Half a decade after his grandfather set up Ranbaxy, Malvinder Mohan Singh, chairman, CEO & MD handed in the reins of the company, paving the way for what many in the industry say will be a new era in the Indian pharma industry. His resignation was only a matter of time, once he sold his majority stakes in the company last year to Japanese pharma giant Daiichi Sankyo.
His sale last year was seen as a savvy move to cash in rather than do battle in an increasingly regulated environment. Mr Singh however leaves the company after a tough year. The company?s annual performance showed a net loss of over Rs 1,032 crore (year ending December 2008) compared to a net profit of Rs 617.72 crore in the previous year. But forex losses due to hedging and the rupee becoming weaker affected not just Ranbaxy; there were a host of other Indian pharma players (and indeed companies across other sectors too) which gambled and lost their bets as the world economy went into a tail spin post September last year.
Analysts say that Daiichi Sankyo was not however prepared for their new acquisition continuing to be under the US Food and Drug Administration?s (US FDA?s) scanner for violations concerning falsification of data. With some of Ranbaxy?s products still under a US FDA imposed ban, there are always fears that other regulatory agencies might follow suit. Industry observers point out that culturally, the Japanese have their own style of working and would prefer full control of their assets. Hence the move to re-fashion the board.
For a company priding itself as research player of some global repute, the Japanese company is said to have been very concerned that its reputation would also suffer in the long run. The proverbial straw which broke the camel?s back was most probably Daichi Sankyo?s realisation and subsequent announcement in the first fortnight of this month, that its full-year profit would be below its previous projections. Evidently, the Ranbaxy buy and its subsequent inability to recoup losses thanks to continuing fall in US sales, was dragging the balance sheet of Japan?s third largest pharma company. It had at the time, indicated that it would step in to oversee Ranbaxy operations and a fortnight later, we are seeing the results of this increased involvement.
What will be the reactions of other promoter families, who officially at least, deny any move on their part to be even considering offers from MNCs that want a slice of the Indian pharma pie? Will they continue to soldier on, and if so, for how long? Many Indian companies are dangerously over-leveraged and are prey to creeping acquisitions. Ironically, just over a year ago, in April 2008, Ranbaxy used this route to try a hostile acquisition of Chennai-based Orchid Chemical and Pharmaceuticals and settled for an alliance.
Promoters of companies like Dr Reddy?s Laboratories are concentrating on shoring up their domestic sales while pulling out of unviable overseas geographies, and re-structuring their R&D centres. Are these moves to parcel their assets into saleable strategic business units, to attract MNCs looking for value buys? The buzz is that while the founding fathers of today?s top homegrown pharma companies, all young men at the time of India?s independence, were fired up by nationalistic pride to make the nation self-sufficient in medicines, the current generation at the helm has little or no ?emotional connect? with the business and would make the same decision Singh made last year, in a heartbeat, if the price was right. There are less complex, less regulated sectors where they can put their money, where returns have shorter gestation periods. For instance, Singh is very clear that he will now focus on health insurance and the hospitals business handled by his brother.
More importantly, what will the decreasing clout of India?s pharma familes mean for the Indian consumer/patient? Will the balance of power tilt so much in favour of MNCs, that, like some African nations like Kenya, the government feels obliged to make/amend its laws (especially those related to patents, pricing, data exclusivity/protection etc,) and make them more MNC friendly, in order to attract them and keep them in India? India?s main attractions as a market are its population (as consumers), its ready talent pool (available at more cost effective salaries, thanks to again the sheer numbers) and therefore the ability to do R&D, clinical trials, etc at a fraction of the cost. India must learn to play to its strengths and move up the pharma value chain towards drug discovery, rather than be content with the low hanging fruit of contract research and manufacturing.
In fact, industry observers are closely observing the formation of the Cabinet and keeping their fingers crossed that a new minister for chemicals & fertilisers will hopefully bring with him a more liberal attitude than the last.
?viveka.r@expressindia.com