The promoters’ decision to sell off Ranbaxy, the numero uno in Indian pharma industry, seems to have raised a number of questions over the existence of Indian generic companies in their present form in future. The developments at Ranbaxy, which had been ruling the roost in the global copycat drug business for a while, is likely to cast a shadow over the Indian pharmaceuticals industry, which still relies on the copycat business for its bread and butter.
“Ranbaxy’s decision to sell its promoter’s stake presents a scary picture to pharma companies which entirely rely on the generic business, without any focus on drug discovery. The pricing pressures the firms are facing in the global pharmaceuticals industry is likely to compel the Indian companies to sell out their generic business in future,” a Mumbai-based investment banker said.
Though Ranbaxy had its entire focus on the generics business, in February, it hived off its new drug discovery research unit into a subsidiary, Ranbaxy Life Science Research following other majors like Dr Reddy’s, Sun Pharma and Glenmark’s demerger of their R&D businesses. Though Ranbaxy claimed it has 10-12 molecules in the pipeline, only one molecule is learnt to have entered the phase II trials.
Sujay Shetty, associate director, PricewaterhouseCoopers, said, “The survival for generic firms will be tough beyond the next 4-5 years. Pharma companies without future investments in R&D will face the heat. Though mid cap generic companies cannot afford the high level investments in R&D, more consolidations will take place in the generic space.”
Ranjit Kapadia of Prabhudas Lilladher shares the same opinion. In the future, the model will consist of both generic and R&D business. Daiichi, which has a good R&D business, will be established in the generic space through the Ranbaxy buyout.” Like Ranbaxy, a number of promoters of generic companies are ready to sell their stake if they get good valuations, he added. Another analyst with a foreign firm attributed Ranbaxy’s decision to the slow pace of Indian pharmaceuticals business. “Also, the profit margins in the US and European markets are coming down as a result of neck and neck competition. Once all the companies enter the US market with their own copycat versions following a patent expiry, the margin comes down to 2-3%. Ranbaxy has received about 50% more than what they expected. At the right moment, they disposed the stake,” he said.