Ranbaxy global strategy for growth

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Ranbaxy global strategy for growth

  1. 1. Journal of Case Research Volume II Issue 01 Global Strategy for Growth: A Case of Ranbaxy Laboratories Padmanabha Ramachandra Bhatt1 “Personally, I feel that companies who constantly innovate to provide better products and services and who can offer superior value propositions to the consumer are the ones likely to command more respect globally than others”2 Malvinder Mohan Singh, CEO and MD, Ranbaxy Laboratories LtdIndian pharmaceutical industry was worth of $ 8 billion in 2006 and had been growing at anaverage rate of 8–9 %. The industry was highly fragmented with more than 20,000 registeredunits and 30% of market was controlled by top ten companies and the rest of 70% by smallcompanies. The Global pharmaceutical industry was estimated at $ 600 billion in 2006. Indianpharmaceutical industry has become more innovative and enterprising with more investment inR&D especially since the WTO agreement was signed.Ranbaxy Laboratories Ltd. was India’s largest pharmaceutical company with revenue of US $260 million in the domestic market and $ 1.3 billion in the global market in 2006. In thedomestic market Ranbaxy enjoyed a share of 5.1% with nine brands in the Top 100 list in 2006.It is one of the largest ANDA (Abbreviated New Drug Application) filers with US FDA ( UnitedStates Food and Drug Administration). The company’s offices have spread over 49 countrieswith employment of 12,000. It is one of the ten generics players in the world. Three-forth ofRanbaxy’s revenue comes from international sales, with the US alone accounting for almost onethird. The range of products covers a wide band of therapies with a total over 5000 SKUs (StockKeep Units) globally.Ranbaxy’s vision was “To become a research based international pharmaceutical company”.1 Padmanabha Ramachandra Bhatt, Ph.D., Visiting Professor, Universiti Utara MalaysiaEmail: prbhatt@uum.edu.my2 Ranbaxy’s World, December, 2007 Page | 1
  2. 2. Journal of Case Research Volume II Issue 01Ranbaxy Laboratories LimitedRanbaxy was founded by Ranjit Singh and Dr. Gubax Singh in Amristsar to distribute Vitamin Aand anti-tuberculosis drugs to Japanese Pharmaceutical companies in 1937. The company setup a manufacturing unit in Okahla in 1961, in collaboration with Lepatit, an ItalianPharmaceutical company to produce the patented drug chlorophenicol for typhoid. LaterRanbaxy bought the company in 1967. The company went public in 1973 to establish an ActivePharmaceutical Ingredients (API) manufacturing plant at Mohali, Punjab. When Drug PriceControl Order (DPCO) was enacted in India in 1970, the prices of all drugs were stipulated bythe Government. As a result, the prices had fallen for all drugs. The company had then startedexporting bulk drugs (APIs) to Malaysia, Thailand, Srilanka, Middle-East and Singapore in 1975.In Malaysia, it established a joint venture to manufacture and distribution of formulations. APIplant was set up to manufacture antibiotics/antibacterial at Taonsa in India in 1987.Parvinder Singh (1993-1999)Ranbaxy Pharmaceutical Ltd had remained as a small company under Bhai Mohan Singh till1990. Parvinder Singh wrested the control of the company from his father Bhai Mohan singh in1993. He was a doctorate in chemistry from the University of Michigan. He joined the companyto help his father in 1967. He was a visionary and a forward looking CEO. When Indian PatentAct (1970) came into exist in India, Parvender Singh exploited the opportunities of new patentact to manufacture formulations and generics. The act abolished the product patents for allpharmaceutical and agricultural products and process patents were permitted for 5-7 years. Hehad invested heavily in setting up a plant in Mohali to manufacture bulk drugs.Parvinder Singh was always ahead of others in the industry. He wanted to make Ranbaxy aglobal company. He adopted global strategy through acquisition in US, UK and India. He set up astate-of-the-art Research and Development Centre at Gurgaon, India. R & D acted as an engineof growth for the company. In the R & D Centre, he established Chemical Research,Pharmaceutical Research, Fermentation Research, Novel Drug Delivery System (NDDS), and Page | 2
  3. 3. Journal of Case Research Volume II Issue 01New Drug Discovery Research (NDDR). The company focused on Urology, anti-infectives,respiratory, anti inflammatory and metabolic disorders segments.Bhai Mohan Singh’s initial strategy was to focus on Active Pharmaceutical Ingredients(API).When Parvinder Singh took over the reign, the strategy was shifted to manufacturegenerics which were off-patents drugs. Parvinder Singh made far reaching changes in thecompany. He introduced management by self control in the company to facilitate all membersof the company to participate in the decision making process. He abandoned top-down policypursued by his father Bhai Mohan Singh. He set up a stretch target of sales of US $ 1 billion tobe achieved by 2004. Ranbaxy set up a joint venture with Eli Lilly with 50-50 partnership tomanufacture products of international quality in India in 1993. The joint venture manufacturedLily’s products and marketed in India, Sri Lanka and Nepal. Ranbaxy was benefited in terms oftechnology and Eli lilly got the advantage of low cost manufacturing.Parvinder Singh looked forward to set up international business in USA, UK, and Latin Americancountries. He has adopted global strategy through joint ventures and acquisition to achievesustainable growth. He formed a joint venture Ranbaxy Guangzhou China Ltd (RGCL) in China in1993 and started manufacturing bulk drugs and formulations in 1995 ( see Table 7). The jointventure manufactured antibiotics, analgesics, cardiovascular and other drugs and marketed allover China. Later Ranbaxy has increased its stake in RGCL to 70%. Its brand cefran was themarket leader in China. It acquired Thai Pharmaceutical Company Unicher in 1995 and formedRanbaxy Unicher Co. Ltd (RUCL). RUCL was importing more than 50% of the productsmanufactured in India. It has a strong presence in Antiinfectives, Haematinics, Cardiovasculars,Nutritional & GI Tract segment in Thailand and India. Parvinder Singh established a globalalliance with Eli Lilly to manufacture and market cefactor in US in 1994. The joint venturehelped Eli Lilly to increase its market share of cefactor in USA whereas Ranbaxy was befitted inacquaintance of stringent regulatory requirements of Food and Drugs Administration (FDA) inthe USA. Ranbaxy sourced cheap cefactor intermediates to Eli Lilly and Eli Lily in turn marketedcofactor as branded product. Ranbaxy has entered the US market and operated through two Page | 3
  4. 4. Journal of Case Research Volume II Issue 01subsidiaries Ranbaxy Pharmaceutical Inc( RPI) and Ohm Laborataries Inc, the over the counterdrug manufacturer in 1995 ( Table 7). Ohm Laboratory had exceptional FDA approval record.There was immense opportunity to sell generics in Europe. European market is attractivebecause of aging population and high health costs forcing the goods to open the genericsmarket. Parvinder Singh wanted to exploit huge potential in Europe and keeping that in mind,he set up a subsidiary namely Ranbaxy UK Ltd to sell its branded products in 1996. He acquiredanother company Rima Pharmaceuticals, the semisynthetic pencillins maker to sell genericsproducts in Europe. His basic strategy was to keep the acquired units as profit centres whichhelped Ranbaxy to keep acquired firms self sufficient. Also the acquisition process did notadversely affect the managerial culture, openness, self motivation and positive attitude. Theacquired centre was given full responsibility of profit and loss of the company. The regionalmanagers were given high degree of autonomy. He had adopted three tier organizationalstructures. The first tier consisted of senior managers and second tier regional managers andthe third country managers.In 1990s, Ranbaxy’s effort was to sell formulations under its own brand name. It wanted tomove up from low-margin bulk pharmaceuticals to high margin branded formulations. Themajor markets for branded generics are Russia, China and other developing countries.However, in US and UK, Ranbaxy focused on formulations rather than branded productsbecause of stiff competition from other major players in branded generics.In UK, Ranbaxy was successful to market branded formulations as it has received approval fromMedicines Control Agency (MCA) for many branded generics. Ranbaxy’s manufacturing strengthhas been established in the field of process development, scaling up and commercialization ofAPIs, world class generics, and branded generics. It set up world class manufacturing facilities inseven countries viz. India, China, Ireland , Malaysia, Nigeria, US and Vietnam. In Malaysia it setup Ranbaxy Malaysia Sdn Bhd (RMSB) as a joint venture between Ranbaxy and Malaysianshareholders in 1984. A manufacturing unit was set up in Sungai Petani, Kedah to cater theneed of Malaysia and Singapore market. Later it has increased its stake in RNSB to 55%. Page | 4
  5. 5. Journal of Case Research Volume II Issue 01Ranbaxy’s Manufacturing facilities were approved and audited by international regulatoryagencies like US FDA, UK MCA, South Africa MCC, and Australia TGA.Parvinder Singh made significant value addition to products efficacy or delivery in its NDDSprogram. For example, the company made a significant improvement to ciprofloxacin, a Bayerpatented drug which cut the required dosage to once a day against several times a day asneeded for Bayer’s drug. It later out-licensed the technology to Bayer for $ 65 million and alsoearned royalties on resulting sales. Ranbaxy has come up with three new chemical entities(NCEs) in the area of asthma, urology and malaria. These were at various stages of clinicaldevelopment. One entity for malaria has entered Phase II of clinical trials. The molecule wasaimed at mainly for the under developing countries. In 2002, it had out-licensed a NCE,codenamed RBx2258 (for treating the enlargement of the prostate gland in people above 50years), to Germany’s Schwarz Pharma for further development and clinical trials. But SchwarzPharma had to abandon trials in late phase II due to a lack of desired results, measured in termsof safety, efficacy, and superiority.Ranbaxy’s international operations were spread over four regions viz. India and Middle East;Europe, CSI, and Africa; Asia-Pacific and Latin America and North America. Parminder Singh setup manufacturing facilities in each region to manufacture drugs at low cost.The company has changed its financial year to January- December from April-March with effectfrom January 1999.The company dropped those products the sales of which yielded lowmargins. It rationalized the whole product portfolio in domestic and foreign market to achievethe target of US$ 1 billion by 2004.Devinder Singh Brar (1999-2004)Paravinder Singh died of cancer in July 1999. Before his death, he established a strong base forthe company. Devinder Singh Brar was appointed as CEO and Managing Director by Bhai MohanSingh, Parvinder Singh’s 80 year old father in 1999. Bhai Mohan Singh did not considerParavinder Singh’s son Malvinder Mohan Singh for CEO as Malvinder Singh was very young anddid not have maturity to become CEO of the company. Bhai Mohan Singh commented after the Page | 5
  6. 6. Journal of Case Research Volume II Issue 01appointment of D S Brar as CEO, “Brar will ensure the professionalism inculcated in thecompany by Parvinder Singh and take the company to new heights”.D S Brar has envisioned ‘Vision Garuda’ of achieving a target revenue of US $ 5 billion by 2012,70% of revenue should come from International business. He wanted to reiterate Ranbaxy “aresearch based international pharmaceutical company”. He continued to follow the globalstrategy of Parvinder Singh. His first acquisition was German generic business Bayer in 2000.D S Brar took a major decision to pull out of its Indian joint venture with Eli Lilly. He felt that EliLilly’s 50-50 partnership was no longer required for the production of the drugs in India. Heargued that Ranbaxy has come of age and could manufacture and market quality productindependently in Indian and overseas market. D S Brar found that there was a huge marketpotential for anti-AIDS drugs in India. There were 3.7 million HIV positive patients in India.Ranbaxy wanted to launch anti-AIDS drugs lamivudine, nevirapine, abacavir and indinavir in theIndian market. The market was dominated by Cipla and GlaxoSmithcline who did aggressivemarketing for the drug. He used low cost manufacturing facilities to manufacture the anti-AIDSdrugs and sold directly to consumers to capture the market. The company entered ConsumerHealthcare which was thriving business in India. The company launched four brands viz. Revital,Pepfiz, Garlic Pearl and Gesdyp. The business turnover of these products was Rs. 552 million in2003.D S Brar launched generic blockbuster antibiotic Augmentin in the U S Market in January 2002.It has garnered a market share of only 1% against a market share of 80 % enjoyed by GenevaPharmaceuticals of Switzerlands and Tava of Israel. Ranbaxy Branded Products Division, amarketing arm of Ranbaxy which marketed exclusive company owned branded products hadlaunched another branded generic product Sotret, the company’s brand for Isotretinoin capsulein the U S market which has market size of US $ 540 million. Ranbaxy gained a market share of8% for Sotret. It had also got approval from US FDA to make and sell a generic version ofPfizer’s antifungal drug Diflucan. Its another product Ceftin accounted one third of Ranbaxy’stotal sales in U S. Page | 6
  7. 7. Journal of Case Research Volume II Issue 01During 2003, Ranbaxy’s business operations in the US had widened with revenue of US $ 412million, representing 42% of the company’s global turnover. The company had obtained 24approvals from US FDA in 2003. The company received US FDA approval for manufacture andmaketing of Isotretinoin of 30 mg strength in June 2003. This was not available to genericplayers and even the originator itself. The US market for Isotretinoin was $ 6 million in 2003.The company acquired the generics business of RPG Aventis Life Sciences in France to increasethe market in Europe.D S Brar identified two focus areas viz. New Drug Discovery Research ( NDDR) and alliancemanagement as the key growth engines in R & D. He made an alignment with Geneva-basedMedicines for Malaria Venture (MMV) and developed synthetic peroxide anti-malarial drug RBx11160. Ranbaxy Laborataries and GlaxoSmithKline Plc (GSK) have entered into collaboration fordrug discovery and clinical development covering a wide range of therapeutic areas. Ranbaxywould be responsible for activities from optimization of lead components to generation of adevelopment candidate. Once a compound has been selected as development candidates, GSKwould complete the development. GSK has also got the responsibility of commercialization ofthe product. “The best companies are the best collaborators”3- Thomas & FriedmanBrian W Tempest (2004-2005)D S Brar exit in July 2004 after completing his five year tenure and Dr. Brian W Tempest (57years) was appointed as CEO and MD from July 05, 2004 to December 31, 2007. He was adoctorate in Chemistry from Lancaster University. Tempest has 32 years of experience with 4-5companies such as Glaxco Holidays, G D Searle, Becham and Fisons. He was more of aoperations person rather than a strategist and visionary. Tempest followed the path of D S Brar.After taking over as CEO, Tempest said, “I feel immense pride and honour to lead Ranbaxy,3 Ranbaxy World, December 2007 Page | 7
  8. 8. Journal of Case Research Volume II Issue 01India’s truly global organization. ……Ranbaxy would endeavor to be at the forefront in deliveringthe India centric advantages to the advanced and developing countries of the world”.4Ranbaxy had signed another collaborative Research agreement with Avestha GengraineTechnologies Pvt Ltd (Avesthagen) in the area of NDDR. Avesthagen was the first India’sdiscovery based bio-technology and bioinformatics company. Dr. Patell, Founder and CEO,Avesthagen commended on the collaboration, “Avesthagen’s vision has been to promote newdrug discovery and support and enable our Indian Pharma companies to reach and address theneeds of the people of the global markets. We are glad to partner with Ranbaxy in ths endeourand look forward to a very fruitful relationship”5. Dr. Kasim Mookhtiar, Vice President NDDR, R& D Ranbaxy said, “With the rapid growth of new drug discovery research at Ranbaxy,opportunities exist for collaborative work. We are glad to avail of Avesthagen’s quality R & Dservices in cutting edge technology to augment our capacity so that our current needs can bemet in a timely manner”6 The company wanted to climb up the value chain to increaserevenues from dosage forms sales. Dosage forms marketing operations are structured throughIndia; Europe, CIS, Africa; Asia Pacific, Latin America & Canada; North America, The Middle East.Dr. Rasmi Barbhaiya, R & D President said “This collaboration provides an avenue to Ranbaxy toleverage its discovery and early product development strengths and gain access to cutting edgetechnologies”7.Dr. Rashmi Barbhaiya, President, R & D who had held this position since April 15, 2002, left thecompany in 2003. Dr Tempest himself took charge of R & D with separate heads for NDDR andNDDS and generic Drugs Developments reporting to him directly. The company spent US $ 75million in R & D in 2004, showing an increase of 43%. The sales of company was the highest inUSA (US$ 426 million) followed by BRIC countries (US$ 305 million) and Europe (US$ 192million) in 2004 (Exhibit 1). The company invested in training and development needs of itsemployees through tailor made programmes and extensive workshops. There is a formalmechanism to reward employees for new ideas. It has launched a project called CRUSOE that4 Business source Premier5 Business source Premier 20046 Business source Premier 20047 ISI Emerging Market In India-Ranbaxy, 2003 Page | 8
  9. 9. Journal of Case Research Volume II Issue 01works on improving operational efficiencies. Under this project, employee’s suggestions are notonly captured, but encouraged via contests. Brian Tempest used to spend two-three days in aweek visiting labs and talking to scientists.By February 2004, Ranbaxy crossed US $ 1 billion in revenues. Ranbaxy was the third largestfiler of ANDAs (150) with US FDA in 2004. He focused four disease segments viz. Infection,Urology, Inflammation/ Respiratory and Metabolic disorders in his New Chemical Entities (NCE)pipeline. In Urology segment in India, Ranbaxy is leader and enjoyed a market share of 12.5% in2006. Commenting on the company’s performance in Urology segment, Sanjeev I Dani, SeniorVice President and Regional Director- Asia and CIS Ranbaxy said, “Ranbaxy has identifiedUrology as a focus area and as result launched superior therapeutic options for the specialists……. Our dedicated and well trained Urology team helps deliver prompt therapeutic solutions tothe Urologists and supporting specialists”8. During the first half of 2007, the company launchedthree NDDS based formulations viz. Niftran, Eligard and Roliflo9.With India becoming signatory to the WTO and introduction of the Patent Product regime, theIndian market will be an attractive option for introduction of research-based products. In thenew patent regime, only strong players in terms of research and technical capabilities cansurvive. Malvinder Singh, Regional Director -India Region of the company was appointed as anadditional Director of the company with effect from January 1, 2004 and number two in thecompany. Tempest had lent his support to Malvinder Singh in his India business. MalvinderSingh wanted to enhance the business in India. He has rationalized the product portfolio andfocused on speciality-oriented therapies. Expressing his delight at this development, SanjeevDani, Senior Vice President & Regional Director, Asia & CIS, Ranbaxy, said, “We haverestructured our domestic operations to focus on high growth segments. Due to our strongmarketing capabilities coupled with new product successes, our performance has been buoyantin recent years. It has culminated into rapid market share gains and now with the number oneposition in the domestic market, we intend to secure this leadership position in the comingmonths and years through attracting human resources & retaining talent. In-licensing and8 Ranbaxy World, December 20079 Ranbaxy World, December 2007 Page | 9
  10. 10. Journal of Case Research Volume II Issue 01launching innovative products remain our prime focus areas”10. He understood that in order tobe competitive, a company needs to be strong in the domestic market. He ensured rightdoctors to be covered by sales representatives. The coverage ratio has gone up from 30% to70%. He improved fiscal discipline in the company. Malavinder Singh who joined the companyin 1998 had worked in different projects such as Information Technology, generics, lifecyclebrands and global licensing.Malvinder Mohan Singh (2005-2008 )Tempest retired in June 2005 and Malvinder Mohan Singh became CEO and MD. Like his father,Malvinder Mohan Singh also wanted to take Ranbaxy to a new height. His strategy was to focuson US, Europe, and emerging markets. It has a market share of 42% in the developed countries(Figure 1). Its market was growing at the rate of 31% in USA in 2006 (Figure 2). He bought a USmidsized generic company Mutual Pharmaceuticals for US $ 300 million and five other globalcompanies. He had taken shareholder’s approval to raise US$ 1.5 billion in equity and US $ 1.2billion in debt. He raised another US $ 440 million through a Foreign Currency Convertible Bond(FCCB) offering.Malvinder Mohan Singh acquired Terapia S.A in Romania to serve the European marketefficiently and cost effectively in 2006. After the acquisition, it was renamed as Terapia-Ranbaxy and became the largest generic player in Romania. The combine sale was US $ 80million in 2006. On the completion of the transaction, Malvinder Singh said, “Romania nowbecomes the third largest market for us in terms of revenue. We are committed to developingour operation here as strategic hub for Europe and the CIS. We will continue to fortfy our globalpresence, particularly in our key geographies”11.Expressing his delight with progress of the company, Peter Burema, President, GlobalPharmaceutical Business, said, “Our combined market share, in terms of volume exceeds 10%.This means that one out of every ten medicine packs being sold in Romania is currently being10 Business source Premier11 Ranbaxy World, December 2007 Page | 10
  11. 11. Journal of Case Research Volume II Issue 01manufactured by Terapia Ranbaxy”12. Ranbaxy can take advantage of Terapia’s strong R&D andmanufacturing infrastructure as also their highly skilled senior management team. He acquiredanother Be-Tabs of South Africa for US $ 70 million in 2006. Malvinder Singh after theacquisition of Be-Tabs said, “The acquisition results in considerable synergies and furtherstrengthen Ranbaxy’s foothold in South Africa. It reinforces our position by expanding ourportfolio in a key market that is exhibiting strong growth potential. The move will help us toprovide effective disease management solutions in support of the government/s objective tomake health care affordable to a wider cross-section of the population”13. The company madenine mergers and acquisition amounting to a value of US 450 million to expand its presence inemerging and profitable markets such as Romania and South Africa in 2006. The company’sreturn of net worth was 13.2% in 2006 (Exhibit 2). The company made an impressiveperformance by increasing its sale to US $ 40.6 billion in 2006 (Exhibit 3). It made a net profit ofUS $ 3.8 billion in 2006 (Exhibit 3).Ranbaxy is vertically integrated in production and research. To strengthen the verticalintegration capabilities and fermentation capacities, it acquired Cardinal drugs, an APImanufacturer at Malanpur near Gwalior and a strategic stake of 15% in Kerbs Biotechnicals inIndia and Jupital Biosciences Ltd, a company specializing in the development and manufactureof peptitude products. Ranbaxy entered the fast growing Oncology therapeutic segment in theNDDR agenda. It had a partnership with Zenotech Laboratory Ltd in India to strengthenoncology therapy and bio-generics in 2007. It had marketed 11 oncology products as genericformulations in the US and Canada. “Having worked with Zenotech for almost two years, webelieve that this investment and partnership provides a strong platform for us to leverage theseopportunities”14 Malvinder Singh said.Malvinder Singh’s strategy was to focuss on out-licensing, in-licensing and NDDS. He out-licensed Ranbaxy’s Statin molecule to Pharmaceutical Product Development Inc (PPD), a leadingcontract research organization. PPD will have an exclusive worldwide licence to develop,12 Ranbaxy World, December 200713 Ranbaxy World, December 200714 Ranbaxy World, December 2007 Page | 11
  12. 12. Journal of Case Research Volume II Issue 01manufacture and market Ranbaxy’s Statin for the treatment of dyslipidemia, chlolestrollowering drugs account for $ 32.4 billion in sales for 200515. The company also received amilestone payment from PPD Inc for the completion of the Phase I clinical studies. Ranbaxylaunched blockbuster anti-cholesteremic Simvastalin 80 mg and Pravastatin 80 mg in the USmarket with a 180 days marketing exclusivity which has captured 56% market share during 180days exclusivity period in 2006. In the post exclusivity period, the company launched 5, 10, 20,40 mg strength of Simvastatin. The company also launched the first Atorvastatin under thebrand name Storvas in Malaysia. The success of Sotret 30 mg led to growth in the overallprescription market share for the product from 21% to 25.5 % in 2006.As of December 2006, Ranbaxy holds US FDA approvals for 121 ANDAs and 76 ANDAs arepending for approvals. During 2006, Ranbaxy received 10 approvals and filed 28 ANDAsincluding 1 PEPFAR (The US President’s Emergency Plan for AIDS Relief) ANDA for approval bythe US FDA. Malvinder Singh continued to focus on NDDS and in-licensing as strategic areas forfuture growth of the company. NDDS has developed proprietary “platform technologies” andcontributed 9% to the turnover of Indian business. The in-licensing products were Synasma(Doxophylline) and Trambax ( Tramadol Flash Tabs). In 2006, Ranbaxy entered into anagreement with Senetek PLC, to purchase patents, trademarks and automated manufacturingequipments for proprietary disposable auto-injector technology.Global Consumer Healthcare registered a sales of US $ 35 million globally and US $ 19 million inIndia. Revital is a powerful brand of Ranbaxy which has a market share of 72% in India.Ranbaxy had a strong Internal Audit function with accreditation of ISO 9001-2000 certificate.The Audit function is headed by Vice President who reports directly to the CEO and the AuditCommittee.Ranbaxy set up a Global Quality Assurance team which ensures quality manufacturing processacross all locations.15 Ranbaxy World, December 2007 Page | 12
  13. 13. Journal of Case Research Volume II Issue 01 “It is an encouraging sign that Indian companies today are more convinced about their global strength of world-class quality, cutting-edge technology, cost competitiveness and human capital”16- Malavinder singhMalvinder Singh gave the strategic direction for the company to move from the generics to NewDrug Delivery System (NDDS) to New Drug Discovery Research (NDDR). Under NDDR mission,he wanted to discover and develop novel therapies that meet large unmet medical needs andtransform Ranbaxy into a respected international research based pharmaceutical company.Ranbaxy has spent Rs. 428 crore on R&D in 2007 to move up to the value chain.Acquisition by DaiichiRanbaxy was facing many issues such as poor financial position, no major R&D breakthroughs,increasing price wars and stiff competition in the generics market. In order to maintain itsgrowth and market position, Ranbaxy needed an influx of fresh funds and Malvinder Singh waslooking for a partner to tide over the financial and other issues.Daiichi Sankyo, second largest and an innovator company in Japan wanted to manufacture low costgenerics because of Japan government’s new policy of helping the aging population by low costgeneric substitution for branded drugs. Daiichi lacked the low-cost expertise and looking for a lowcost generics company. They found an opportunity to buy Ranbaxy because of its low costproduction and research facilities to save on costs and drive growth (see Exhibit 4 for comparison).In June 2008, Daiichi Sankyo acquired over 51% stake in Ranbaxy Laboratories Ltd at Rs. 737 pershare. Malvinder Singh sold out his stake of 34.8% to Daiichi Sankyo. The new entity can createbetter market coverage by producing low cost manufacturing. With Ranbaxy’s pool of scientific,technical and managerial resources and talent the new entity can enter a new orbit to chart ahigher trajectory of sustainable growth in the medium and long term in the developed andemerging markets. The new entity is a significant milestone in the Ranbaxy’s mission ofbecoming a research-based international pharmaceutical company. As the company moves intoa next level of growth it would benefit the organization, its shareholders and the employees.The proposed transaction is also in line with Daiichi Sankyo’s goal of becoming an innovator16 Ranbaxy World, December 2007 Page | 13
  14. 14. Journal of Case Research Volume II Issue 01global company. Thus the creation of new entity would synergize to serve people globally interms of low cost drugs. Ranbaxy’s R&D capabilities of low cost manufacturing and DaiichiSankyo’s competency of innovation will provide the new entity with a sustainable, long-termcompetitive advantage. Page | 14
  15. 15. Journal of Case Research Volume II Issue 01 Exhibit 1: Sales of Ranbaxy Laboratories by Key Market-2004 Sales in US$ in Million USA 426 Europe 192 UK 50 Germany 26 France 73 BRIC Countries 305 Brazil 31 Russia(Including Ukraine) 45 India 217 China 12 Source: Annual Report 2004 Exhibit 2: Key Parameters of Ranbaxy Particulars 2006 2005 2004 EBIDTA to Sales % 15.5 7.2 20.4 PAT to Sales % 08.5 5.0 13.1 ROCE % 13.2 5.3 29.6 RONW % 20.3 10.6 30.0 Earnings Per Share(Fully diluted) Rs. 13.2 06.9 18.7 EBIDTA Earnings before Interest, depreciation, Tax and Amortization PAT Profit after Tax ROCE Return on Capital Employed RONW Return on Net Worth Source: Annual Report 2006 Page | 15
  16. 16. Journal of Case Research Volume II Issue 01 Exhibit 3: Ranbaxy at a Glance Rs. billions 1999 2000 2001 2002 2003 2004 2005 2006Results for the yearSales 15.6 17.4 20.5 28.2 35.3 36.1 35.4 40.6Index 1.8 2.0 2.4 3.2 4.1 4.1 2.7 3.0Exports 7.3 8.1 10.3 18.5 24.7 24.6 23.2 27.2Index 1.8 2.0 2.5 4.5 6.1 6.0 3.9 4.6Gross Profit 2.6 3.2 3.9 7.3 10.1 7.2 3.2 6.1Index 1.4 1.7 2.1 4.0 5.5 3.9 1.3 2.5Profit before Tax 2.1 1.9 2.8 7.1 9.6 6.3 2.0 4.4Index 1.3 1.2 1.8 4.5 6.0 4.0 1.0 2.2Profit after tax 2.0 1.8 2.5 6.2 7.9 5.3 2.2 3.8Index 1.5 1.4 1.9 4.6 5.9 3.9 1.2 2.0Equity Dividend( inRupees) 869.2 869.2 1158.9 2434.0 3156.3 3162.6 3,166.70 3,168.90Index 3.7 3.7 4.9 10.3 13.3 13.3 6.0 6.0Equity Dividend (%) 75 75 100 150 170 170 170.00 170.00Earnings per share(Rs.) 17.0 15.7 21.9 28.9 42.6 28.3 5.68 9.87Year-end PositionGross Block+ 8.7 9.2 9.3 10.4 12.5 16.7 22.3 24.4Index 1.9 2.0 2.0 2.3 2.7 3.6 3.0 3.30Net Block 6.3 6.4 6.1 6.8 8.0 11.4 16.3 17.4Index 1.7 1.8 1.7 1.8 2.2 3.1 2.8 3.00Net Current Assets 8.2 8.3 7.5 9.6 13.3 9.5 11.3 12.6Index 1.1 1.1 1.0 1.3 1.8 1.3 1.2 1.40Net Worth 15.0 15.8 17.4 19.6 24.3 26.3 23.8 23.5Index 1.8 1.9 2.1 2.4 3.0 3.2 1.8 1.80Share Capital 1.2 1.2 1.2 1.9 1.9 1.9 1.9 1.9Reserve & Surplus 13.8 14.7 16.2 17.7 22.5 24.4 21.9 21.6Book value pershare(Rs.) 129.3 136.6 149.8 105.71 131.1 141.4 63.84 63.05No. of Employees 5347 5784 6424 6297 6797 7195 7,174.00 8,020.00 Source: Annual Report 2005 Page | 16
  17. 17. Journal of Case Research Volume II Issue 01 Figure 01: Global Market Mix 2006 others 9% Emerging 49% Developed 42% Source: Annual Report 2005 Figure 02: Growth Contribution 2006 ROW Europe 15% 33% India 21% N.America 31% Source: Annual Report 2006 Page | 17
  18. 18. Journal of Case Research Volume II Issue 01 Exhibit 4: A comparison between Ranbaxy and Daiichi Sankyo (US$ in billions) Daiichi Ranbaxy Sankyo Laboratories Net Sales 8.2 1.0 Overseas sales 3.3 0.6 Research and Development 1.5 0.1 Operating Income 1.4 0.2 Net income 0.9 0.1 Assets 13.9 0.5 Return on Equity 7.8% 28.8% Earnings per share $ 1.26 $ 0.35 Number of consolidated subsidiaries 43 18 Number of employees 15,349 8,141 Source: Business World, June 13, 2008 Page | 18
  19. 19. Journal of Case Research Volume II Issue 01 Exhibit 5: Discovery Process and Stages of Drug DevelopmentDISCOVERY PROCESSPeriod: upto 6 yrsCost: Roughly $ 60 millionOdds of drug reaching market: 1: 10,000Identifying & validating targets: this involves developing the concept of how a new drug can treat adisease. Compound that should be pursued further are short listed.Screening: compound that have desirable potencies and that react encouragingly are pulled out. Theseare the ‘Hits’, converting Hits into ‘Leads’ calls for further refinement in the compound, during whichsolubility, toxicity (quality of safe doses), absorbtion, metabolism etc, are tested even as the potency andactivity are maintained.STAGES OF DRUG DEVELOPMENTPeriod: upto 12 yearsCost: upto $200-250 millionOdds of drug reaching market: 1:200Pre-clinical trials: toxicity and pharmacokinetics (absorption, distribution, metabolism, elimination) areobserved via tests in labs and in animals.IND FILING: Company files an application for an investigational new drug (IND) with the FDA. This filingincludes results of pre-clinical trials and the plan for human clinical trials.PHASE 1 TRIALS: Conducted on 20-100 healthy volunteers to prove safety. Once molecules enters clinicaltrials, odds of success drop to 1:5PHASE 2 TRIALS: 100-300 persons suffering from the disease are treated. Considered by many companiesas the stage to opt for licensing agreement.PHASE 3 TRIALS: involves between 1,000 to 5,000 patients in a bid to verify previous trials.NEW DRUG APPROVAL FILING: FDA reviews information, and if satisfied gives its approval. If it feelsmolecules isn’t yet ready for market, may call for phase 4 trails.POST-MARKETING SURVEYS: Companies have to conduct continuous surveillance once drug hits market,all through the life of the drug. Serious reactions can result in drug withdrawal. Sales and marketing costcan take the entire cost of exercise right from drug discovery to development to as much as $450 million. Page | 19
  20. 20. Journal of Case Research Volume II Issue 01 Source: BUSINESS TODAY Ocotber 13 2002. Exhibit 6: Ranbaxy Laboratories in Historical Perspectives YEAR DESCRIPTION 1961  Company Incorporated 1973  Ranbaxy goes public  A multipurpose chemical plant is setup for the manufacture of APIs at Mohali in India 1977  Ranbaxy’s first joint venture in Lagos (Nigeria) is setup 1983  A modern dosage forms facility at Dewas (MP) in India goes on stream 1985  Ranbaxy Research Foundation is established  Stancare, Ranbaxy’s second pharmaceutical marketing division, starts functioning 1987  Production start-up at the modern APIs plant at Toansa (Punjab), makes Ranbaxy the country’s largest manufacturer of antibiotics/antibacterials 1988  Ranbaxy’s Toansa plant gets US FDA approval 1990  Ranbaxy is granted US patent for Doxycyline 1991  New state-of-the-art facility for Cephalosporins set up at Mohali  US patent granted for Cephalosporins 1992  Company enters into an agreement with Eli Lilly & Co of USA for setting up a joint venture in India to market select Lilly products 1993  Company enters into an agreement to setup a joint venture in China Ranbaxy (Guangzhou China) Limited  Ranbaxy enunciates its corporate mission ‘to become a Research based International Pharmaceutical Company 1994  The new Research Centre at Gurgaon,(near Delhi), becomes fully operational  Established Regional Headquarters in London (UK) and Raleigh (USA)  The Fermentation pilot plant at Paonte Sahib is commissioned  Ranbaxy’s GDR listed in Luxembourgh Stock Exchange 1995  Acquisition of Ohm Laboratories, a manufacturing facility in the US. Inauguration of FDA approved, state-of-the-art new manufacturing wing, at Ranbaxy’s US subsidiary Ohm Laboratories Inc. 1997  Ranbaxy Laboratories Limited crosses a sales turnover of Rs. 10,000 million, with its exports reaching an all time high of Rs. 5,000 million Page | 20
  21. 21. Journal of Case Research Volume II Issue 01 1998  Ranbaxy enters USA, world’s largest pharmaceutical market, with products under its own name.  Ranbaxy filed its first Investigational New Drug (IND) application with the Drugs Controller General of India (DCGI) for approval to conduct Phase I clinical trials 1999  DCGI grants approval to conduct phase I clinical trials for RBx-2258, and the trials commence from June 10, 1999  Bayer AG, Germany and Ranbaxy sign an agreement where Bayer obtains exclusive development and worldwide marketing rights to an oral once daily formulation of Ciprofloxacin, originally developed by Ranbaxy. 2000  Ranbaxy files IND application for Asthma Molecule RBx-7796 after successful completion of preclinical studies.  Ranbaxy acquires Bayer’s Generics business (trading under the name of Basics) in Germany  Ranbaxy forays into Brazil, the largest pharmaceutical market in South America and achieves global sales of US $ 2.5 million in this market 2001  Ranbaxy took a significant step forward in Vietnam by initiating the setting up of a new manufacturing facility with an investment of US $ 10 million  Ranbaxy achieved a turnover of US $ 600 million for the year 2001 and moved closer to achieving the target of 1 billion dollar by 2004.  Ranbaxy USA crosses sales of US $ 100 million, fastest growing company in the US 2002  Ranbaxy files IND for an Anti-bacterial Oxazolidine-RBx-7644  Ranbaxy launched Cefuroxime Axetil post approval from USFDA for 125mg, 250mg, 500mg Tablet, first approval granted to any generic company for this product  Ranbaxy receives permission from DCGI to conduct Phase-I clinical trials for RBx 7796 (Anti-Asthma) Page | 21
  22. 22. Journal of Case Research Volume II Issue 01 2003  Ranbaxy receives The Economic Times Award for Corporate Excellence for ‘The company of the year 2002-03’  Ranbaxy and Glaxo SmithKline Plc (GSK) accelerate their discovery programmes through a global alliance for drug discovery and development. While Ranbaxy will leverage its early product development strengths, Glaxo would use its expertise at late development stage to complete the development process  RBx 7796, Ranbaxy’s first NCE in the respiratory segment successfully completes Phase I clinical trials and steps into Phase II.  Ranbaxy files an IND application for RBx 9001, its second NCE for the treatment of Benign Prostatic Hyperplasia (BPH)  Cipro XR 500mg and 1g, based on the techonogy developed by Ranbaxy, were launched in USA by Bayer AG  Ranbaxy launched the first branded product Sotret (isotretinoin) for 10mg, 20mg and 40mg capsules in USA 2004  Ranbaxy acquired the generics business of RPG Aventies Life Sciences in France to enter European Market 2005  Ranbaxy acquired 18 generic drugs from Spain’s Eframes for sale the local market 2006  Ranbaxy’s US arm buys patents, trademarks, and automated manufacturing equipment from Senetek for its disposable autoinjector for self- administration of parental drugs for anaphylactic shock  Ranbaxy’s Italian subsidiary acquires the unbranded generic business of Allen, a division of GlaxoSmithKline, to complement its own pipeline for the Italian Market.  Buys 96.7% of Romanian drug maker Terapia from Advent International for $324 million. Combined with Ranbaxy’s own operation in Romania, the Terapia acquisition creates Romania’s largest generic firm  Aquires genrics company, Ethimed, atop 10 player in Belgium. Provide Ranbaxy a base from where to manage and expand its operations in the Benelux countries  Ranbaxy’s Spanish subsidiary purchases the Mundogen generics business of GlaxoSmithKiline in Spain. The acquisition beefs up Ranbaxy’s product portfolio in the country. 2008  Daiichi Sankyo acquired over 51% stake in Ranbaxy Laboratories Ltd at Rs. 737 per share. Malvinder Singh sold out his stake of 34.8% to Daiichi Sankyo. Source: www.ranbaxy.com/history_ranbaxy.htm Business Today, September 10, 2006 Page | 22
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