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City boy snaps up Ranbaxy

Dilip Shanghvi

Mumbai, April 7: Dilip S. Shanghvi — a first-generation entrepreneur who grew up in the bylanes of Calcutta’s Bhowanipore — today snapped up troubled pharmaceutical giant Ranbaxy Laboratories in an all-stock deal worth $3.2 billion.

Shanghvi, who studied at the Bhawanipur Education Society, had launched his Sun Pharmaceuticals Ltd in 1982. He turned it into a Rs 11,239-crore player that makes generic drugs used in the areas of psychiatry, neurology, cardiology and gynaecology.

Ranbaxy, one of India’s best-known pharmaceutical players, has run into a raft of troubles with overseas regulators over the past few years.

Sun Pharma’s acquisition of Ranbaxy will create the fifth-largest generics (off-patented drugs) company in the world behind Teva, Sandoz, Actavis and Mylan.

It will also give birth to India’s largest pharmaceutical company with a market share of 9.2 per cent.

The estimated combined revenues of the new entity will be $4.2 billion, pipping Abbott Laboratories which now holds the top position after its acquisition of the branded formulations of Piramal Healthcare in 2010.

Under the agreement, Ranbaxy shareholders will get 0.8 shares of Sun Pharma for each share of their company, which represents an implied value of Rs 457 for each Ranbaxy share.

This is the second time in six years that the ownership of Ranbaxy is changing hands. In 2008, Japan’s Daiichi Sankyo acquired a majority stake in Ranbaxy for $4.2 billion from Malvinder and Shivinder Singh.

Daiichi Sankyo now holds 63.4 per cent of Ranbaxy.

The Japanese company’s foray into India turned sour after Ranbaxy was plagued by quality compliance issues, prompting the US Food and Drug Administration (FDA) to bar its four plants from exporting products to the US.

Experts contend that Daiichi Sankyo’s inability to resolve issues raised by the US drug regulator may have been one of the main reasons why the Japanese company decided to cede control over Ranbaxy.

“May be, they (Daiichi) came to the conclusion that they would get better returns as an investor in Ranbaxy rather than running the company,” said an analyst.

Sun Pharma expects to close the deal by the end of the calendar year. Daiichi Sankyo will hold a 9 per cent stake in the combined entity.

The transaction will have to be approved by the majority shareholders who control more than 75 per cent of the voting capital and who are present and voting at the shareholders’ meeting of Sun Pharma and Ranbaxy. Daiichi Sankyo and the promoters of Sun Pharma have agreed to vote in favour of the transaction.

At a conference call, Shanghvi said his top priority would be to make Ranbaxy compliant with the manufacturing standards laid down by the USFDA. “The first important issue for us to focus on is to achieve compliance.”

The Sun Pharma managing director, however, did not fix a timeline by when he hoped to achieve that goal.

Defending the deal, Shanghvi said Sun Pharma was not acquiring an inferior company. “The quality of business of Ranbaxy from whatever we have seen is no way inferior to the quality of Sun Pharma. So it should be possible for us to find a way to make the business profitable,” he observed.

According to Sun Pharma, in India, the transaction will have a complementary therapeutic basket with little overlap as Ranbaxy has a strong presence in categories like anti-infectives, urology and dermatology.

Ranbaxy’s best-known brands are Volini (for pain relief), Cifran (which is used to treat bacterial infections), and Mox, an antibiotic drug.

The key brands in the Sun Pharma stable include Pantocid (anti-ulcerant), Aztor (a cholesterol reducing drug), Glucored (an oral anti-diabetic), and Levipil (for women’s healthcare).

The combined entity will have operations in 65 countries and 47 manufacturing facilities across five continents, including 629 applications to produce generic versions of blockbuster drugs that are going off patent.

On Monday, the stock markets gave a thumbs-up reaction to the deal. The Sun Pharma scrip closed with a gain of 2.68 per cent at Rs 587.25 on the Bombay Stock Exchange. Ranbaxy was, however, down 3.12 per cent at Rs 455.20.