Daiichi Ranbaxy Final
Transcript of Daiichi Ranbaxy Final
DAIICHI-RANBAXY DEAL
1. Pharmaceutical industry• Global
• Study of business model• Regulatory change
• Indian• Japan
2. Company overview• Daiichi Sankyo Company Ltd• Ranbaxy Laboratories Ltd
3. Deal• Synergies available to both
AGENDA
Valued at $700 billion (2007)US: Largest market accounting to 46%Japan: Second largest ($ 70 billion)Other markets: European union, GermanyHigher growth prospect due to high aging
population in some regions of the worldBusiness models:
Innovator companies Generic Companies
PHARMACEUTICAL INDUSTRY: GLOBAL
Innovator company• Originator of the drug• Emphasis is on strengthening the R&D pipeline• Expanded through M&A, recently• Have a higher cost product
Problems in recent times• Low output with high R&D costs• Rising costs related to R&D and selling and distribution• Patents expiry• Government concern over rising health care bills• Impact of Hatch-Waxman act
PHARMACEUTICAL INDUSTRY: GLOBAL
Generic companies• Lower cost drug producers• High distribution cost compared to innovators• Will operate once patent gets expired
Seen higher growth in recent times compared to innovator
Factors favorable to this growth:
• Hatch Waxman act• High number of patents on the verge of expiry• Government interest in the generic companies growth
PHARMACEUTICAL INDUSTRY: GLOBAL
Pre-Hatch Waxman act• FDA approval through NDA process• Timing related to performing clinical trials• FDA’s process with regulatory norms discouraged
generic companies
The Hatch-Waxman Act• Cut generic approval costs• Early-Experimental-Use-Doctrine• Compensate brand name companies for time lost in
obtaining FDA approvals
PHARMACEUTICAL INDUSTRY: GLOBAL
Growth of the generic companies due to change in regulatory environment
Increased popularityIncrease in the markets other than US and
JapanDifferent strategies adopted:
Continuing innovator model by going into bio tech instead of conventional chemistry based products
Outsourcing operation Hybrid model of generics and branded products
PHARMACEUTICAL INDUSTRY: GLOBAL
COMPANY OVERVIEW: DAIICHI SANKYO
Japan-Based Global Pharma InnovatorAim: to build drug development pipeline to
develop best three product for the treatment of specific disease
Products: prescription drugs, including treatments for cardiovascular, bone and joints, and infectious diseases
2,300 overseas medical representatives in 33 locations, mainly in Europe and the United States
Main R&D activity in Japan
COMPANY OVERVIEW: DAIICHI SANKYO
COMPANY OVERVIEW: RANBAXY
Started as distributor of vitamins and tuberculosis drugsVentured into manufacturing after 1961Extended its strong position in anti infectives in the
Indian marketDevelopment a novel process for the manufacture of the
antibiotic doxycyclinImpact of Price control Act, Ranbaxy to look at export
marketsAim for $1bilion revenue and development of new
therapeutic moleculeMission: International research based companyMaximizing the entire value chain Product off ering: Infectious disease, Urology, Metabolic
disease, Infl ammatory/ Respiratory disease
COMPANY OVERVIEW: RANBAXY
Continuing the block buster model, but looking for block busters in bio tech instead of conventional chemistry-based products
Keeping faith in chemistry-based block busters, but reducing R&D costs by outsourcing or starting their own R&D in low cost countries like India or China
A hybrid model where branded products and generics coexist
OPTIONS AVAILABLE TO DAIICHI SANKYO
Significant cost reduction as R & D expense is a major component in innovator pharma companies
Represents a one time cost benefit through effi ciency of operations as compared to the high growth alternative offered by Hybrid model
R & D OUTSOURCING
Country R & D employees Percentage
Japan 2200 83.8%
China 35 1.4%
Germany 100 3.8%
UK 30 1.1%
USA 260 9.9%
Total 2625 100%
Complementary business model that can leverage on the strengths of both companies : research and development expertise of Daiichi Sankyo and low cost manufacturing and supply chain strength for Ranbaxy
Broader product base for both companies : Ranbaxy can enter into branded drug market and Daiichi Sankyo can diversify from branded products to generic products
Broader geographic base for both companies : Daiichi Sankyo receives two third of its revenue from Japan and major portion of its revenue is from mature markets which can change post acquisition and Ranbaxy can enter the Japanese generic drug markets
RATIONALE FOR HYBRID MODEL
BENEFITS TO DIS
Growth through hybrid model where the branded products and generics coexist and form a complementary business model
Ability to extend its reach and presence in emerging markets which are high growth areas
Cost saving in manufacturing, Sales, and R&D
R&D speed up into high output
BENEFITS TO RANBAXY
Cash infusion of Rs 34 billion via fresh issue of shares to DIS
Free up its debt
Transforming from generic to innovator
Smoother access to Japanese market
Gain expertise to advance its branded drugs business
COMPARABLE VALUATION
Company P/E P/Sales P/Assets
EV/Sales
EV/EBITDA
EV/Total
Assets
TEVA 18.54 3.85 1.55 3.90 15.31 1.57
Merck 5.27 2.63 1.24 2.63 16.54 1.25
Aezneimittel 24.20 1.62 0.97 1.96 10.62 1.17
BARR 44.83 2.30 1.21 2.92 12.03 1.53
Mylan 23.98 3.29 1.23 3.43 11.13 1.28
Watson 19.83 1.12 0.81 1.39 6.83 1.00
Median 21.91 2.46 1.22 2.78 11.58 1.26
Ranbaxy Share Price 344.07 440.11 292.45 423.16 238.10 230.32
Average Share Price for Ranbaxy is 328.04 (Currently at 403.93)
Acquisition provides both operational and financial synergies
IS THE PREMIUM JUSTIFIED?
Operational Synergies Financial Synergies
Strategic Advantages
1. Higher returns on new investments
2. More new investments3. More sustainable excess
returnsEconomies of scale
1. Cost Savings in current operations
1. Diversification 2. Higher Debt Capacity
Product Sales in Yen Billion Savings per share in rupees
Ofloxacin 108.7 84
Olmesartan 195.6 151
Levofloxacin 108.7 84
Pravastatin 76.5 59
Loxonin 33.6 26
Omnipaque 31.2 24
Venofer 31.1 24
Welchol 22.7 18
Total 470
COST SAVING SYNERGIES
•Savings in COGS by outsourcing : 6% of sales•Prevailing exchange rate : 1 Yen = 0.48689 rupees•Rate of capitalizing savings : 6%•Marginal Tax Rate for Japan = 40.69%
Value of Ranbaxy to Daiichi 334+470=804
POST DEAL SCENARIO
Pfizer & Ranbaxy settlement on LIPITORSettlements with Astra-Zeneca, GSK, ValtrexFDA issued warning letter to Ranbaxy regarding
control cross-contamination batch production, control records and sterile
processing operations; absence of assurance responsible individuals inaccurate written records of the cleaning and
use of major equipmentConcerns over merger of generic into Innovator
companyDoubts about consensus building and team
playing for promoter run companyOne time write down of goodwill
Thank You