Sun Pharma is able to revive Ranbaxy: investors
By Penelope MacRae, AFP
April 14, 2014, 12:03 am TWN
NEW DELHI--On the surface, Sun Pharma's US$3.2-billion purchase of Indian generics rival Ranbaxy, which is in deep trouble with U.S. regulators over safety lapses, may not look like a great deal.
But Sun Pharmaceutical Industries' shares rocketed on last week's announcement it was buying Ranbaxy from Japanese drugmaker Daiichi Sankyo, which struggled unsuccessfully to resolve the Indian company's regulatory woes after its 2008 US$4.6-billion acquisition.
Investors gave the thumbs-up, banking on Sun's history of nursing ailing companies back to health and the new clout it will gain in the fast-growing global generics market.
"It's a risk, but well-calculated and backed by Sun's track record of turning around troubled assets," D.G. Shah, secretary general of industry group Indian Pharmaceutical Alliance, told AFP.
Sun, with its decades of experience in formulating knock-off drugs that have brought it alliances with U.S. giants such as Merck, "is like a white knight to bail out Ranbaxy from the FDA mess," Shah said.
New Delhi-based Ranbaxy is unable to export drugs to its key U.S. market from all four of its Indian manufacturing plants due to bans imposed by the U.S. Food and Drug Administration (FDA) over quality problems.
Mumbai-based Sun, founded three decades ago by tycoon Dilip Shanghvi, a billionaire with a shrewd reputation, says it is aware of the "magnitude" of Ranbaxy's regulatory woes.
More Drugs, Robust Pipeline, Wider Geographical Reach
But for Sun, pluses far outweigh minuses because the purchase will give it a broader range of drugs in its medicine cabinet, a robust drug pipeline and a wider geographical reach, analysts say.
With the acquisition, Sun will be the world's fifth-largest generics pharmaceutical company and nearly double its annual sales to US$4.2 billion.
The merged company will have operations in 65 companies and 47 plants across five continents.
Also crucially it will become the biggest Indian drugmaker by sales in the United States and the largest domestically with a 9.2-percent market share, compared with Abbott Laboratories' 6.5-percent, Mumbai's Angel Broking said.
That difference represents a "huge gap in the highly fragmented Indian pharmaceutical market" where demand is accelerating, said Angel Broking analyst Sarabjit Kour Nangra.
Sun will also get much larger revenues from beyond India and the United States, especially from emerging markets such as Russia and Brazil.