Ranbaxy Laboratories, a unit of Japan's Daiichi-Sankyo, rose by over 20 per cent the day after its former Indian owner, Malvinder Mohan Singh, exited the company.
Ranbaxy’s share prices surged today on the Bombay Stock Exchange to close at Rs 266.70, or 20.73 per cent higher, from Rs 220.90 at close of trading on Friday.
Analysts said a combination of factors, such as a possible open-offer in future, commitment by Daiichi-Sankyo to speedily resolve issues with the US Food and Drug Administration (FDA), possible reversal of losses in coming quarters and chances of a Ranbaxy-Daiichi combine emerging as a company on the lines of the Sandoz-Novartis combine, could have caused the scrip’s price to rise.
They also pointed out that, another reason for the increase in Ranbaxy shares, could be the buzz in the market for a possible de-listing plan by Daiichi-Sankyo in future.
“This (the price surge) need not be linked to Malvinder’s exit, but can be attributed to the strong commitment given by Daiichi-Sankyo for taking Ranbaxy to greater heights in future and the long-term goal of developing a successful hybrid business model of a large patent-generic combined drug entity, on the lines of Novartis-Sandoz ,” said Hitesh Gajaria, executive director, KPMG India.
There is great scope for synergy between the two companies, he added.
Daiichi-Sankyo had said earlier that the entry of Ranbaxy into the group represents the hybrid business model as part of ongoing efforts to become a global pharma innovator. The Japanese firm also said Ranbaxy will play an important role in the group’s future business strategy.
The Rs 7,250-crore Ranbaxy, a generic or reverse-engineered drug making firm, is currently among the top 10 generic companies in the world, while Daiichi-Sankyo ranks among the top 20 patented drug makers in the world.
Daiichi-Sankyo’s plans are to leverage the global network of Ranbaxy and its marketing capabilities in 125 countries across various geographies, especially the US and Europe. Daiichi-Sankyo has strength in developing patented products for lifestyle diseases, such as hypertension, diabetes mellitus, autoimmune disorders, hyperlipidemia or atherosclerosis and bacterial infections. These drugs have a huge market in India, which is expected to become one of the top drug markets in the world within a few decades, they noted.
Daiichi-Sankyo will also be hoping to tap a major share of the generic market in Japan. The Japanese drug market, second after the US with a size of $74 billion, has a small generics market worth 5 per cent in value base, and 17 per cent in volume base. The Japanese government is trying to increase the sales of generics in Japan to cut healthcare costs.
“It is important for Daiichi-Sankyo to ensure the integration happens at the earliest to leverage and monetise the investment they have made in Ranbaxy. Whether Malvinder is there or not may not be an issue for professionally-run larger companies, such as Ranbaxy and Daiichi Sankyo,” said Dr RB Smarta, managing director of pharmaceutical marketing consultancy firm Interlink.
“Daiichii-Sankyo officials have assured to resolve the issues with the US FDA speedily and investors may feel that the cloud over Ranbaxy’s exports to the US will be resolved sooner or later,” said Sarabjit Kaur Nagra, vice-president of research, Angel Broking.
Dr Tsutomu Une, new chairman and Atul Sobti, incoming managing director and chief executive, had told reporters yesterday in New Delhi that Ranbaxy was co-operating with the FDA officials in their investigations to revoke the ban on Ranbaxy.
The FDA had banned Ranbaxy from exporting 29 drugs from its two manufacturing facilities in India, for alleged manipulation of data and discrepancies in manufacturing practices. This impacted the US performance of the company, which recorded a net loss of Rs 761 crore during the quarter ended March 31, 2009. Ranbaxy had posted losses for three consecutive quarters, mainly due to forex and derivative losses and declining revenues from the US.
“The rupee is appreciating and company officials had indicated the trend of mark-to-market losses could be reversed in the coming quarters. This is also a positive signal for investors,” said Gajaria.
Analysts noted that multi-national drug companies operating in India are in a de-listing mood and an increase in share prices of Ranbaxy may be also in anticipation of an open offer announcement from Daiichi-Sankyo.
Pfizer and Novartis had recently announced plans of a share buy-back to increase stake in their Indian subsidiaries to close to 90 per cent, by which they can trigger de-listing. Mylan’s subsidiary Matrix Laboratories is also in a de-listing mode.
