The Merger of Ranbaxy and Daiichi

A REPORT ON Ranbaxy-Daiichi Deal 1/26/2012 Ranbaxy-Daiichi Deal Introduction Daiichi Sankyo bought Ranbaxy for $4. 6 one million million in June 2008. This report studies the implications of the merger between Ranbaxy and Daiichi Sankyo, from an intellect property as well as a trade point of view. There are many critical events happening in international pharma market including the growing preference for generics, increasing dominance of emerging markets such as India, fast approaching patent expiry etc. Also, this accord involves 2 major players who are the largest among their respective markets.Background Daiichi Sankyo Co. Ltd. askd 34. 8% of Ranbaxy Laboratories Ltd. from its promoters and increased its interest group through preferential allotment, public offer and preferential issue of warrants to acquire a majority in Ranbaxy, i. e. at least 50. 1%. aft(prenominal) the acquisition, Ranbaxy operates as Daiichi Sankyos subsidiary but supposed to manage separately under the tether of its current CEO & Managing Director Malvinder Singh. Mr. Singh left the association in 2009 with a 4. 5 billion rupees severance package. WhyDaiichi Sankyo precious to acquire a drug maker that specialized in generics afterward Japan eased its laws allowing sales of these cheaper versions of expensive drugs. The deal was a trendsetter in Indian market for future M&A deals. Indias family-owned companies realized that it was not shameful to sell and profit from their businesses. Benefits Expected Operational The main wellbeing for Daiichi Sankyo from the merger was Ranbaxys low-cost manufacturing infrastructure and run chain strengths. Ranbaxy gained entry to Daiichi Sankyos research and development expertise to advance its mark drugs business. working out Daiichi Sankyos strength in proprietary medicine complements Ranbaxys leadership in the generics segment and both companies acquire a broader product base, remedy focus areas and well distributed risks. Ranbax y gains smoother access to and a strong ground in the Japanese drug market. Financial The immediate benefit for Ranbaxy was that the deal freed up its debt. Also, Ranbaxys addition elevated Daiichi Sankyos position from 22 to 15 by market capitalization in the global pharmaceutic market. Synergies . A complementary business combination that provides sustainable growth by diversification that spans the full spectrum of the pharmaceutica l business. 2. An expanded global reach that enables leading market positions in both mature and emerging markets with proprietary and non-proprietary products. 3. gruelling growth potential by effectively managing opportunities across the full pharmaceutical life-cycle. 4. Cost competitiveness by optimizing usage of R and manufacturing facilities of both companies, in particular in India. 5.Respective presence of Daiichi Sankyo and Ranbaxy in the developed and emerging markets 6. Ranbaxys strengths in the 21 emerging generic drug markets allow D aiichi Sankyo to court the potential of the generics business. 7. Ranbaxys branded drug development initiatives for the developed markets importantly boosted through this relationship. 8. Daiichi Sankyo able to invalidate its reliance on only branded drugs and margin risks in mature markets and benefit from Ranbaxys strengths in generics to wrap generic versions of patent expired drugs, particularly in the Japanese market. Post-acquisition objectives Daiichi Sankyos focus was to develop new drugs to fill the gaps and take advantage of Ranbaxys strong areas ? To overcome its current challenges in cost structure and supply chain ? To establish a management framework that would expedite synergies ? To reduce its exposure to branded drugs in a way that it can overlay the impact of margin pressures on the business, especially in Japan ? In a global pharmaceutical industry making a slant towards generics and emerging market opportunities, Daiichi Sankyos acquisition of Ranbaxy signal led a move on the lines of its global counterparts Novartis and local competitors Astellas Pharma.Post acquisition challenges Post acquisition challenges include managing the different working and business cultures of the two organizations, undertaking minimal and infixed integration and retaining the management independence of Ranbaxy without hampering synergies. Ranbaxy and Daiichi Sankyo in any case needed to consolidate their intellectual capital and acquire an edge over their foreign counterparts. What went wrong? A lack of proper due diligence In its eagerness to implore the expertise of a generic drug maker, Daiichi took the risk of buying Ranbaxy for cabbage dollar.Three weeks later, the US Food and Drug Administration banned imports of 30 of Ranbaxys generic drugs, and later determined that the company was selling adulterated or misbranded medicine. It blacklisted two of the companys manufacturing units, limiting the companys ability to sell drugs do in those facilitie s. Ranbaxy then reported currency-exchange losses of nine billion rupees in 2008. This made Ranbaxy post losses in the same year. Ranbaxy Laboratories property Flow - in Rs. Cr. Dec 10 Dec 09 Dec 08 Dec 07 Dec 06 12 mths 12 mths 12 mths 12 mths 12 mths exculpate Profit Before measure Net Cash From Operating Activities Net Cash (used in)/from Investing Activities Net Cash (used in)/from Financing Activities Net (decrease)/increase In Cash and Cash Equivalents Opening Cash & Cash Equivalents Closing Cash & Cash Equivalents 1565. 25 1168. 89 -2067. 8 991. 48 92. 57 69. 26 161. 83 1061. 92 -1619. 08 -665. 43 -599. 22 86. 12 -462. 91 -214. 14 2817. 2 -793. 46 1755. 07 862. 39 172. 14 68. 93 1927. 21 774. 41 442. 98 685. 77 315. 49 -708. 18 -2103. 74 132. 19 1739. 65 109. 78 -48. 6 62. 36 110. 96 172. 14 62. 36What worked? Mr. Singh timed the sale of his family argent perfectly he got a huge premium for the stake out front U. S. regulatory concerns came to light. Daiichi, after the i nitial stumbles, seems to now be heading in the right direction and in the past year has integrated Ranbaxys R&D unit in an effort to gain synergies. Daiichi also launched a generic version of Pfizer Inc. s cholesterol drug, Lipitor in US recently. The verdict Fail This is a classic example of an acquirer pay top price without looking too closely at the prize of the goods.Daiichi continues to pay for the huge risk it took in the deal. U. S. regulatory problems have slowed buck the integration of Daiichi and Ranbaxy a lot more than expected. We can see that Daiichi is having alike level of operating expenses and just to achieve anything special from Ranbaxy. US FDA utter that, Ranbaxy had numerous problems at its facilities in US and India. The US DOJ has also filed the consent decree against Ranbaxy in the US district court of atomic number 101 on 26th January 2012, which would further put pressure on the margins. Daiichi is yet to realize anything concrete from this deal.