the
other hand, has witnessed a steady uptrend in its patenting activity until 2005. In fact, during
2007, the company’s patenting activity plunged by almost 60% as against 2006.
Significant Differences in Patenting
Daiichi Sankyo had a more diverse technology spread compared to Ranbaxy. The top four IPCs
of Ranbaxy and Daiichi Sankyo accounted for almost 94% and 72% of the total number of patent
families analyzed, respectively.
An IPC gap analysis for the two players revealed that patent families of these companies were
spread across 43 different IPCsHormones and gastro-intestinal drugs are exclusive therapeutic
areas that Teva Pharmaceuticals has obtained approvals for compared to Ranbaxy and Daiichi
Sankyo in the same period. Barr Pharmaceuticals, on the other hand, held 54 ANDA approvals
filed across 15 therapeutic segments. The unique segments of Barr Pharmaceuticals include
hormones, uro-genital drugs and bone disorder drugs.
Three New Drug Application (NDA) and Biologic License Application (BLA) approvals by the
US FDA were obtained by Ranbaxy as of 6 September 2008 for the period January 2003-
September 2008, while in the same period, Daiichi Sankyo obtained only two approvals. Teva
Pharmaceuticals obtained five NDA and BLA approvals while Barr Pharmaceuticals did not
obtain any approvals.
Post-acquisition Objectives
In light of the above analyses, Daiichi Sankyo’s focus is to develop new drugs to fill the gaps
and take advantage of Ranbaxy’s strong areas. To overcome its current challenges in cost
structure and supply chain, Daiichi Sankyo’s primary aim is to establish a management
framework that will expedite synergies. Having done that, the company seeks to reduce its
exposure to branded drugs in a way that it can cover the impact of margin pressures on the
business, especially in Japan. In a global pharmaceutical industry making a shift towards
generics and emerging market opportunities, Daiichi Sankyo’s acquisition of Ranbaxy signals a
move on the lines of its global counterparts Novartis and local competitors Astellas Pharma,
Eesei and Takeda Pharmaceutical.
Post acquisition challenges include managing the different working and business cultures of the
two organizations, undertaking minimal and essential integration and retaining the management
independence of Ranbaxy without hampering synergies. Ranbaxy and Daiichi Sankyo will also
need to consolidate their intellectual capital and acquire an edge over their foreign counterparts.
Conclusion
In summary, Daiichi Sankyo’s move to acquire Ranbaxy will enable the company to gain the
best of both worlds without investing heavily into the generic business. The patent perspective of
the merger clearly indicates the intentions of both companies in filling the respective void spaces
of the other and emerge as a global leader in the pharmaceutical industry. Furthermore, Daiichi
Sankyo’s portfolio will be broadened to include steroids and other technologies such as sieving
methods, and a host of therapeutic segments such as anti-asthmatics, anti-retrovirals, and
impotency and anti-malarial drugs, to name a few. Above all, Daiichi Sankyo will now have
access to Ranbaxy's entire range of 153 therapeutic drugs across 17 diverse therapeutic
indications. Additional NDAs from the US FDA on anti-histaminics and anti-diabetics is an
added advantage.
Through the deal, Ranbaxy has become part of a Japanese corporate framework, which is
extremely reputed in the corporate world. As a generics player, Ranbaxy is very well placed in
both India and abroad although its share performance belies its true potential. Ranbaxy is also an
emerging branded drug manufacturer possessing tremendous clout in terms of strategic alliances
with some of the biggest players in the industry. Given Ranbaxy’s intention to become the
largest generics company in Japan, the acquisition provides the company with a strong platform
to consolidate its Japanese generics business. From one of India's leading drug manufacturers,
Ranbaxy can leverage the vast research and development resources of Daiichi Sankyo to become
a strong force to contend with in the global pharmaceutical sector. A smooth entry into the
Japanese market and access to widespread technologies including, plant, horticulture, veterinary
treatment and cosmetic products are some things Ranbaxy can look forward as main benefits
from the deal.
However, the recent ban on the US imports of more than 30 Ranbaxy drugs is a major pain point
for the company now. While Daiichi Sankyo has stressed that it going ahead with the deal, it
raises some concerns over the impending benefits and has in fact already affected Ranbaxy’s
share performance in September 2008. Post the deal, Ranbaxy’s debt will be significantly
reduced and will impart more flexibility to pursue growth opportunities. The acquisition
corroborates the strong possibility for similar moves in the future, particularly from Japanese
players who have begun displaying confidence in Indian patent laws and respect for intellectual
property rights.