Comment

As top management changes keep Ranbaxy occupied after the mega deal with Daiichi Sankyo, the company seems to be uncertain about it strategic investments in other companies.

Before Daiichi made the bid to acquire Ranbaxy in June 2008, Malvinder Mohan Singh went on an acquisition spree for emerging technology companies with a view that those can be topline accelerators in the future. Among the buys were Terapia in Romania, Betabs in South Africa, generic drug portfolios in Spain and Italy, branded generics business of Bristol Myers Squibb in the US, and investments in some small firms.

Zenotech, Krebs and Juptier Biosciences — all from Hyderabad — were lapped up in a span of a few months. Zenotech had a promising pipeline of injectable oncology drugs and some generic biotech products, an area hitherto untapped by Ranbaxy; Krebs Biochem had a strong fermentation capability with products like lovastatin and simvastatin and Jupiter boasted of its peptides — an area not looked closely by large pharma companies mainly due to the technology barriers. At the face of it, all these buyouts made sense for a company which had stretched too thin into generic drugs.

And when Daiichi did the deal with Ranbaxy, the then CEO Malvinder Singh and the acquirers had concurred and indicated that the entire buyout (including investments in smaller companies) will enhance value to Daiichi Sankyo as it tried to tap unconventional growth areas within the pharma industry.

But while Daiichi Sankyo was busy sealing the deal with Ranbaxy, its Japanese rivals — Takeda and Eisai — took the beaten track and pursued buyouts in Europe and US, mainly to sharpen their research capabilities and pipeline of products. A year down, things do not look as exciting as they were made out to be, at least from Daiichi’s viewpoint. With a clean track record on quality issues, Daiichi is consumed with the US FDA’s allegations about Paonta Sahib and Dewas manufacturing sites. When that issue is resolved (and we hope it is) the next step for Daiichi will perhaps be to tap Ranbaxy’s extensive marketing network and establish a strong presence in the emerging markets.

After clearing up Ranbaxy’s manufacturing problems, Daiichi may also look at using the facilities for filings in the US and developed markets like Europe and Japan. The cost structures of Ranbaxy may be reviewed by the new management to get the maximum out of the multi-billion dollar buyout, now seen by critics as a hugely over-priced deal. When these irritants are tackled, Daiichi may take up its plans for Krebs, Jupiter or Zenotech. Though Daiichi is initiating its open offer for shares in Zenotech, founder promoters of the oncology drugs company have expressed disappointment with the way the business has been run so far.

News reports said Zenotech’s original promoters have said that the Ranbaxy nominated board members have not been attending meetings, leave alone taking interest in growing its business.

On the Zenotech open offer, too, there is controversy. While Zenotech promoters say that Daiichi is not agreeing to an earlier offer price of Rs 160 per share, Daiichi contends that it has followed all the regulations that go into fixing the open offer price. As of now, the open offer has been stayed on appeal by a few minority shareholders. Once that issue is handled, Daiichi may be keen to grow Zenotech’s portfolio of products.

Before Ranbaxy clinched the majority equity stake in Zenotech, the company was positioning itself for the big biosimilars opportunity. It was working on products like GCSF and interleukin-2 and had advanced up to clinical trials. But there were no signs of progress after that. Looking at Teva or Sandoz and data on the future market landscape, it is becoming clear that biosimilars are an opportunity every company wants to seize. Daiichi has claimed it is looking at unconventional revenue sources, which makes it compelling for the company to grow and nurture Zenotech. Going by Big Pharma’s drive to gobble emerging biotech businesses, companies like Zenotech may become extremely valuable.

Hopes not realised
Before the Daiichi deal, Ranbaxy went on an acquisition spree for emerging technology firms, thinking they could be topline accelerators in the future.

Daiichi is consumed with the US FDA’s allegations about Ranbaxy’s Paonta Sahib and Dewas units.

There are problems with Krebs, Jupiter and Zenotech, too.