Sun Pharma Completes Ranbaxy Deal
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MARKET INFO Ranbaxy Laboratories Ltd. Sun Pharmaceutical Industries Ltd. 26 MARCH 2015 Send 21 Share 1 Share ALSO READ Sun PharmaRanbaxy merger: RBI approves transfer of shares close
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Sun Pharma and Ranbaxy acquisition
Transcript of Sun Pharma Completes Ranbaxy Deal
3/26/2015 Sun Pharma completes Ranbaxy deal Livemint
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Shares of Sun Pharma rose as much as 2.4% in intraday trade on Wednesday, whilethose of Ranbaxy jumped 2.1%. Photo: Hemant Mishra/Mint
Mumbai: Sun Pharmaceutical Industries Ltd, India’s most valuable drugmaker, has completed the $3.2 billion acquisition of Ranbaxy LaboratoriesLtd after almost a year of navigating the regulatory gauntlet to create theworld’s fifthbiggest generic pharmaceutical company by revenue.
The closure of the deal, announced on 6 April last year, will create an entitywith almost Rs.30,000 crore in combined annual revenue and Rs.2.5 trillion inmarket value.
Deal closure came after the receipt of approvals from authorities includingthe courts, capital markets regulator and antitrust watchdogs in India andthe US.
Sun Pharma and Ranbaxy also overcame allegations of insider trading thatbriefly cast uncertainty over the deal that will create India’s largest drugmaker, with a local market share of 10%.
Both have also faced issues over compliance with the Food and DrugAdministration, the US drug industry watchdog.
Sun Pharma managing director Dilip Shanghvi, one of India’s richest menwith a fortune estimated at more than $20 billion, said restoring theconfidence of regulators would be the company’s “most important focus”.
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MARKET INFORanbaxy Laboratories Ltd.
Sun Pharmaceutical Industries Ltd.
26 MARCH 2015
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“Ranbaxy had some regulatory problems in some of the manufacturingfacilities,” said Shanghvi.
“We are committed to ensure that we will do whatever it takes to bring backthe confidence of the regulators so that they trust what we do and what wesay,” Shanghvi said.
On Wednesday, shares of Sun Pharmaceuticals gained 1.29% toRs.1,053.30 on BSE. Ranbaxy gained 1.63% to Rs.832.90 on a day thebenchmark Sensex shed 0.2% to 28,111.83 points.
Shares of Ranbaxy Laboratories will stop trading on the BSE and NSE on 6April when it is delisted.
A senior Sun Pharma executive said on condition of anonymity thatRanbaxy as a brand will eventually cease to exist, in line with Sun Pharma’smarketing strategy.
With the Ranbaxy acquisition, Sun Pharma joins the club of the world’s topgeneric drug makers that include Teva Pharmaceutical Industries Ltd,Sandoz Inc. and Mylan NV.
The combined entity’s manufacturing footprint covers five continents, withproducts sold in over 150 countries. About 40% of its sales comes fromIndia and other emerging markets, and it has 45 manufacturing plants.
“(In) the US, Europe and other markets, we have several products awaitingregulatory approvals. And as we get these approvals, I believe that we willgrow faster than the markets,” Shanghvi said.
Sun Pharma estimates $250 million of synergies accruing from the mergerin three years.
“The merger creates a combined entity which has managerial capabilitythat is significantly greater than either company alone,” said Shanghvi.
Sun Pharma agreed to acquire Ranbaxy from Japan’s Daiichi Sankyo Co.Ltd for $3.2 billion in stock in addition to assuming $800 million of debt.
Sun Pharma has made nearly 20 acquisitions since its inception in1983.
In 2010, it acquired a majority stake in Israelbased Taro PharmaceuticalIndustries, a move that more than doubled its revenue in the US to $1.1billion from $484 million.
Within two years, Sun Pharma bought two more drug makers in the US—Dusa Pharmaceuticals Inc. and the generic business of URL Pharma Inc.Apart from India and the US, Sun Pharma has manufacturing facilities inIsrael, Mexico, Hungary, Canada, Bangladesh and Brazil.
Quality issues at Ranbaxy’s USdedicated manufacturing plants in Mohali,Dewas and Paonta Sahib resulted in the US Food and Drug Administration(FDA) imposing an import ban on drugs produced at these sites, hurtingsales in the US, its most important market.
The Dewas and Paonta Sahib facilities were banned in 2008 and theMohali plant in 2013.
The senior Sun Pharma executive cited above said both Sun Pharma andRanbaxy faced problems with regulatory authorities. “Indeed, problem plusproblem is problem square. But we will have to deal with it. We will befocusing on clearing these hurdles in next one year, though there is notimeline fixed,” he said.
Given Sun Pharma’s history of turning around acquired assets in the past,the company should be able to succeed with its purchase of Ranbaxy,according to Sarabjit Kour Nangra, an analyst with Angel Broking Pvt. Ltd.
“However, in the near term, the acquisition will dilute the reported return on
3/26/2015 Sun Pharma completes Ranbaxy deal Livemint
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equity from 27.9% to 27.5% in financial year 2016, which is healthy, giventhe low profitability of the acquired company and it would be at the higherend of its peers, which have an ROE (return on equity) of 1725%. Theoperating ROE, which excludes the cash component, will still be higher ataround 41%,” she said.
Shanghvi has set three top priorities for the combined entity—to achieve100% compliance with manufacturing standards specified by theregulators, to increase its focus on research and development (R&D) andachieve strong business growth across the world.
Currently, both Sun Pharma and Ranbaxy invest around $250 millioncombined in R&D.
Shanghvi said the firm is looking at investing “close to 67% of our turnoveron R&D, which would allow us to invest close to $500 million a year onR&D.
“Pharma business is linked with success in R&D,” he said.
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