The global acquisition and merger trend evolving in the Japanese pharma industry can only be viewed with interest. As a pharma industry, which largely focused on new chemical entities (NCE) and new molecular entity (NME) for its survival, it was sure that poor drug pipelines and patent expiries would force the Japanese pharma firms to look for alternatives to sustain in the market and retain its status as the second largest pharmaceutical industry in the world after US. Interestingly, the Daiichi Sankyo's acquisition of Indian pharma major Ranbaxy, a leading generics player, shows the way for other Japanese pharma firms, whose research and development activities eat away a large chunk of their profit and time and effort.

This acquisition is expected to act as an eye-opener for Japanese companies, who concentrate on research and development of NCEs and NMEs with a focus on specific therapeutic areas. Individually, this acquisition would give Daiichi Sankyo an opportunity to enter into the generics business through its subsidiary Ranbaxy and take initiatives from generics perspective. The generics perspective includes speed to market, response to pricing, flexibility in product portfolio, cost effective, focus on logistics, supply chain and competitiveness. As a result, Daiichi Sankyo can become more friendly with both segments of markets.

It is axiomatic that co-operative and collaborative arrangements between traditional big pharma players with a focus on R&D and generics companies would create a vibrant business model for future. The entry of innovators like Daiichi Sankyo into India is expected to create a research atmosphere, which may transform the nature of pharma industry from generics to a discovery led industry. Simultaneously, synergy will allow the Japanese players to foray into generic market and service the domestic market, besides getting access to readymade discovery centers.

In the case of Novartis, it has been established that Novartis navigates its strategic intension of generating bigger market share in generics through Sandoz. Perhaps considering this model, Daiichi Sankyo also would like to continue with Ranbaxy, which can be a win-win situation and combination for both the companies. Ranbaxy can get greater market share in combination with Daiichi Sankyo in regulated markets and also in those markets, which are dominated by Daiichi Sankyo. Similarly, wherever Ranbaxy has a dominant market share, Daiichi Sankyo can take advantage of existing infrastructure, manufacturing facilities and other field force and facilities to deploy their business cost effectively.

This sort of business model could create a perfect synergy between Daiichi Sankyo and Ranbaxy, provided both companies retain their identity in their respective markets such as generics and patented.

Implications
From the point of view of Indian generics players, Daiichi Sankyo's acquisition of Ranbaxy is a revelation to witness. Both Daiichi Sankyo and Ranbaxy had created value for themselves over a period of years. Although India had no patents till 2005, most of the Indian companies have made their presence felt in many countries, including regulated markets, and developed capabilities in sales and marketing and manufacturing, which are unmatchable in the world. As the total pharma market is now seen as summation of two different distinct segments like branded and generics, all players have equal opportunities.

Implications of this deal would provide opportunities for a few as well as create threats for others to really look at themselves more seriously.

There is beautiful segregation of 'sweat equity' and 'blood equity' in this deal. There are risks as a promoter of any business. Situation demanded to segregate promoter's risk from management risks (blood equity from sweat equity). Both risks are different. However, if the promoter feels being a promoter and by managing the enterprise, value of enterprise may come under risk, promoter may de-risk it by only managing it and adding value by combination of extra capabilities. As a strategy, it is de-risking strategy for promoter and adding value through synergy to enterprise.

Indian pharma industry as a total entity has been always in a defending posture. It has been managing itself by interacting with government and other stakeholders. Now, it's time for all stakeholders to consider implications of this deal. It should generate greater enthusiasm in national small scale enterprises and Big Pharma players to come together and create a platform, which would not defend but respond, pro-act and work to lift the industry.

If a platform such as this gets created, it will be more beneficial for Indian pharma industry. Individual players still need to respond to opportunities and threats that may come their way.

Generics space
The bifurcation of global pharma market into branded and generics segments have automatically created a space for generics. Even if you look at the product pipeline of all innovators, you will find that they are catering to disease burden of regulated markets relatively more in comparison to unregulated markets. It will by itself mean that for growth of innovators, they would need a firmer grip on generics. And with the acquisition of Ranbaxy, Daiichi Sankyo is well on the right path.

(The author is the managing director of Interlink, a business and management consulting firm).