The takeover of Ranbaxy Laboratories (Ranbaxy) by Sun Pharmaceutical and Industries (Sun) for a consideration of $4 billion will create a new leading Indian pharma company with consolidated net sales above Rs. 26,000 crore in the current year and at the same time it will reduce burden of Daiichi Sankyo Co of Japan in respect of quality woes with US FDA. Daiichi Sankyo, with holding of over 63 per cent in Ranabxy, will be the second largest shareholder in Sun Pharma and will continue its strategic business relationship.
Daiichi has also agreed to indemnify Sun and Ranbaxy for certain costs and expenses that may arise from the recent subpoena which Ranabxy has received from the US Attorney for the Toansa facility.
Ranbaxy, a leading Indian pharmaceutical company with net sales of Rs. 10,604 in 2013 and subsidiary of Daiichi Sankyo Co of Japan, was in focus during last couple of years on account of quality problems with US FDA. The company's working was under tremendous pressure due to warning letters, reduction in exports to US and forex losses. The pharma analyst said “The success of merger will be depend only on how Sun is resolving the quality problem with US FDA. If Sun succeed, the new Indian entity will spread its wings in global market.”
The share price of Ranabxy was moving upward direction during last week and touched to Rs. 459.50 on April 4, 2013 as against Rs. 352.65 on March 24, 2013. This indicate that the news of merger/takeover of stake was in air with financial institutions and other investors. However, the Sun scrip was moving in the range of Rs. 570-580 on BSE during this period.
The merger of Ranbaxy with Sun will create fifth largest global specialty generic pharma company from India in the world after Teva Pharma, Sandoz, Actavis and Mylan. Its sales will cross US$ 4 billion with product pipeline of 184 ANDAs including high-value FTFs. The merged entity will strengthen its global footprint and its US sales will cross 47 per cent of its total sales with extensive product basket.
Ranbaxy's consolidated net sales for the year ended December 2013 declined to Rs. 10,604 crore from Rs. 12,253 crore in the previous year and its EBDITA to Rs. 1,066 crore from Rs. 2,211 crore. Its net loss amounted to Rs. 1,012 crore as against a net profit of Rs. 923 crore in the 2012. The company skipped dividend and its share price dwindled continuously.
For the nine months ended December 2013, Sun's consolidated net sales increased by 46.5 per cent to Rs. 11,961 crore from Rs. 8,167 crore. However, its net profit declined to Rs. 1,617 crore from Rs. 1,997 crore in the corresponding period of last year due to higher exceptional items.
Recently Sun Pharma also received an import alert from the US FDA for its cephalosporin facility located at Karkhadi, Gujarat in India. This import alert was issued by the US FDA as a follow up to the last inspection of the facility, during which some non-compliance of current Good Manufacturing Practice (cGMP) regulations were identified. However, the contribution of this facility to Sun Pharma’s consolidated revenues is negligible and not likely to impact its growth guidance.