Daiichi Sankyo Pays $4.6B To Control Ranbaxy Labs
4 CommentsBy Ed Silverman // June 11th, 2008 // 7:20 am
Japan’s third-largest drugmaker will get a 50.1 percent stake in India’s largest pharmaceutical company in a bid to diversify as government price cuts shrink margins and generics outpace brand-name meds. Malvinder Singh, Ranbaxy’s ceo, will remain in his job (pictured to the left).
The move mimics Novartis, which operates the Sandoz unit that swallowed up two generic drugmakers in 2005 to reduce reliance on brand-name drugs. “Daiichi Sankyo’s strategy follows Novartis and it’s convincing,” Fumiyoshi Sakai, a health-care analyst at Credit Suisse Securities, tells Bloomberg News. “The essence of the deal is Daiichi Sankyo will seriously challenge generic business.”
Price cuts in Japan mean that Daiichi Sankyo’s profit is likely to fall 18 percent this year as its main blood pressure treatments lose sales. Meanwhile, local rivals - Takeda Pharmaceutical, Astellas Pharma and Eisai - have spent more than $14 billion on acquisitions since November 2007 to buffer sales declines as their best-selling drugs lose patent protection, Bloomberg reminds us.
“The proposed transaction is in line with our goal to be a global pharma innovator and provides the opportunity to complement our strong presence in innovation with a new, strong presence in the fast growing business of non-proprietary pharmaceuticals” Takashi Shoda, Daiichi’s ceo, says in a statement. In particular, the deal gives Daiichi greater reach into India, China and Eastern Europe.
The Japanese pharmaceutical market will grow 1 percent to 2 percent this year, according to IMS Health, while India’s pharmaceutical market may expand by more than 12 percent a year, reaching $20 billion by 2015, McKinsey said in a report in August, Bloomberg notes.
“This signals that there is a lot of value in the Indian pharmaceutical industry, Jayesh Shroff of SBI Asset Management in Mumbai, tells Bloomberg. “The drugmakers have underperformed in the past three years. It’s also a good signal for the overall market with about $4 billion in foreign direct investment coming in.”
The acquisition will help Japan to increase the volume of generics as a part of a governments plan to trim health care spending. Japan wants generics to account for 30 percent of prescriptions by 2012 from 17 percent, according to Bloomberg.
AV Block
This is just emblematic of first phase in the drug industry: The rise of low cost manufacturers. Today we have confirmation of how important Indian companies are to the global pharma industry.
Next Phase: Innovative R&D outsourced to cheaper geographies where it is cool to study science and engineering. i.e. American scientist jobs outsourced. Definitely all the negative political attacks on the drug industry in the U.S. are an important factor. We don’t like drug company profits, so less money to invest in research & development => increasing pressures to cut and outsource R&D
Bingo
Certainly this is an indication of the importance of Indian manufacturers, but it is more significantly an indication of the importance of generic manufacturers and the push for greater generic penetration in worldwide markets. As I think the article points out, Daiichi is largely motivated by the push for generics in the Japanese market. Ranbaxy was already making moves into Japan. Daiichi’s purchase is not primarily motivated by a need for low-cost manufacturing capacity, but rather by a strategy of expansion into the generic side of the market.
Bob Freeman
Bingo, I think you’ve identified the reason for the acquisition. Japanese companies exist primarily to serve the domestic market. Other than out-licensing North American rights to their products, Japanese companies have little global presence. As far as Indian companies go, their “hype” about R & D is more than their bark. Not a single NME of any significance has come out of an Indian company and none is expected in the near-term.
CMC guy
AV Block you make a great point about shift of R&D to low cost centers which is already underway and the tide of pharma haters continue to undermine industry efforts to get back on track. When/if price controls introduced in US market it will further accelerate a collapse as has been experienced in EU R&D. Since US has been too long carrying the most burden for supporting Global R&D innovation I wonder what will happen then.
Bob is correct that Indian firms are not yet up to full speed in R&D effort, although both Indian & China have great potential to continue to build integrated industry. Are the internal drivers in these countries sufficient to provide foundations for growth without the US as a source of strong income? Many drugs, especially new ones, are not simple commodities (as generic tend to be) and carry huge risks (and sunken cost) with possibility of huge profits.
In America it’s not only no longer cool to study science & engineering (was it ever? could see in 50s-60s space race maybe but I am too young to remember) but long term job prospects getting poorer all the time.