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Daiichi Sankyo, the Japanese parent of Ranbaxy Laboratories, which had bought over the stake of Indian promoters Malvinder and Shivinder Singh, has every right to be irked by the company’s erstwhile promoters and major shareholders of the company for concealing and misrepresenting the facts. But like every buyer, Daiichi should also take some blame of not doing their homework thoroughly before lapping up the company.
Every deal is concluded only after a detailed legal and financial due diligence is carried out. In case of pharmaceutical companies, especially the generic ones, which are in continuous legal battle with US companies it is even more necessary to carry out due diligence with a magnifying glass.
Details appearing in various media and from the testimony of Dinesh Thakur, a former Ranbaxy executive and whistleblower, it is clear that the management and owners were in the know of the wrongdoings. Interestingly, looking at the timing of the deal and how the events unfolded, it is likely that Daiichi would also have an inkling of the mess it is getting into.
Daiichi bought Ranbaxy from its promoters for $4.6 billion in June 2008. The US FDA imposed an import alert on Ranbaxy’s three key facilities in September 2008. Despite this Daiichi went ahead and concluded the deal, by making payment of its second tranche in November 2008. Even as the case was getting murkier, Daiichi allowed Malvinder Singh, who continued to be the managing director of the company to quit and relinquish his responsibilities. This oversight might make Daiichi’s case a little weak.Now, the Indian authorities too will be investigating Ranbaxy.
But there is no denying the fact that the damage to Ranbaxy’s brand is huge and may take a long time, if at all, to be repaired. If I were an American citizen and knew that a company had fabricated its test data and still sold medicines by paying its regulator some money as fine, I would not buy drugs from that company. Am I likely to buy its shares then? And, the answer is obviously negative.
It’s not much of a surprise to see Ranbaxy closing the day 8.8% lower on Thursday, though analysts remain bullish on the stock.
Realising how difficult it will be to do business in the US, Ranbaxy is cutting down it sales staff in the US. Daiichi would have a challenge to retain talent at Ranbaxy, especially after the wrongdoings that have been brought to light and people have quit answering their conscience.
While analysts have been looking the other way when it comes to punishing promoters using questionable business practices, the markets have not. Though it will be sometime before the erstwhile promoters of Ranbaxy are brought to books, if at all, the question remains that should such promoters be allowed to play with human lives and allowed to operate in the health care business?
