RANBAXY LABORATORY PVT LTD

March 2015
Table of contents:
1. Introduction
(i)History
(ii)Chronological events
2. IPR Regime of Indian Pharmaceutical industry
6
3. Environmental Analysis
(i) PESTEL Analysis
4. Industry analysis:
(i)Porters Five Forces
(ii)Competitive Landscape
(a)Major Competitors
(b)Competition vs Coopetition
5.
6.
7.

8.

3
3
4

10
10
14
14
15
16

18
Segmentation, Targeting & Positioning
19
Company analysis
20
(i)SWOT analysis
20
(ii)VRIN analysis
20
Daaichi Sankhyo-Ranbaxy merger
26
(i)Strategic Rationale
26
(ii) Value chain efficiency for boosting innovative pharma
26
(iii)Ranbaxy: Debt free and a stronger balance sheet
26
(iv) Daaichi sankhyo: Emerging Markets are future growth
engines
27
(v)Competitive strengths and pain points
27
(vi)Daaichi Sankhyo
28
(vii) R&D Focus Alignment with Business Growth
28
(viii)Conclusion
28
Sun Pharma- Ranbaxy merger
29
(i)Chronology of the deal
31

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(ii)Key terms of the deal

9. Future strategies
Exhibits

33
34
35

1.Introduction
The Pharmaceutical industry in India is the worlds third-largest in terms of
volume and 10th largest in value terms. India is now among the top five
pharmaceutical emerging markets of the world. Indian Pharmaceutical
industry is highly fragmented. Indias drugs and pharmaceuticals industry is
expected to grow at a compound annual growth rate (CAGR) of 14% to reach
a turnover of Rs 2.91 trillion ($ 47.06 billion) by 2018 as per the Indian Brand
Equity Foundation. However, the domestic market is worth $25.87bn.
Ranbaxy Laboratories Limited is the largest Indian multinational
pharmaceutical firm exported 125 countries, ground operated in 43 and
having manufacturing plant in 8 countries. Ranbaxy was founded in 1961;
head office at Gurgaon, BSE listed public company and employees 15,300
over 50 nationalities. Total global consolidated sale during Jan 2013 to March
2014 is Rs. 130.4 billion. Ranbaxy major sale comes from us Rs. 68 billion
and from developed country Rs. 54 billion. North America has significant
growth in sale Rs.42 billion.
Ranbaxy was started by Ranbir Singh and Gurbax Singh in 1937 as a
distributor for a Japanese company Shionogi. The name Ranbaxy is a
portmanteau of the names of its first owners Ranbir and Gurbax.
Ranbaxy joined Daiichi Sankyo Group in 2008. Daiichi Sankyo is a leading
global pharma innovator, headquartered in Tokyo, Japan. The company use
hybrid business model to achieved sustainable growth and accelerate
innovation drug creation. They are a vertically integrated company that
develops, manufactures and markets Generic, Branded Generic, Value-added

2 | Page

and Over-the-Counter (OTC) products, Anti-retroviral

Pharmaceutical Ingredients (APIs), and Intermediates.

(ARVs),

Active

The company had 21 state of the art manufacturing capacity across 8

countries. The company present in Africa, Asia Pacific, Europe, North
America, South America and Russia
Ukraine etc. The companys
capabilities lie in developing innovative, safe, environment-friendly and cost
effective global technologies to deliver high quality APIs. Several regulatory
agencies like FDA-USA, MCA-UK, MCC-South Africa, TGA-Australia, ANVISABrazil, WHO-Geneva, BfArM-Germany and PMDA-Japan, have approved its
products for safety, quality and efficacy.
History of Ranbaxy
Ranbaxy was founded by Ranjit Singh and Dr. Gurbax Singh in Amristsar to
distribute Vitamin A and anti-tuberculosis drugs to Japanese Pharmaceutical
companies in 1937. First syllable of Ranjit and last syllable of Gurbax are
combined and formed Ranbaxy. In the year 1961 formal company
incorporated.
Chronological Milestones of the Company
1966: Two brothers sell their company to their lender Bhai Mohan Singh due
huge debt accrual. After that Dr. Parvinder Singh took the charge of the
company.
1973: Company goes public and a multipurpose chemical plant is setup for
the manufacture of Active Pharmaceutical Ingredients (API) at Mohali in India.
1977: The Company took giant leap, first time Company set up a
manufacturing plant outside India to manufacture generic drug for the
international market. They set up the plant with a joint venture with Lagos in
Nigeria.
1983: A modern dosage forms facility at Dewas (MP) in India goes on
stream.
1985: Ranbaxy set up Ranbaxy Research Foundation and start function its
marketing division, Stancare.
1987: Dr. Parvinder Singh Build up an API plant in Toansa, Punjab to catering
the demand of outside country.

3 | Page

1988: The Company got Food and Drug Administrative approval from US to
enter in the US market.
1990: Ranbaxy is granted US patent for Doxycyline .
1992: The Company made joint venture with Eli Lilly, which was largest drug
marketer in the world and formed Eli Lilly Ranbaxy Ltd (ERL). ERL marketed
its branded drugs both in India, US, Europe etc.
1993: the company made another millstone. The company enters into the
Chinese

market

with

Joint

venture

with

Guangzhou

Qiaoguang

Pharmaceutical Co. Ltd and forms Ranbaxy Guangzhou China Ltd (RGCL). It is
first JV between two countries.
1995: Ranbaxy acquired of Ohm Laboratories, a manufacturing facility in the
US and build state-of-the-art new manufacturing wing, at Ranbaxys US
subsidiary Ohm Laboratories Inc.
1998: Ranbaxy enters USA, worlds largest pharmaceutical market, with
products under its own name. Ranbaxy filed its first Investigational New Drug
(IND) application with the Drugs Controller General of India (DCGI) for
approval to conduct Phase I clinical trials.
1999: Bayer AG, Germany and Ranbaxy sign an agreement where Bayer
obtains exclusive development and worldwide marketing rights to an oral
once daily formulation of Ciprofloxacin, originally developed by Ranbaxy.
2000: Ranbaxy acquires Bayers Generics business (trading under the name
of Basics) in Germany.
Ranbaxy enter into Brazil, the largest pharmaceutical market in South
America and achieves global sales of US $ 2.5 million in this market.
2001: Ranbaxy took a significant step forward in Vietnam by initiating the
setting up of a new manufacturing facility with an investment of US $ 10
million. Ranbaxy USA crosses sales of US $ 100 million, fastest growing
company in the US.
2002: It acquires Aventis in Franc.
2003: The Company enters into a crucial alliance with Glaxo Smith Kline
(GSK) for drug discovery and development.

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2005: The Company enters into JV with Nippon Chemiphar in Japan. The
company successfully ventured into foreign market including Canada Spain,
Germany, Romania.
2006: Acquires leading Romanian pharma company Terapia and Be-Tabs
pharmaceuticals, 5th largest generics company in South Africa.
2007: Ranbaxys Drug Discovery Team achieves significant milestone in GSK
research collaboration with the candidate selection of compound for
Respiratory Inflammation. Business World ranks Ranbaxy as the Most
Respected Company in the pharmaceutical industry.
2008: Ranbaxy partners with Daiichi Sankyo (DS) (34.4% share) establishing
a unique and powerful Hybrid Business Model; DS becomes a majority
partner.
2009: Ranbaxy partners with Daiichi Sankyo (DS) establishing a unique and
powerful Hybrid Business Model; DS becomes a majority partner. Ranbaxy
commences Phase-III studies on its anti-malaria combination new drug,
Arterolane Maleate + Piperaquine Phosphate.
2010: Project Viraat launched in India a key initiative to strengthen
companys leadership position in India. Ranbaxy delivers Quarterly Sales of
over US $ 500 Million for the first time.
2011: The Golden Jubilee Year 50 Years of an inspiring, pioneering and
historic journey.
2013: The top 10 drug manufacturers (by market value) account for 80 per
cent of the industrys market capitalization, much higher than their revenue
share of 58 per cent.
2014: Sun Pharmaceutical acquired the entire 63.4% share of Ranbaxy
making

the

conglomerate

worlds

fifth

largest

specialty

generic

pharmaceutical company

2. IPR Regime of Indian Pharmaceutical industry

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The

existing

frame

work

of

intellectual

property

laws

recognized

internationally are those identified by the trade related intellectual property

rights agreement (TRIPS) governed by the WTO. They are patents,
copyrights, trademarks, geographical indicators, protection of undisclosed
information, layout designs of integrated circuits, industrial designs. Another
area for protection that is interesting for the India is the protection of
traditional knowledge as intellectual property. A patent for an invention is the
grant of a property right to the inventor, issued by the Patent and Trademark
Office (PTO). Registration provides a patentee the right to prevent anyone
making, using, selling, or importing the invention for 20 years from the date
on which the application for the patent was filed. In addition, the Regulation
on Supplementary Protection Certificates (SPCs), grants patent extensions
of up to 5 years to pharmaceutical and plant products, providing as much as
25 years of patent life for originator medicines.
The patent policy pursued by India enabled it to become a big international
player in the generic drug market. The patent policy of 1970 dramatically
changed Indias condition. In 30 years, the Indian pharmaceutical industry is
valued at USD 70 billion compared to a mere USD 2.1 million before 1970.
Currently 24000 pharmaceutical companies are licensed in India. Of the 465
bulk drugs used in India, approximately 425 are manufactured within the
country.
TRIPS patent policy requires developing countries to only award product
patents. TRIPS, the intellectual property component of the Uruguay round of
the GATT Treaty, have given rise to an acrimonious debate between the
developed countries and less developed countries (LDCs). The subject matter
that is patentable under the TRIPS is broadly defined. The agreement
provides that "patents shall be available for any inventions, whether
products or processes, in all fields of technology including pharmaceutics."
Member countries must now offer patent protection to both product and
process innovations, as long as they are new and non-obvious.
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India has amended this Patent Act, 1970 several times, but final amendment
came in March 2005 with
retrospective effect from Jan, 1, 2005 (due to TRIPS obligations) that made
Product patent law of the land and with that came an effective legal backing
to the original inventors/innovators. This amendment made it difficult for
Indian pharmaceutical firms to market the illegally reproduced products
extremely difficult. In the international market, they were already facing
considerable number of legal suits from the multinationals for exporting the
illegally replicated products
India for instance did not provide product patents for pharmaceutical drugs.
It only provided for process patents. The laws in India gave rise to a thriving
generic drug industry wherein practically every foreign drug was reverse
engineered without fear of any sanction. The pharmaceutical industry was
greatly affected by this practice and reversing this trend among developing
countries was top priority for the US as TRIPS negotiations were being
conducted.
Exempted from paying for licenses and royalties, Indian companies could
now access the newest molecules from across the globe and reformulate
them for sale in the domestic and foreign (wherever accessible) markets at a
fraction of the price charged by the inventing multinational firms.
Indian Pharmaceutical IndustryThe Cabinet Secretariat notified creation of a new Department, namely the
Department of Pharmaceuticals, under the Ministry of Chemicals & Fertilizers
which came into being w.e.f. 1st July 2008 with the objective to give greater
focus and thrust on the development of pharmaceutical sector in the country
and to regulate various complex issues related to pricing and availability of
medicines at affordable prices, research & development, protection of
intellectual property rights and international commitments related to
pharmaceutical sector which required integration of work with other

7 | Page

ministries. Following works have been allocated to the Department of

Pharmaceuticals:
1) Drugs and Pharmaceuticals, excluding those specifically allotted to other
departments.
2) Promotion and co-ordination of basic, applied and other research in areas
related to the Pharmaceuticals sector.
3)

Development

of

infrastructure,

manpower

and

skills

for

the

Pharmaceuticals sector and management of related information.

4) Education and training including high end research and grant of
fellowships in India and abroad, exchange of information and technical
guidance on all matters relating to pharmaceutical sector.
5) Promotion of public private partnership in pharmaceutical related
areas.
6) International cooperation in pharmaceutical research, including work
related to international conferences in related areas in India and abroad.
7) Inter-sectoral coordination including coordination between organizations
and institutes under the Central and State Governments in areas related to
the subjects entrusted to the Department.
8) Technical support for dealing with national hazards in pharmaceutical
sector.
The industry posted a growth of 9.7 per cent in net sales in the December
2013 quarter as compared to the corresponding period last year. This was
the fourth consecutive quarter of growth in net sales. Although the industry
reported a single-digit growth in net sales, its total income rose by a healthy
28.5 per cent.
The annual turnover of the Indian Pharmaceutical Industry is estimated to be
about Rs. 121015.921 Crores during the year 2012-13. The share of export of
Drugs, Pharmaceuticals and Fine Chemicals is Rs. 55692.532 Crores. This
segment

of

Industry

has

shown

tremendous

progress

in

terms

of

infrastructure development, technology base and wide range of products.

8 | Page

The industry has developed excellent GMP (Good Manufacturing Practices)

compliant facilities for the production of different dosage forms. The strength
of the industry is in developing cost effective technologies in the shortest
possible

time

for

drug

intermediates

and

bulk

activities

without

compromising on quality. This is realized through the countrys strengths in

organic chemicals synthesis and process engineering. The domestic pharma
Industry has recently achieved some historic milestones through a leadership
position and global presence as a world class cost effective generic drugs
manufacturer.
Imports of Drugs and Pharmaceuticals are done as per Foreign Trade Policy.
Imports of medicinal and pharmaceuticals products for the last three years
were as follows:
Year

2010-11
2011-12
2012-13
(Source CMIE Industry Outlook)

Import

of

Medicines

&

Pharmaceuticals
Products (Rupees in Crore)
11113.86
14287.66
16965.09

Exports of medicinal and pharmaceuticals products for the last three years
were as follows:
Year

2010-11
2011-12
2012-13
(Source CMIE Industry Outlook)

Exports

of

Medicines

&

Pharmaceuticals
Products (Rupees in Crore)
42353.28
51393.29
55692.53

Foreign Direct Investment (FDI) up to 100% has been in operation in

Pharmaceutical Sector since 2001. However, during the period of August
2006 to December 2010, acquisitions of some of the major Indian Pharma
Companies like Ranbaxy and Piramal, led to a strong apprehension that
9 | Page

these takeovers could affect the domestic Pharma Industry especially the
Generic Medicines. At present FDI in pharmaceutical sector is 100% through
automatic route for greenfield investment and through Government approval
route for brownfield investment. Further in brownfield investment noncompete clause is not allowed except in special circumstances with the
approval of the Foreign Investment Promotion Board (FIPB).
Regulatory Bodies of Indian Pharmaceutical industry

Central Drugs Standard Control Organization (CDSCO)

Ministry of Health & Family Welfare

National Pharmaceutical Pricing Authority (NPPA)

Drugs Controller General of India (DCGI) and Indian Council for Medical

Research (ICMR)

Ministry of Chemical and Fertilizer

Ministry of Commerce

3. Environmental Analysis
PESTEL

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PESTEL analysis of any industry sector investigates the important factors

that are affecting the industry and influencing the companies operating in
that sector. PESTEL is an acronym for political, economic, social,
technological, environmental and legal analysis. Political factors include
government policies relating to the industry, tax policies, laws and
regulations, trade restrictions and tariffs etc. The economic factors relate to
changes in the wider economy such as economic growth, interest rates,
exchange rates and inflation rate, etc. Social factors often look at the cultural
aspects and include health consciousness, population growth rate, age
distribution, changes in tastes and buying patterns, etc. The technological
factors relate to the application of new inventions and ideas such as R&D
activity, automation, technology incentives and the rate of technological
change. The environmental factors relate to the environment issues e.g.
pollution, waste and benefit provided to area in which they are operating.
The legal factors deal with all the law related issues either local or global
investment.
Political factors
The pressure and the political focus is increasing on the healthcare
authorities all over the world.

The government has been threatening to impose even more stringent

Price Control on the industry
than before. Methods include
price
or
reimbursement
controls. Government price
controls also created parallel
trade.
Single
European
Market allows distributors to
pocket difference after buying
from low price market and
selling in high price market.

European government has

forever
changing
cost
containment plans. Japanese
government calling for consolidation and globalisation of domestic
companies. South African government proposed legislation to allow

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generic imports of branded drugs 39 firms took legal action not a

good example of industry relations

Patent Act, comes under IPR (Intellectual Property Rights) regime. This
Act impacts the Pharmaceutical Industry the most. Earlier the patents
were provided on the process rather than on product. So Indian
company took the advantage and started using a different chemical
route. They used the reverse-engineering route to invent alternate
manufacturing methods. A lot of money was saved this way. This also
encouraged competing company to market their versions of the same
drug. But in 2005 the government started providing patents on the
product.

The government provides subsidies to some units located in specific

areas, which is unfair to the rest of the industry, thus leads to a skewed
development of the industry.

Also some of the life saving drugs are very costly and unaffordable for
the poor, as the government started charging the excise duty on the
MRP.

Economic factors

New economic reality where growth is shifting from mature markets to

emerging markets
Reduce time in which R&D costs could be earned
Certain methods imposed to control pharmaceutical spending e.g.
pricing of life saving drugs
Venture capitalists offering funding for new industry players like
biotechnology companies, which makes it lucrative market
Pharmaceutical growth is aligned with GDP growth
Companies costs for providing drug benefits to employees were
increasing year per year
Increasing co-pays (out of pocket) on branded versus generic drugs
Economic recession in Japan
Slowing European economies, Germanys bailout deals
Industry convergence, Acquisitions of biotech

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Product life cycle has shortened and R&D costs, in-licensing and
marketing costs have risen

Social factors

Regulators, payers and consumers more carefully weighing the

risk/benefit factors of pharmaceuticals
Ageing populations pressuring health care funding
Increasing patient expectations for better drugs
Trend by payers to use generic drugs as first line treatment option,
only switching to patented drugs if they fail
Japan had worlds most rapidly ageing population
Emerging markets have enormous populations with high levels of
unmet need
In 2006 companies realized that well informed patients were prepared
to ask for drugs by name and were becoming increasingly vocal, well
informed, and demanding
Consumers beginning to purchase across borders with no guarantees
of drugs being safe or even genuine
Average life expectancy in developed countries increased during 20th
century by about 20 years
More educated consumers and social media intervention

Technological Factors
Technological advancements will create new business prospects both in
terms of new therapy systems and service provisions.
The online opportunities will see the growth in new info and
communications technologies, social media for healthcare,
customized treatments, direct to patient advertising and direct to
patient communications.
Due to advancement in the technology the companies use
automatic machines which have increased the efficiency and
output.
But the high technology solutions are quiet expensive.

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International convergence of medical science and practice under

the influence of modern communications technology and
increased travel and information exchange
Easy to purchase addictive painkillers and other potentially
harmful drugs over the internet and rogue websites offering
miracle cures for aids cancer.
New product adoption is not keeping pace with loss of patent
protection.

Environmental Factors

There is a growing environmental agenda and the key stake holders

are now becoming more aware of the need for businesses to be more
proactive in this field.
Pharma companies need to see how their business and marketing
plans link in with the environmental issues.
There is also an opportunity to incorporate it within their Corporate
Social Responsibility programmes. Marketing and new product
development should identify eco opportunities to promote as well.

Legal Factors
The pharmaceutical industry is now a highly regulated and compliance
enforcing industry. There is also a growing culture of litigation in many
countries. The evolution of the internet is also stretching the legislative
boundaries with patients demanding more rights in their healthcare
programs. As a result of which there are immense legal, regulatory and
compliance overheads for the industry to absorb. This tends to restrict its
dynamism but in recent years, government has begun to request industry
proposals on regulatory overheads to encourage innovation in the face of
mounting global challenges from external markets.

Legislation enacted to set fixed period on patent protection

typically 20 years

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Regulatory processes undergoing international harmonisation.

European Medicines Evaluation Agency (EMEA) established
Move towards global regulatory harmonisation through the
International Conference on Harmonisation (ICH)
Strengthened patent protection and liberalised equality controls in
emerging markets
Illegal drug cartels moving into the less risky, but equally as
lucrative business of fake pharmaceuticals. Fake drugs account for
over 10% of the global market generating annual sales of more
than $32bn.
The Government puts the surpluses generated by efficient units
into the price equalization account of inefficient units thus unduly
subsidizing them. On a long term basis this has made practically
everybody
inefficient.

4. Industry Analysis
Porters five forces model

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Barriers to
entry
LOW

Bargaining
power
of
power of
suppliers
suppliers
LOW
LOW

Industry
competiti
on
HIGH

Bargaining
Bargaining
power of
buyers
LOW

Threat
of
Threat of
substitutes
LOW

Industry competition: High

The Indian pharmaceutical market is highly competitive and fragmented with
the top 10 players accounting for 36.1% of the total market share. There are
about 250 large units and about 8000 small scale units (SSIs), which form
the core of the pharmaceutical industry in India (including 5 central public
sector units). The concentration ratio for the industry is very low. More than
20,000 registered units and have increased in the last two decades. The
leading 250 pharmaceutical companies control 70% of the market with
market leader holding nearly 7% of the market share.
Bargaining power of buyers: Low
In the pharmaceutical industry the buyer is influenced by the doctors, who
suggest or recommend the medicines. The buyers are scattered and thus do
not have much collective influence on the price of the product. The
concentration among the buyers is lesser than that of the authority; hence
the price sensitivity towards products is low. Prices are regulated by the
government through National Pharmaceuticals Pricing Authority (NPPA).
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Power of suppliers: Low

The pharmaceuticals industry depends on several chemicals. These
chemicals are largely similar to commodity products. Chemical industry in
turn is very competitive and fragmented. The suppliers thus have very low
bargaining powers and the pharmaceuticals company can easily shift
suppliers without incurring much losses. To overcome this, many Indian firms
are looking at forward integration in the value chain and assume the role of a
pharmaceutical company.
Barriers to entry: Low
Pharmaceutical industry is very easily accessible industry for SSIs and
entrepreneurs in India. At the same time, this industry offers economies of
scale and a low capital requirement. The WTO-TRIPS compliance in 1995 has
created a favorable environment for MNCs with blockbuster or patented
drugs to enter the Indian market. The market for generic drugs is very huge
and market share is projected to grow 50% by 2010.
Threat of substitutes: Low
The pharmaceutical industry does not have any close substitutes and
perceived to be a continuous and thriving market. The advances made in the
field of biotechnology can contribute to the future attributed threat to the
synthetic pharmaceutical industry.
Current situation:
The currently fragmented industry is moving towards consolidation, leaving
smaller players acquired or shut shop in the coming years. The market will
contain few large players, representing a cartel and the barriers to entry will
increase.
Competitive Landscape
Indian Pharmaceutical Industry

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Market Share

27%
Domestic

Multi-national

73%

India currently represents just U.S. $6 billion of the $550 billion global
pharmaceutical industry but its share is increasing at 10 percent a year,
compared to 7 percent annual growth for the world market overall. Also,
while the Indian sector represents just 8 percent of the global industry total
by volume, putting it in fourth place worldwide, it accounts for 13 percent by
value,2 and its drug exports have been growing 30 percent annually.
The organized sector of India's pharmaceutical industry consists of 250 to
300 companies, which account for 70 percent of products on the market,
with the top 10 firms representing 30 percent. However, the total sector is
estimated at nearly 20,000 businesses, some of which are extremely small.
Approximately 75 percent of India's demand for medicines is met by local
manufacturing.
According to the German Chemicals Association, India's top 10
pharmaceutical companies are Ranbaxy which now has been acquired by
SunPharma, Cipla, Dr. Reddy's Laboratories, Lupin, Nicolas Piramal,
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Aurobindo Pharma, Cadila Pharmaceuticals, Sun Pharma, Wockhardt Ltd. and

Aventis Pharma. 5 Indian-owned firms currently account for 70 percent of the
domestic market.

Ranbaxys major competitors :

Key Domestic Competitiors
Lupin Limited
Cipla
Dr. Reddys
GlaxoSmithKline
Aurobindo Pharma Limited

Key International Competitiors

Abbott Laboratories GlaxoSmithKline
Pfizer

Currently, Abbott Laboratories leads the market in therapies with a

6.5% share
With Sun Pharmas acquiring Ranbaxy in 2014, market share of Indian
companies is forecasted to increase to 77% from the current 73%
The combined entity (Sun Pharma + Ranbaxy) is estimated to replace
Abbott Laboratories market share by holding a combined market share
of ~9.3%. Thus, Sun Pharmas acquisition of Ranbaxy is going to make
this entity the market leader in this fragmented industry.
Domestic competitiors :

Lupin
It is one of the world's largest manufacturers of APIs and finished
formulations for TB, bacterial infections and cardiovascular disease
Its products are sold in more than 50 countries which represents its
strong global presence.
With its US launches its exports has increased to 56% of its production.

19 | P a g e

It Strives to offer innovative products through R&D investments. It

invests huge capital in the research and development department
which provides it the competitive edge of coming with innovative
products at a much higher pace than the rest of the competitors.
Dr Reddy
It is a Global pharmaceutical and biotechnology company
It operates in over 60 countries, although India and the USA each
accounts for around a third of the firm's total sales. The company is
already strongly present in most of the world's biggest less-regulated
markets, such as Russia, China, Brazil and South Africa.
Its sales are majorly driven by APIs and branded formulations which
are also key areas for Ranbaxy thus it is a major competitior.
Strong presence in generics market as well in Germany, Europe,US, UK
and India.
Dr Reddy's is also an innovator in the use of venture capital to
maintain cash-flow for R&D, having received $57 million from ICICI
Venture Funds to support ANDA filings for 18 months beyond FY2005
for royalties from sales in the USA
Cipla

It is India's second-largest drug manufacturer.

Its exports account for 45 percent of its sales. It exports, to more than
150 countries giving it what is probably the Indian industry's most
geographically -diversified export base.
In 2004, it took over from GlaxoSmithKline as India's leading drug
manufacturer in terms of retail sales.

Its focus is on central nervous system (CNS), oncology, dermatology,

and gastroenterology therapies
It enters into alliances with global pharmaceutical companies having
strong presence in local markets which is its radical strategy to
compete fiercely in foreign markets .
Aurobind Pharma

It
manufactures
generics
and
APIs
in
the
antibiotic,
antiretroviral,cardiovascular,
central
nervous
system,
gastroenterological and anti-allergy fields and markets them in over
100 countries.

The firm's major products are in the anti-infective,anti-inflammatory,

cancer, diabetes and allergy market segments

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Of its major selling products its sales were led by 83 percent annual
growth for the diabetes treatment Lantus (insulin glargine), followed by
the rabies vaccine Rabipur (+22 percent),the diabetes drug Amaryl
(glimepiride) and epilepsy treatment Frisium (clobazam), both up 18
percent, the angiotensin-coverting enzyme inhibitor Cardace (ramipril
+15 percent),Clexane (enoxaparin), an anticoagulant, growing 14
percent and Targocid (teicoplanin), an antibiotic, whose sales advanced
8 percent.

Competition vs Coopetition
Though they compete
Pharma, Zydus Cadila,
Ranbaxy Laboratories nearly $8 billion among
their best practices, in
rising operating costs.

fiercely, Lupin Pharmaceuticals, Aurobindo

Orchid Chemicals and Pharmaceuticals and
each one a giant, with annual revenues of
them - came together in July 2010 to share
a bid to improve efficiency and bring down

Done to challenge Chinese counterparts and other multinational

players .Much easier for generic companies to source in China but such
alliance helps in reducing cost and compete better.
They called their alliance LAZOR - each letter representing a
participating
company's
name.
In
July
2011, Dr
Reddy's
Laboratories also joined them, changing the alliance's acronym to
LAZORR.
Examples of shared learning How Ranbaxy had been able to cut
power bills at its plant in Toansa Punjab, by buying power from Power
Exchange India, Orchids boilers using a system to reduce loss of steam
thereby cutting water etc.
The areas of collaboration are now procurement, solvents, energy,
safety and water, with each platform having a separate head drawn
from one of the six companies. With Dr Reddy's in its fold, the alliance
will bring formulations and material handling under its umbrella
But this alliance is not a cartel formed to exploit the vendors. Vendors
too benefit when the alliance standardize requirements and they can
know in advance combined requirement of companies.

21 | P a g e

5. Segmentation and Positioning

The segmentation is done based on the functionality of the drugs like
cardiovascular drugs, Diabetes drugs etc.
The target groups that Ranbaxy was targeting are hospitals, wholesalers,
medical representatives etc. In terms of countries US market was its
majority target followed by India. Targeting all the generic distributors was
one of its important strategies.
The positioning of the company is that it want to establish itself as a
diversified global healthcare company that provides quality and affordable
medicines.
STP
Anti-Infectives, Cardiovascular & Diabetes, Dermatological,
Segment Neuro-Psychiatry,
Pain
management,
Gastro-Intestinal,
s
Nutritional
Target
Group

Healthcare professionals, wholesalers, generic distributors, and

hospitals

Positioni A diversifies global healthcare company focused on patients

ng
needs

6. Company Analysis

22 | P a g e

SWOT
1. Top 10 Global Generic Company
with a spread over 125 countries
2. Low cost products
3. Large skilled marketing force.
4. Market leader products like
Revital.
5. Developed Industry with Strong
Manufacturing Base
6. Well Established R&D
infrastructure

1. Non availability of Major

intermediates for OTC products
2. Lack of resources to exploit
efficiently the growing fast moving
healthcare market
3. Lack of trained sales force
4. Constantly regulated policies by
the govt means operational
efficiency is affected

SWO
T

1. Significant export potential i.e.

Globalization
2. Increasing lifestyle diseases
3. New therapy approaches like
ayurveda
4. Unexplored Rural markets
5. Marketing alliances for MNC
products in domestic market and
international market.

1. Rising cost of products

2. High entry cost in new market.
3. High promotional cost.
4. New and existing competitors
like GSK, Novartis, Cipla etc.
5. R&D efforts of Indian
pharmaceutical companies
hampered by lack of enabling
regulatory requirement

Strength

Opportunity

Weakness

Threat
VRIN analysis:
Focusing on production of generic drugs by Ranbaxy played an important
role in their global expansion. When a drug is marketed by pharmaceutical
company, it is usually under a patent which allows only that particular
company to sell it. So usually, it will be sold at a price premium. So generic
drug manufacturers will start producing and marketing these drugs at a very
low price, once the patent is expired if any. These drugs will be sold at price
which is affordable for the consumers especially in developing countries.
Ranbaxys strategy was to wait for the drugs patent to expire and then flood
the world market with its generic drugs. Ranbaxys major strength is its
advancement in technology; they started their research program in 1970s.
They leveraged on this strength to form strategic alliance with various

23 | P a g e

industry leaders through which they were able to manufacture generic drugs
at low cost in India and sell these drugs to other countries through these
alliances. Indias low cost of production and innovation allowed it to sell at
competitive price across various countries. Ranbaxy exploited various
government policies which promoted the introduction of generic drugs to
reduce overall healthcare cost and make it affordable to everyone. Ranbaxy
entered foreign markets through the production of generic drugs through
strategic alliances. Through this strategy Ranbaxy ventured into new
markets becoming the tenth largest firm in the world in producing generic
drugs. This could be adopted by other companies as well, but in case of
Ranbaxy the skilled labor which Ranbaxy enjoys along with the base in R&D
is a rare resource for Ranbaxy. Though even this can be imitated by
competitors, Ranbaxy will benefit from the first mover advantage in generic
drug across the world. Focusing on R&D from initial stages of its growth
period had given clear cut advantage to the company and added value to the
firm. By 1994 Ranbaxy had a fully operational research centre at Gurgaon.
The unique historic conditions made the expertise in R&D a rare asset for
Ranbaxy compared to its competitors which is difficult to imitate
Ranbaxy views its R&D capabilities as a vital component of its business
strategy that will provide the company with a sustainable, long-term
competitive advantage. The Company today has a pool of over 1,200
scientists engaged in path-breaking research. The Companys multidisciplinary R&D centre at Gurgaon, in India, houses dedicated facilities for
generics research and innovative research. The companys robust R&D
environment for both drug discovery & development reflects the Companys
commitment to be a leader in the generics space and offer value added
formulations based on its Novel Drug Delivery System (NDDS) and New
Chemical Entity (NCE) research outcomes. Ranbaxy has enhanced its focus
on NCE research with the proposed De-merger of its New Drug Discovery
Research (NDDR) unit into a separate entity, Ranbaxy Life Science Research
Ltd, subject to requisite approvals. This significant step will open up new
growth opportunities and provides a platform for increased collaboration. The
new drug research areas at Ranbaxy include anti-infectives, inflammatory /
respiratory, metabolic diseases, oncology, urology and anti-malaria.
Presently, the Company has 8-10 programs comprising one anti-malaria
molecule in Phase-II clinical trials. The Company has two programs in Phase I
and the remaining in the pre-clinical stage. This includes a collaborative
research program with GSK. The company's NDDS focus is mainly on the
development of NDA/ANDAs of oral controlled- release products for the
regulated markets. The Companys first significant international success
using the NDDS technology platform came in September 1999, when
Ranbaxy out-licensed its first once-a-day formulation to a multinational
company.

24 | P a g e

Ranbaxy adopted a High-RiskHigh- Returns strategy, both in R&D as well

as in its attempt to become a global company. Eventually, the increasing
expenditure on risky R&D, patent challenges with inadequate returns, high
cost Acquisitions in foreign markets and setting own manufacturing & selling
facilities abroad in order to increase its geographical presence, took its toll
on the financial health of the company. Consequently, Ranbaxy had to
redefine its business model and in 2008 the company brought in Daiichi
Sankyo Company Ltd. to create a strategic combination of an innovator and
generic powerhouse.
The R&D expenditure of Ranbaxy was negligible during the pre-TRIPS
period( Rs.35.01 crores in1995). This was because, with process patents
being recognized under the Patents Act of 1970, the Indian pharmaceutical
industry did not invest highly on R&D of drugs as the legal provisions allowed
production of generic drugs. However, with the impending TRIPS Agreement,
change in patent laws and policy scenario, the industry was forced to re-visit
its business strategy thereby recognizing the importance of R&D and
gradually started increasing its investments in R&D in order to ensure long
term sustainable growth and remain competitive at the global level This fact
is corroborated by the data laid down in Table 1, which indicates a steady
impressive increase in R&D expenditure of Ranbaxy.

TABLE 1: R & D EXPENSES (Rs Crore)

YEAR
1995
1997
2000
2004
2005
2008
2010

25 | P a g e

R & D EXPENSES
35.01
45.79
45.64
192.17
276.13
483.82
471.38

Source- CMIE, Prowess Database Graph 1: R & D EXPENSES (Rs Crore)

The company steadily increased its R&D expenditure from Rs.35 crores in
1995 to Rs. 45.64 in 2000, which is a percentage increase of over 30% within
a period of five years. During the next seven years, the R&D expenditure
increased from Rs.55.39 crores in 2001 to a whopping Rs.639.33 crores,
again a percentage increase of 1054 % between 2001 and 2007. However
the R&D expenditure dropped to Rs.483.82 crores in the year 2008, with a
further decline in 2009 (Rs.460.51) and 2010 (Rs.471.38).(Source: CMIE,
Prowess Database ). The reason behind this drop is that after the first
successful NDDS product ciprofloxacin, there were hardly any other returns
from the huge R&D investments Ranbaxy was making. Ranbaxy is seen
adopting a combination of Competitive & Collaborative strategies.
Ranbaxys Competitive Strategies:
1) NDDS : - The R&D focus is to modify existing drugs so as to develop new
formulations, that can be patented and sold at a higher price. The new
formulations include Novel Drug Delivery System (NDDS) such as, developing
a controlled or extended release formulation of existing oral therapies to
reduce side effects or increase patient compliance; developing alternative
delivery routes, including oral as opposed to injectibles, to increase patient
convenience and compliance; and enhancing purification of product to
reduce dosing and side effects. Ranbaxy developed NDDS for ciprofloxacin. It
is also actively involved in developing NDDS in several other therapeutic
areas such as gastric retention. In the area of NDDS, Ranbaxy recorded the
most noteworthy success. The firm was able to develop an improved version
of one the new generation antibiotics, viz. ciprofloxacin, which was
developed by Bayer AG and was under patent protection until 2003. Ranbaxy

26 | P a g e

Laboratories was able to produce a once-a-day formulation instead of the

multiple-dose a day therapy promised by the Bayer formulation. The
Ranbaxy formulation assured better patient-compliance and was hence,
considered to be a major step forward. Bayer recognised the improvement
and entered into a licensing agreement with Ranbaxy for its version of
ciprofloxacin. Under the agreement, Ranbaxy Laboratories received US$ 65
million from Bayer over a four-year period, with an initial payment of US $ 10
million. The agreement allowed Bayer AG to have the worldwide marketing
rights over ciprofloxacin, except in India and the CIS countries where
Ranbaxy Laboratories had the marketing rights. In 2001, significant progress
was made by the company towards developing platform technologies and
products in the area of Oral-Controlled Release system. Ranbaxy initiated the
process of clinical development of its once-a-day formulations of Ofloxacin by
filing an IND application with the US FDA in late 2001.
2) Non Infringing Processes: - The originator company need not list process
patents with the US FDA. So for a generic company applying for an ANDA,
certification for such patent is not required. To delay the generic entry, the
originator company usually takes patents for a large number of processes. In
such a case, the generic manufacturer can develop a non-infringing process
i.e. a process that does not infringe the one patented by the originator
company and enter the market with higher price and margins. Ranbaxys
non-infringing process on Cefuroxime Axetil enabled Ranbaxy to be its sole
seller for almost one and a half years in the US market.
3) New Chemical Entites : - Although by mid-1009s , Indian pharmaceutical
companies started investing in R&D with focus on developing New Chemical
Entities (NCEs),none of these companies were involved in the entire process
of drug discovery and development because they were not ready for the
start-to- end model of NCE research. The limitations came in the form of lack
of requisite skills and funds required for NCE research. So the Indain
companies developed a model whereby they developed a molecule upto a
certain stage and then licensed out to partners from developed nations,
mostly MNCs with skills and huge investment capabilities. Ranbaxy licensed
out its NCE RBx 2258 for the treatment of cancer to Schwarz Pharma AG.
This NCE has now been dropped from clinical trials.
4) Patenting Strategy :- This includes a mixed strategy of both positive as
well as defensive patenting. Ranbaxy uses a patent system to secure its own
products which are presently based on NDDS, polymorphs or novel
combinations.
Ranbaxys Collaborative strategies
1) In-Licensing Arrangements:- Under in-licensing, the company acquires the
rights to a product from a third party. Since Indian companies do not have
27 | P a g e

enough new drugs for the domestic market and they can no longer take
drugs from MNCs, they are looking for in-licensing arrangements with MNCs
to lauch their products in India. The arrangements are either pure marketing
relationships or local production and sharing profit margins with the MNC.
This strategy helps Indian companies to bring novel medications to the
country at reasonable prices and also makes regulatory procedure easier and
faster. Agreement between Ranbaxy and K. S. Biomedix Ltd accords Ranbaxy
exclusive marketing rights for TransMID, a biopharmaceutical product used in
the treatment of brain cancer in India with an option to expand this to China
and other South East Asian countries (IBEF and Ernst and Young, 2004b, p.
26). Co-marketing alliances are taking place not only among Indian and
foreign producers, but also among Indian producers. Recently, Jupiter
Bioscience entered into a 10-year co-marketing agreement with Ranbaxy,
under which the company would license out to Ranbaxy five generic peptide
drugs worth US$ 3 billion at innovators price. It is believed that this tie-up
helps Jupiter Biosciences to bring its products to international market rapidly,
as Ranbaxy already has strong presence in the global market. Ranbaxy and
Cipla, have entered into a strategic partnership to jointly market a select
basket of drugs. The alliance will bring forth their strengths in the strongly
emerging cardiovascular and perennial anti-infectives market.
2) Collabarative R&D :- Glaxo SmithKline and Ranbaxy have a collaborative
R&D arrangement for the development of new drugs in the areas of infective
diseases and diabetes. Ranbaxy and Avestagen Laboratories have
collaboration for the production of NCEs using biotechnological techniques.
Ranbaxy has entered into a collaborative programme with MMN, Geneva for
an anti-malarial molecule, Rbx 11160; and also with Vectura, a drug delivery
company for development of platform technologies in the areas of oral
controlled release system.
3) CRAMS : ONE of the most important collaborative strategy that has
emerged recently is CRAMS. In 2005, CRAMS market in India was valued at
USD532.10 million, of which contract manufacturing accounted for 84% of
the total market, while the remaining 16% was accounted by contract
research (excluding clinical trials). Both the segments of CRAMS have
registered a robust growth rate of over 40% in 2005 over the previous year
(Cygnus Research). GlaxoSmithKline has tied with Ranbaxy to work on lead
compounds until second round of clinical trial are completed
Another valuable strategy by Ranbaxy is the acquisitions made by the
pharmaceutical giant over the years. In order to expand its global footprint
and diversify its product portfolio, Ranbaxy also acquired a number of foreign
generic drug manufacturing companies.
Acquisition History of Ranbaxy

28 | P a g e

1995 Ohm Laboratories (USA)

2000 Basics (Germany) Bayers generic business
2004 RPG Aventis (France)
2005 18 generic products of Efarmes S.A. (Spain)
2005 Veratide from P&G (Germany)
2006 Unbranded generic business of GSK in Italy and Spain
2006 Trepia in Romania
2006 Mundogen GSK subsidiary in Spain
2006 Belgian company Ethimed NV
2006 Senteks Autoinjector business (US)
2006 Unbranded generic business of Allen SpA, a division of Glaxo
SmithKline (Italy)
2006- Be Tabs pharmaceuticals, the 5th largest generic company in
South Africa for US$70 Mn. (Ref: Company Annual Reports)

The above analysis indicates that Ranbaxy adopted a High-Risk-HighReturns strategy, both in R&D as well as in its attempt to become a global
company. Eventually, the increasing expenditure on risky R&D, patent
challenges with inadequate returns, high entry costs in foreign markets,
numerous acquisitions by the company to increase its geographical presence
took its toll on the financial health of the company. Consequently, in 2008,
Ranbaxy redefined its business model. The company brought in Daiichi
Sankyo Company limited as a majority to create a strategic combination of
an innovator and generic powerhouse. The inability to cope up with these
financial troubles is believed to be an important factor behind the decision of
the Indian promoters of Ranbaxy, the Singh family, to relinquish their control
to Daiichi Sankyo. According to the Report of Ministry of Commerce &
Industry, 2008, pp. 42-43, this may have been good for Ranbaxy which
needed an influx of funds but whether this has a positive impact from the
point of view of access to medicines is questionable. Ranbaxys activities
may be re-oriented to suit the interests of the MNC that acquired it rather
than the generic requirements of developing countries. Thus in June 2008,
Ranbaxy entered into an alliance with one of the largest Japanese innovator
companies, Daiichi Sankyo Company Ltd., to create an innovator and generic
pharmaceutical powerhouse. The combined entity now ranks among the top
20 pharmaceutical companies, globally. The transformational deal will place
Ranbaxy in a higher growth trajectory and it will emerge stronger in terms of
its global reach and in its capabilities in drug development and
manufacturing.

29 | P a g e

7. Ranbaxy & Daiichi Sankyo Co. Ltd. Merger

Strategic rationale:
Daiichi Sankyo will benefit from Ranbaxys low-cost manufacturing
infrastructure and supply chain strengths while this deal will award Ranbaxy
with access to the research and development expertise of Daiichi Sankyo to
further its own growing branded drugs business. Also, Daiichi Sankyos
strength in proprietary medicine is believed to be complemented by
Ranbaxys leadership in the generics segment, thus providing the combined
business with a broader product base, therapeutic focus areas and well
distributed risks. Additionally, both companies have a wide global reach,
which is expected to further expand after the merger. the acquisition will also
provide Daiichi Sankyo with a strong, complementary presence in the nonproprietary drug market as Ranbaxys generics business will balance its
exposure to market stagnation and margin risks. For example, in Japan where
Daiichi Sankyo has its largest branded pharmaceutical business, Ranbaxy is
expected to further its non- proprietary drugs business.
Value chain efficiency for boosting innovative pharma
Competition in the global pharmaceutical market has led companies to
rationalize their value chains and establish efficient operations. Indian
companies operating in the global industry are characterized by their high
quality and cost competitiveness combination. Through the merger, both
Daiichi Sankyo and Ranbaxy seek to optimize their manufacturing, sales and
R&D assets mainly in India and become leaner and more agile players. A
balance of Ranbaxys autonomy and the cooperation between the two
companies is what Daiichi Sankyo believes will optimize growth avenues of
both players. To begin with, Daiichi Sankyo seeks to exploit Ranbaxys entire
value chain from upstream research and development to downstream
marketing and sales. The research capabilities of Ranbaxy that Daiichi
Sankyo can leverage include compound synthesis, contract research,
contract manufacturing (active pharmaceutical ingredients (APIs) and clinical
trial drugs), and clinical trials and data management.
Ranbaxy: Debt-free and a stronger balance sheet
Ranbaxy envisages a broader product portfolio for itself as a result of the
merger. The company can also double up as a manufacturing base for Daiichi
Sankyos branded drug portfolio. Furthermore, the company will be free of
existing debt as Daiichi Sankyo will be pooling financial resources towards refinancing its entire debt. Subsequently, Ranbaxy expects to have
30 | P a g e

approximately $700 million (INR3000 crores, exchange rate: 1USD=42.8INR)

as cash surplus, which increases its book value per share from $1.7 to $4.7.
Ranbaxy believes that a stronger balance sheet will allow the company more
flexibility to pursue organic as well as inorganic growth opportunities to
enhance its branded drugs business and move up the pharmaceutical value
chain.
As regards markets, the biggest gain for Ranbaxy is its smoother access to
the Japanese market, being part of Daiichi Sankyo. This will allow Ranbaxy to
circumvent other US and European players (who are currently facing
difficulties with greenfield ventures due to stringent testing and safety
requirements) and establish its stronghold in the Japanese drug market.
Daiichi Sankyo foresees better acceptance for the generic versions of its offpatent drugs from Ranbaxy as there would be better possibilities for an
innovative pharmaceutical company to successfully promote generic
versions and reduced resistance from health insurers towards covering
generics. Ranbaxy also sees opportunities to strengthen its API business by
working with Daiichi Sankyo as a supply partner and thereby, optimize its
SEZ infrastructure that it is developing. Enhancing the scale of its biosimilars
business in the global market is also an important milestone for Ranbaxy
from the merger. Equally important for Ranbaxy is to become the largest
player in Japans generic drugs market, for which the company is eyeing
organic and inorganic routes.
Daaichi sankhyo: Emerging Markets are future growth engines:
Daiichi Sankyo also sees immense potential for growth in emerging markets,
particularly Brazil, Russia, India, China (BRIC), Mexico and Turkey (M&T),
which is expected to reach $330-$430 billion by 2030. Moreover, in 2008,
generic drug manufacturers and biopharmaceutical companies are
expected to aggressively adapt to these changes and capitalize on the new
opportunities that the shift will present. Thus, the most important benefit for
Daiichi Sankyo will be the access that it will gain to Ranbaxys presence in 21
emerging markets, out of the total of 40 locations where it is operating. This
will expand Daiichi Sankyos global reach to 56 countries, substantially
covering major emerging markets and giving Daiichi Sankyo the opportunity
to improve its market share from the current 10% in the BRIC-M&T
markets. The combined business will have a significant position in India,
Eastern Europe and Asia and one of the largest presence in Africa.
As regards its own proprietary drugs business, Daiichi Sankyo seeks to
leverage the improved intellectual property protection available in emerging
markets and launch proprietary drugs in the future. Ranbaxys emerging
market reach combined with its focus on new drug areas such as anti-malaria
is expected to complement Daiichi Sankyos efforts. Daiichi Sankyo also

31 | P a g e

expects to leverage Ranbaxys affiliate company Zenotechs expertise in the

areas of biologics, oncology and specialty injectables. Ranbaxy seeks to
exploit Daiichi Sankyos innovation platform to further its nascent innovative
drug development segment and gain access to Daiichi Sankyos mature
markets that it does not already serve.
Competitive Strengths and Pain Points
Ranbaxy

Largest pharmaceutical company in India

Localized operations in 49 countries; sales in 125 countries

Sales CAGR of 16.2% in 2002-2007 based on dollar sales

Balanced geographic sales distribution

Strong expertise in intellectual property and global regulatory affairs

180-day marketing exclusivity for four drugs with an annual sales

potential of $8 billion

First to file status for 18 drugs with annual sales potential of $27 billion

98 ANDA filings pending approval

Focus on innovative research in anti-infectives, anti-malaria, metabolic

disorders, respiratory diseases
and urology
Strong alliances with major global proprietary drugs manufacturers (such
as the ongoing drug development collaboration with GlaxoSmithKline, which
was expanded in 2007; and the joint research partnership with Merck in the
anti-infectives segment; the co-marketing agreement with Ferring
International for its endocrine drug; marketing agreement with Natco Pharma
in Yemen; alliances with Krebs and Jupiter for fermentation-based products
and peptides respectively)
Affiliate Zenotechs experience in biologicals
Strong marketing expertise in one of the most competitive markets viz.
India
Manufacturing efficiencies labor, infrastructure, quality

R&D expertise scientists, strong generics business, developing

innovative drugs business, expertise in process chemistry
Daiichi Sankyo
32 | P a g e

 Strong presence in the Japanese prescription drugs market

Growth driver potential in blockbuster Olmesartan (anti-hypertensive),
Loxonin (anti- inflammatory) and Levoflaxacin (anti-bacterial) drugs
Research collaborations with global pharmaceutical majors, such as the
collaboration with Eli Lilly for developing the high-potential Prasugrel antiplatelet agent for the treatment of acute coronary syndrome due for launch
in fiscal 2008
Highly integrated supply chain network
Sales force comprising 850 medical representatives
R&D Focus Alignment with Business Growth
Ranbaxy
Ranbaxys research and development activities are focused towards five
areas, viz., New Drug Discovery Research (NDDR), Pharmaceutical Research,
Chemical & Fermentation Research, Herbal Drug Research, and Novel Drug
Delivery Systems (NDDS). Ranbaxys NDDR research program focuses on
four therapeutic segments viz. metabolic diseases, respiratory diseases,
oncology and infectious diseases. In 2007, Ranbaxys drug discovery team
filed 23 patent applications in India.
Ranbaxy also forged a global alliance
with GlaxoSmithKline plc, under which two research programs in the
respiratory and anti-infective therapeutic areas respectively are being
conducted. Ranbaxy also announced that from 1 January 2008, its research
unit would operate independently. In fiscal 2007 ended 31 March 2007,
Ranbaxy filed 29 Abbreviated New Drug Applications (ANDA) with the US
FDA. Ranbaxys Herbal Drug Discovery division also successfully launched
two products (Chericof Herbal and Chyawan Active) in the Indian market and
three products in the international market. Ranbaxys Herbal Drug Discovery
division alone filed 11 patents in 2007. Ranbaxy is looking forward to making
significant research developments in specialized segments such as
Biosimilars, Oncology, Oral Contraceptives, Respiratory and Dermatology.
Conclusion:
The extent to which Ranbaxy and Daiichi Sankyo are complementary is
rather unique in the industry. Unlike several mergers where removal of
redundant assets and practices is mandatory, Ranbaxy and Daiichi Sankyo
complement each other across geographies as well as product portfolios,
leaving very little need for rationalization, thus minimizing post-acquisition
hurdles. Furthermore, Japan is fast embracing generic drugs and in light of

33 | P a g e

the growing ageing population in the country, Daiichi Sankyos propulsion of

Ranbaxys generic drugs will expand its Japanese market.
Given Ranbaxys intention to become the largest generics company in Japan,
the acquisition provides the company with a strong platform to consolidate
its Japanese generics business, an important market of its largest geographic
segment, Asia. Many of Ranbaxys counterparts, including Zydus, Cadila and
Lupin Ltd., have entered Japan with the same intention through acquisitions
of smaller Japanese players or greenfield ventures.
Ranbaxy remains a company burdened by debt and litigation expenses and
no incentive for innovation thanks to drug policies in the domestic market.
The deal will make Ranbaxy a zero-debt company. In the long term, Ranbaxy
stands to gain in its mission to become a leading global innovative
pharmaceutical company, which will be propelled by the acquisition. The
move represents a step towards aligning with the paradigm shift happening
in the global pharmaceutical industry. The acquisition corroborates the strong
possibility for similar moves in the future as more innovative pharmaceutical
companies are displaying a zeal for entering the generic business. The deal
is also said to improve the engagement between India and Japan and foster
greater cooperation between the two nations in the pharma arena. The
Daiichi Sankyo deal also sets the tone for more Japanese companies
displaying confidence in Indian pharmaceutical firms and reinforces their
faith in the commitment of Indian players towards/ and respect for
intellectual property rights. Global companies are reassured that Indian
patent laws are becoming robust and homegrown Indian pharmaceutical
giants might now have a chance to become national leaders with the
backing of foreign parent companies that respect their independence.

8. Sun Pharma Ranbaxy Merger

Ranbaxy was acquired by Sun pharma on April, 6 2014. The announcement
of the Transaction was of particular interest to the pharmaceuticals industry
as it came at a crucial time for Ranbaxy. Ranbaxys manufacturing facilities
in Toansa, Paonta Sahib, Dewas and Mohali in India have been under the
scanner of the United States Food and Drug Administration (USFDA)
following observation of certain lapses in complying with current good
manufacturing practices during the course of inspection of these facilities by
the USFDA. As a result, the USFDA had prohibited Ranbaxy from distributing
drugs manufactured using active pharmaceutical ingredients (APIs) from
these facilities, in the United States. The USFDA sanctions on Ranbaxy and

34 | P a g e

certain other companies in India have caused the multi-billion dollar Indian
generic pharmaceutical industry severe loss in international markets.
Strategic rationale: The acquisition by Sun Pharma may result in a
turnaround for the beleaguered Ranbaxy. Several reasons may be attributed
to such M&A activity by pharma companies, some of them being:
i.
ii.

Attaining the scale necessary in those therapeutic areas where they

intend to focus, by building a broader product portfolio and services.
Pressure by governmental agencies, insurance companies in North
America and Europe to reduce cost of medicines, due to difficulty in
meeting mounting healthcare costs etc.

This deal involves 3 parties: Sun Pharma, Ranbaxy and Daiichi. In connection
with the transaction, Daiichi Sankyo has agreed to indemnify Sun Pharma
and Ranbaxy for, among other things, certain costs and expenses that may
arise from the recent subpoena which Ranbaxy has received from the United
States Attorney for the Toansa facility.
Merging Company

Ranbaxy

Surviving Company

Sun Pharma

Share Swap Ratio

0.8 share of Sun Pharma of face

value of INR 1/- each will be allotted
to the shareholders of Ranbaxy for
each share of INR 5/- each held by
them in Ranbaxy.

Implied value per share

INR 457 for each Ranbaxy share,

representing an 18 percent premium
to
Ranbaxys
30-day
volume
weighted average share price 30

Total
equity
Transaction

value

Chronology of the deal

35 | P a g e

of

the USD 3.2 billion (USD 4 billion

including payment to NCD holders)

Date
April 6, 2014

Event
Resolutions
regarding
the
amalgamation agreement and other
matters passed at the Board of
Directors meetings of Sun Pharma
and Ranbaxy

April 30, 2014

Andhra Pradesh High Court issues

notices to the Securities and
Exchange Board of India (SEBI),
BSE, NSE, Sun Pharma, Ranbaxy
and Silver Street Developers LLP to
maintain status quo, based on a
writ petition alleging insider trading
in the shares of Ranbaxy in the
days prior to the announcement of
the Transaction

May 11, 2014

Daiichi files a petition before the

Andhra
Pradesh
High
Court
requesting it to vacate the 'status
quo' order 31

May 13, 2014

Sun Pharma moves the Supreme

Court against the status quo order
of the Andhra Pradesh High Court

May 21, 2014

Supreme Court directs the Andhra

Pradesh High Court to decide the
matter and posts the case for
hearing on May 27, 2014

May 24, 2014

Andhra Pradesh High Court vacates

status quo order

July 11, 2014

Approval for the scheme from BSE

and NSE 33

August 22, 2014

Court-convened
extraordinary
general meeting of shareholders of
Sun Pharma conducted pursuant to
an order dated August 5, 2014 of

36 | P a g e

the High Court

Haryana 34

of

Punjab

and

August 27, 2014

Competition Commission of India

(CCI) directs the Company to
publish the details of the proposed
combination in the prescribed
format

September 4, 2014

CCI invites comments from public in

respect of the Transaction

September 19, 2014

Court-convened
extraordinary
general meetings of shareholders
Ranbaxy to be conducted pursuant
to an order dated August 5, 2014 of
the High Court of Punjab and
Haryana 35

December 5, 2014

CCI grants conditional approval to

the Transaction

January 2015

Merger/amalgamation
completed
with approval from high courts in
India,
the
Indian
central
government and relevant state
governments, stock exchanges and
approval under the Hart-ScottRodino Act in the US

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Key Terms of the Deal

Ranbaxy will merge into Sun Pharma pursuant to a scheme of merger under
Companies Act, 1956. At present, Daiichi owns approximately 63.41 percent
of the shares of Ranbaxy. Post-Transaction, Daiichi is the second largest
shareholder in Sun Pharma with a stake of ~9 percent, while the
shareholding of the promoter group of Sun Pharma will stand reduced to ~55
percent
The merger will see Sun Pharmas revenue jump by a healthy 40% but its
operating profit will rise by a scanty 7.5%, based on pro forma 2013
financials. Its operating profit margin will decline from 44.1% to 29.2%.
The combined unit will be the worlds fifth largest generics firm with annual
revenues of $4.2 billion and a global footprint extending to 65 countries,
including the US where the two firms have combined revenues of more than
$2 billion and 629 generic drug
approvals. In India, Sun which was at
number 2, will overtake Abbott
Laboratories to become the largest
pharma firm with domestic sales of
$1.1 billion.
This merger will become No. 1 in
Indian Pharma Company. Also, it will
become no. 1 in 13 specialty segments with over US$ 2 billion revenues. The
combined market share of this merger is around 9.2% ($1116 million),
highest in the Indian pharma market. However, total revenue would increase
to $2.2 Bn. Also, they together become leader in Dermatology: No. 1 in
generic dermatology, No. 3 in branded.

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9. Future Strategies
Mission: Enriching
pharmaceuticals

lives

globally,

with

quality

and

affordable

Strategies:

The Indian pharmaceutical industry is estimated to grow at 20% CAGR

over the next five years, as per India Ratings, a Fitch Group company

The Indian pharma market size is expected to grow to US$ 85 billion by

2020

The growth in Indian domestic market is mainly attributed to:

Rapid urbanization
Increasing consumer spending
Raising healthcare insurance

Should align their product portfolio towards chronic therapies for

diseases
Cardiovascular, anti-diabetes, anti-depressants and anti-cancers
are on the rise.

There are some Government Initiatives in order to encourage Pharma

industry
The GOI has unveiled 'Pharma Vision 2020' aimed at making
India a global leader in end-to-end drug manufacture.
Telangana has proposed to set up India's largest integrated
pharmaceutical city spread over 11,000 acres near Hyderabad.

Increasing leadership in key Emerging Markets e.g. Russia, Romania,

South Africa, Brazil & Malaysia

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EXHIBITS

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