"Ranbaxy has created a high benchmark for future deals"

Updated: Sep 28 2008, 07:27am hrs
Although the US Food and Drug Administrations recent restrictions against Ranbaxy products may have affected the companys position on the stock market, but it is still Indias largest drug maker. But Ranbaxy made bigger news in July this year when its CEO Malvinder Singh sold his familys stake in the pharma giant to Japanese drug-maker Daiichi Sankyo. In this Idea Exchange moderated by National Business Editor P Vaidyanathan Iyer, Singh reveals what made him sell out to Daiichi Sankyo, how it benefits Ranbaxy and his future plans that include big forays into healthcare and financial services

P Vaidyanathan Iyer: We are all curious to know why you decided to sell your Ranbaxy stake to Daiichi Sankyo

Malvinder Singh: We were in the fortunate position of not being overly skewed towards developed countries. Our plan of hitting our revenue target of $5billion by 2012 could have been achieved on our own, with a projected growth of 20% over the next many years. The issue in front of us was to take our company to new levels. With this deal, we put together a model that will be seen as a path-breaking move in times to come.

Daiichi Sankyo was impressed by our innovative R&D, our SEZ in Mohali that represents a huge prospect for leveraging Indias manufacturing capability, our management of the life cycles of different products in developed markets, and our ability to facilitate these strengths in emerging markets. We also had stakes in Zenotech, the biotechnology company that offers us a midpoint between innovation and generics.

Even at our first meeting with Daiichi Sankyo, we discussed possible alliances. Eventually, the discussion evolved to a stage where they said: we think we can do great work together; we would like to take a majority stake in your company. It gradually became evident to us that if our family did not sell its entire shareholding, the probability of Daiichi Sankyo getting this majority stake was low. Emotionally, my first response was that I was not interested in selling my equity. But as a CEO, it was important that I took the right call for the company. The cost of this would be that I wouldnt have any equity left in a company that my grandfather had started, that my father had taken global and that I was continuing to build on in an environment that is hostile to generics.

If this deal took the company to a different level, it would put us in a stronger position to fight back many of the challenges. I asked myself, if my father had been in my shoes, what would he do The answer was loud and clear: take the right call for the company. It was a tough call. But once I was convinced, I carried the rest of the family with me. But the company hasnt changed; it wont change except it will become much stronger. The companys core, its culture and Indianness have not changed.

Sunny Verma: Can you clarify the amount of inflow resulting from this deal and how its approvals are going through

Everything is on track. Approvals are also coming in on time. Actually, this deal has seen one of the fastest clearances for an open offer and the system has worked very efficiently in this case. In terms of value, the inflow figure is around Rs 22,000 crore. At Rs 737 a share, we did not get a bad price. In fact, we got a fantastic price. There are two separate aspects here. I continue to be in the business, continue to run Ranbaxy as a professional CEO. This is the largest transaction in Indian Inc for any listed company. Its a path-changing transaction in the pharma landscape, globally. Its the first time that a young man of 35 years, who has been very aggressive in buying companies, decided to become a manager in the company he had previously owned. The great thing is that we put our terms on the table; we didnt budge where we didnt want to budge and we got what we wanted, whether this was in terms of price or in terms of the management of the company.

Soma Das: Did it cross your mind that this is a Japanese company and that Japanese companies have a reputation of being scrupulous

When you make a deal, you dont look at anything in isolation. Instead, you consider the hard facts and the soft facts together. As for Japan as a country, its certainly relationship focused. Word and trust matter, they are part of Japanese culture. Actually, they are a part of Asian culture in general, not just Japan.

Kakoli Chatterjee: Japan is the second largest pharma market in the world. How will the Daiichi Sankyo alliance help you in this market

The Japanese market has been stagnant at around $70 billion for some time now. Its very hard to enter the Japanese market but Ranbaxy has already done this successfully. I see a big opportunity for growth as there is a huge healthcare deficit in Japan, which is helping to bring in many pro-generics reforms. Ranbaxy and Daiichi Sankyo will add up to the second largest pharma company in Japan.

Malvika Chandan: How will this deal make a difference to Ranbaxy employees

Ranbaxy will not be run and managed by Daiichi Sankyo, but by a board that will be chaired by me. So firstly, there is absolutely no change in the running and management of the company. Secondly, I dont look at this as an acquisition but as a coming together of two companies. Daiichi Sankyo has around 15,000 employees and Ranbaxy has around 12,000. And there is going to be no change in how the employees are going to work. What must happen is that the series of opportunities that we have identified as ones we can exploit together must be exploited.

Soma Das: You have now got a huge sum of money. Where will you invest this money

Over the last seven years, while a part of the familys wealth was in Ranbaxy shares, we had also traded in healthcare and financial services. With the Ranbaxy part of the familys business converted from shares into cash, the money will be added on to whatever other opportunities we have been pursuing. Every business can make money, but the question is, why are we in healthcare This goes back 10 years: in the mid-nineties, we had a very clear sense that healthcare facilities in India were not up to the mark. My familys goal was to redefine the space, bring in the best capabilities, doctors, and equipments and make world-class healthcare available to our people at affordable prices. If we can make the experience of receiving healthcare both non-threatening and affordable, which is what we have tried to do and hence reached the second spot within seven years, we will soon be in the top spot.

In financial services, when we started out, we were flying under the radar. But one fine day, people woke up to see how we had a pan-India retail network. What we at Ranbaxy have been able to do by taking pharma global, I see happening at Religare with financial services.

Soma Das: Do the recent FDA restrictions pertain only to the manufacturing process or does it also cover the efficacy of your products

The FDAs testing and review has led the agency to conclude that there is no reason to question the safety, quality or effectiveness of Ranbaxys drugs. FDA has advised the US consumers to continue using medication manufactured by Ranbaxy as there is no evidence of harm being caused to the patients. We will continue to cooperate with the FDA to resolve the issues swiftly.

Dhiraj Nayyar: Did price control perversely play a role in the internationalisation of the Indian pharma industry, driving it to look to foreign markets because the domestic ones were quite limited

I think the process patent regime since the seventies has certainly been one of the cornerstones of why the Indian generics industry has evolved. But Indian companies have gone global because of their vision and entrepreneurship rather than because of government policy. Our growth was driven by Dr Singhs clear and simple vision that if we wanted to be a global player, we couldnt restrict ourselves to a market that was only 1% of the global market. Thats what took Ranbaxy outside India. Also, we believe that price control is not the best way to manage the pharma industry in todays environment. Today, we have more than 20,000 pharma companies in India and there are more than 5,200 competing brands for every single product. Such a competitive and fragmented market doesnt call for price controls.

Dhiraj Nayyar: Is it difficult to convince American doctors to prescribe Indian generics

Ranbaxy is a global company and our products are sold in 150 markets. In many markets we have a field force. Of course, many developed markets are substitution markets, where its not the doctor but the pharmacist who has a significant say in the choices. The pharmacist goes by many factors like pricing and supply, where we already enjoy a strong position. Coming together with Daiichi Sankyo will put us in a better position.

Radhika Sachdev: Research and development is a key driver of the pharma industry. How will you ensure that you maintain a strong pipeline of talent, given the restraints in the Indian education sector

The supply side of talent technical talent needs a lot of work, especially because the industrys demands are only going to increase in the coming years. Also, the gestation period between taking the right decisions, creating the right institutes and arming people with the right degrees is not insignificant. In the face of this time lag, there is no short-term answer. We need more public-private partnerships to create institutes like the one Manmohan Singh had created in Mohali, which is the first institute for pharmacy in the country. I think the industry needs to play a proactive role with the government to create such institutes and give employment to their graduates. Secondly, as far as companies like Ranbaxy and others are concerned, since we are the leaders in the pharma sector, we will not really suffer because the best talent will always first come to us.

Mihir Sharma: Do you think there is enough scientific research being done in India

Basic scientific research is at an evolutionary stage in India, although you will see a lot of things happening in the next 10-15 years. Frankly, where the research happens doesnt make a difference. Whats important is its outcome, how quickly you patent it and bring it to the market and make it commercially successful. Of course if the research happens in India, it can happen faster and in a more cost-effective manner. However, the cost of the innovation is not that important, because you can use the patent time to maximise your gains. What we need are more efficient processes of interaction with academic institutions in India and abroad.

Radhika Sachdev: Would you say Indian pharma has been concentrating on re-engineering rather than innovating

The process patents have certainly helped the Indian industry evolve to its current scale and size. But as the industry has evolved, its important for companies to move up the value chain, from generics to drug delivery to biotechnology to drug discovery. Ranbaxy has been a proponent of the product patent regime. But we need to have a balance, encouraging innovation but also ensuring that generics come into the market at the right point in time. The company mission that we put out in 1993 is very clear on the fact that we want to become a research-based international company and leverage revenues from proprietary products.

Sunny Verma: Do you think you have overplayed the managers role and underplayed the entrepreneurs role

Due to my upbringing and the fact that I have seen my father at work and Ranbaxy evolve in front of me, step by step, I am keenly aware of my responsibilities. When I walk into office, it is never with the mindset of an owner. Instead, I always operate from the perspective of an executive, an entrepreneur and a businessman. Of course, it helps that I work with a board that is very demanding and independent.

Transcribed by Renuka Bisht

Photographs by Praveen Khanna