dna edit: Big bucks, big issues for Sun Pharma

In the middle of the poll din, a remarkable business development did not get due attention except in the pink papers. Sun Pharma’s takeover of Ranbaxy from Japanese major shareholder Daichi Sankyo with assets valued at $3.2 billion and debt of $800 million, totalling $4 billion, is the stuff of headlines. It puts the Sun Pharma-Ranbaxy combine among the world’s big five generic drug makers. At a time of tardy economic growth, both at home and abroad, this is a deal that boosts market sentiment and infuses confidence in the economy. It also reveals something about the quiet revolution in the Indian business world.

Here are two Indian companies which had carved a niche for themselves in the domestic and global markets, and whose amalgamation creates one of the biggest conglomerates in the country and in the world. It is indeed a matter of congratulation.

The two companies, however, bring different value systems. The Vadodara-based Sun Pharma has grown from a small indigenous firm in the 1980s into a giant, while following the best practices regime. It is the adherence to rules of the game, in terms of its product as well as the marketing of it that marked out Sun Pharma. Ranbaxy was bold and ambitious quite early, and it forged ahead in the game rather quickly, capturing the important American market. Ranbaxy’s trouble with US Federal Drug Administrator (FDA) is complex because it involves the problem of standards as well as trade rivalry. Sun Pharma should be able to infuse its sense of going about the right way into the Ranbaxy operations.

The Indian pharma story is not just about big manufacturers and mega deals. It has also been a story of needs and demands, and some of them are not value-neutral. It is another Indian drug manufacturer, Cipla, which has brought this issue to the forefront when it felt the need to make the anti-retroviral AIDS drug at a cheaper price and make it accessible to patients in Africa. It was both a humanitarian as well as a market demand. The generic drugs segment too faces the same challenge, and that is why the Ranbaxy, Sun Pharma successes are a key to the problem of delivering medicines all over the world. Generic drugs are those whose patent rights have expired and which remain crucial for fighting disease across the world. The Western drug manufacturers have always been sore over this issue because they believe that breakthroughs in medical research require long-term and big investments with no guarantee of returns, and the patent rights are a compensation for the risks they took in research and development. The royalties and licence fees demanded by the drug manufacturers with their billion-dollar R&D budgets is indeed the bone of contention, which raises issues of providing health to all. The Indian pharma companies apparently play the secondary role of confining themselves to generic drugs, but it is a crucial role in health care in the globalised world.

There is no need to over-emphasise the altruism bit. Drug manufacturers have to make money and they can do so because of the demand in the sheer size of a world market. The Sun Pharma-Ranbaxy combine should be able to maintain a fair price line and not fall into the temptation of a monopoly which is in a position to call the shots on pricing.