Daiichi Sankyo and Ranbaxy Laboratories have surprised the pharmaceutical industry by entering into a binding share purchase and share subscription agreement, which will eventually leave Daiichi with a controlling interest in the Indian firm. The deal values Ranbaxy at US$8.5 billion and the total transaction value is expected to be between US$3.4 billion to US$4.6 billion. Daiichi Sankyo and Ranbaxy highlighted the complementary business combination that the link-up would create, noting that it would leave Daiichi with an expanded global reach and strong growth potential by complementing proprietary drugs with generics. Daiichi also hinted that it may shift part of its production to India, commenting that it could achieve further cost competitiveness by optimising its new R&D and manufacturing facilities.
The move represents Daiichi Sankyo's first foray into generic drugs, and contrasts with the strategy adopted by its Japanese rivals: Takeda Pharmaceutical, for example, bought biotech firm Millennium Pharmaceuticals in April, while Eisai bought speciality manufacturer MGI Pharma in December 2007. The Ranbaxy deal should bolster Daiichi’s revenues more quickly however, with income from the acquisition expected from the fiscal year after next.
Interestingly, Daiichi is following the model of Novartis by incorporating generic sales into its structure; this strategy has the obvious benefit of maximising the full pharmaceutical life-cycle of products, and also hedges the inherent riskiness of new molecules with a more steady supply of generics. The model follows long-term assumptions over the future of the industry, where a handful of global players will dominate, crowding out all competitors bar the smaller niche-orientated firms.
This major deal in many ways mirrors the divestiture of Merck Generics last spring. That deal saw a brandname manufacturer look to sell its generics division; the race to buy the firm was eventually won by Mylan Laboratories, which had to fight off competition from a number of other major generic firms. These included Ranbaxy, which was an early contender, along with Teva Pharmaceutical Industries and Actavis. At the time, it seemed these three companies would be in the forefront of bidding for the next big generics target; ironically, Ranbaxy itself has now become a target. That flurry of activity after the initial Merck Generics bid could indicate a similar bidding process for Ranbaxy; indeed rumours have since circulated that Pfizer may bid for the remaining shares. However, without the support of the Singh family, Ranbaxy’s largest and controlling shareholders, a counterbid may prove difficult. For now, Daiichi remains in the vanguard.
Jonathan Way - Editor, World Generic Markets
