Japans $90-bn pharma industry keen on India despite Daiichi-Ranbaxy mess

Written by Jayati Ghose | New Delhi | Updated: Dec 2 2013, 13:51pm hrs
When Daiichi Sankyo, Japans second-largest innovator pharma firm, bought a controlling stake in Ranbaxy Laboratories Indias top generics player in 2008, it was a textbook acquisition. Daiichi had the strength in innovative products and a global presence, but was running out of new patented products. Ranbaxy, on the other hand, was an emerging multinational with strengths in developing and selling generics, a segment that was growing rapidly in the developed world.

Despite Daiichi having to cough up $4.6 billion (a price accepted as steep by Daiichi Sankyo head Takashi Shoda) for a majority stake in Ranbaxy, the synergies were evident. However, it has not been smooth sailing for the Japanese pharma major. In September 2008, within three months of signing of the first agreement, the United States Food & Drugs Administration (USFDA) banned 30 drugs from Ranbaxys two factories from sale in the US due to a gross violation of approved manufacturing norms.

In May this year, Ranbaxy admitted that it had falsified data while seeking approvals from the USFDA, and paid a hefty fine of $500 million to settle the matter with the department of justice. Apart from the crippling financial burden (Ranbaxy reported a loss of R976 crore in the last two quarters compared to a profit of R220 crore in the year-ago period), the settlement also led to a serious loss of face for the generics player that has global ambitions.

Close on the heels of a legal settlement, the USFDA issued an import alert on drugs made at Ranbaxys Mohali plant on September 16. In a statement, Daiichi said it will work with the USFDA to resolve all drug quality related issues that resulted in an import ban imposed on Ranbaxys Mohali plant taking any and all necessary steps to resolve their concerns.

The drama did not end there. Daiichi had in May indicated that important information was withheld from it, by Ranbaxys ex-promoters Malvinder Mohan Singh and Shivinder Mohan Singh at the time of the sale and it was pursuing available legal remedies. Soon after, the Japanese pharma major dragged the ex-promoters to a Singapore arbitration court for concealing and misrepresenting critical information relating to the USFDA and the DoJ investigations at the time of Ranbaxy sale.

While Daiichi and Ranbaxy carve a recovery path, other Japanese drug majors are not shrinking away from striking deals with India. A delegation of pharmaceutical firms from Japans Toyama the cluster city of pharmaceutical industry in February had indicated that Japanese companies are keen to collaborate with Indian pharma companies in trade and technology development.

The $90-billion Japanese pharma market has a very low generic drug availability. Tokyo is looking to expand the generic drug penetration to 30% of the drug market by 2013, from 18% in 2010. Based on the new target proposed by Japanese government, the generic market is likely to grow by about 30-35% in volume terms by 2017 from current levels. For Indian generic players, this is expected to provide around $7-billion opportunity over the next 3 years.