Analysts say Ranbaxy has struck the deal at an appropraite time as several Indian pharmaceutical firms are likely to offer themselves for consolidation prior to 2011, when competition in the generics segment is expected to intensify when several patents will lapse by then.
Sujay Shetty, head, life sciences, PriceWaterhouseCoopers told CNBC-TV 18 that it would have been difficult for Ranbaxy to go to the next level (of growth), therefore this deal was nothing bettter than selling off at the top. Ranbaxy would certainly be a trendsetter in the future for the pharma sector which has seen the first of it kind of deal from outside India, it added.
CNBC-TV18 shares with domain-b its exclusive interview with Shetty:
First a quick comment on the stake?
I think this is monumental and landscape transforming and this is going to have a huge impact on the rest of the generic industry. This is a fabulous offer and I think the shareholders will be completely mad not to accept this.
And it is indeed the fad premium that they are looking at?
A: From a generic industry perspective we know at least three things. We know that though there may be 4-5 years of good growth but there is a lot of a pain to come there after. Post 2005 we need to invent a little more on the product development side to scale up to the next level and to be in drug discovery it is not that easier thing to do and indeed Ranbaxy has been having difficulties with its Research and Development (R&D) spinner. So for them to go to the next level would have been very difficult.
Do you think many such deals could happen from here on because the largest company is just sold down? Do you expect many other Indian generic players to look for global partners or global MNCs and large players being interested in picking up significant stakes now?
We knew a consolidation was inevitable and it was not happening because a lot of price discovery was taking place and the promoter is stepping back. But this kind of a leadership that Ranbaxy has given, it has given its visibility on varied things the generic businesses going. And if they think that this is the top of the market and a good time to do a deal, many of the Tier I companies who are family run want to revisit their ambitions in the business. Because beyond 2011 it will be difficult to be in this business and big pharma won't sit there watching generic companies come eat their lunch for them in overseas markets local Indian markets are notoriously difficult to make money out of. So we should see one or two deals happening may be not this year but this is definitely a trendsetter.
Do you find enough number of global players like Teva etc who would want to train their guns on India?
I think these companies have been looked at. We know Teva with Aurobindo Pharma, media reports believe that they have looked at the company or other companies such as those and I think this would be a good trigger to start those discussions because this is as good a point of time as any.
Why did Malvinder Singh choose to sell at this point?
Perfectly, this is top of the market and this is as good as it gets and it will be very hard to imagine which shareholder would have the nerve to turn down that kind of a premium. Moreover his visibility is quite right, beyond 5 years the visibility gets murkier and it is a good time to have done the deal.
From a short-term perspective for the shareholders at Ranbaxy, it is clearly a lucrative day?
It is very lucrative. Rs500 itself is handsome, between Rs500 and Rs700; if you just extrapolate the kind of earnings it will make in the next few years, you will not get there. This has got to be a premium paid by the Japanese company simply to get a toehold not for the Indian market - to make an acquisition, which justifies their strategic interest. So from a local shareholder perspective, you cannot get much better than this. You will have to wait for a long while.
Ranbaxy has problems with litigations with Pfizer, there are a lot of things going on. I know they have many first to files, it is a great company, and it is India's standard of generic industry. But all said and done, 70% premium is a huge amount and I think it will be very difficult to get there and shareholder should really accept this, this is a great offer.
Do you think that it is possible that a big company like Daiichi Sankyo can make a material difference to an Indian pharma company?
Daiichi's skills and Ranbaxy's skills are different. Daiichi is a play in the Japanese market, almost an innovative pharma type company in its own. Ranbaxy is a classical generic player. The only reason I see this happening is because of Japanese market is getting generesized. Also for Daiichi, it may see some future there to gain off India's generic skill advantages and to use that into their own markets and use Ranbaxy's global expertise as it has done in all these years to build a great generic business globally.
Somewhat like Novartis with Sandoz, Daiichi is entering the generic business via Ranbaxy doing global plays through that and also helping it consolidate the Japanese market. So at the moment that seems to be most likely a reason why they want to be in Ranbaxy.