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What does the buyout mean for the industry?

business Updated: Jun 11, 2008 22:35 IST
Suprotip Ghosh
Suprotip Ghosh
Hindustan Times
Highlight Story

Daiichi Sankyo’s buyout of Ranbaxy Laboratories could be a sign of things to come. Other Indian pharmaceutical companies may also go the same way, since the need for expansion and the pressure on profits are increasingly proving to be difficult to handle.

“I feel there could be more such deals on the way, as drug policy in India is putting pressure on margins,” said Ajay Piramal, chairman, Piramal Enterprises, one of India’s oldest family-owned pharmaceuticals company.

Seventeen out of the 25 stocks on the BSE Healthcare Index were up today, with Fortis Healthcare and Orchid Chemicals and Pharamceuticals, leading the rally. Fortis was up 18.7 per cent to close at Rs 81, while Orchid spiked 13.5 per cent to close at Rs 261. Fortis Healthcare is a Ranbaxy group company.

Industry watchers feel the deal could be the result of a dramatic change in landscape in India’s pharmaceutical business. “In this case, the landscape has changed so dramatically that you need to grow, but you have limitations of being an Indian company, which does not allow you to expand so much so rapidly,” said Sudhir Kapadia, head, tax and regulatory services at KPMG.

GV Prasad, vice-chairman and CEO, Dr. Reddy’s Laboratories, welcomed the deal, saying that it is a sure stamp on India’s capabilities in the form of talent, infrastructure and competitive cost.

“Daiichi’s move into India not only gives them access to one of the fastest growing markets but also a phenomenal advantage in terms of talent, infrastructure and low cost structure from a global perspective,” Prasad said in an e-mailed statement.

“Indian drug policy has to be more conducive for pharmaceutical companies and their shareholders,” said Piramal.

“Ranbaxy was doing some good work in research. Still, promoters saw a better opportunity in the price they were getting, so they sold out.”

Piramal however, feels that India’s pharmaceutical companies should work for India. “Indian research will suffer. Indian companies need to solve their problems themselves,” he added.

Ranbaxy can now focus more on its research and development activities. “The deal would enable Ranbaxy to be a truly research based pharmaceutical company,” said Shivani Shukla Raval, industry manager, Frost & Sullivan.