Posted by: Mehul Srivastava on May 27, 2009
Over the weekend, Malvinder Singh, the chairman of India’s Ranbaxy Laboratories, which is a major generics supplier to the US and Europe, resigned, taking two friendly members of the board with him.
Why should we care? Well, there’s always the back-story, which in this case, involves tainted drugs, a failing takeover by an ambitious drug giant, and yes, billions of dollars.
The Duke graduate Singh, who is young, ambitious and exceedingly polished in his interactions with the media, leaves in the midst of a broadening FDA probe, a tanking share price and a projected full year of losses.
And, he leaves very very rich. Last year, Daiichi Sankyo, the Japanese drug maker, paid $4.6 billion – a 31% premium – to buy a controlling interest in Ranbaxy. Singh’s family and associates, referred to as “promoters” in stock market jargon, were most of the controlling interest (about 35%), and the all-cash deal catapulted them into the ranks of India’s richest. Daiichi then bought more shares from the open market – shares that had already leaped as investors piled on when news of the purchase started to leak out. Total bill? Just over $5 billion.
It was a great time for Singh’s family to sell – the Indian stock market hadn’t yet melted, and Ranbaxy had just won exclusivity windows for the US sales of blockbuster drugs like AstraZeneca’s Nexium, which have a market value of about $32 billion. Ranbaxy had a war chest of several hundred million dollars, and for Daiichi, it looked like a juicy purchase, beefing up its presence in generics and in 25 new countries. Daiichi seemed to love Singh so much they signed him on for a five year contract, instead of sending in their own team to run their shiny new acquisition.
Too bad it’s proven a bitter pill to swallow. Just months after the purchase, Ranbaxy dropped its first bombshell - the FDA was asking federal courts in the US to force Ranbaxy to cooperate with the investigation. Having raided Ranbaxy offices in New Jersey in February 2007, the FDA had slowly built a case alleging that Ranbaxy sold either fake or adulterated versions of an HIV drug to patients in Africa, plus unrelated allegations about generics it sold in the U.S. Since then, the investigation has widened, with drug applications from two Ranbaxy production site being banned, details emerging of safety and compliance issues at other Ranbaxy plants, including potentially lying about expiry dates of drugs. Ranbaxy’s answer was that it was innocent of all that the FDA alleged and was cooperating. It hired Rudy Giuliani to help make its case in the US.
The slide began immediately. By May 2009, Ranbaxy’s share price had tanked by some 70% compared to the price that Daiichi agreed to pay, forcing Daiichi to write-down the size of its investment. The company posted losses of $3.45 billion that quarter, and its share price has dropped 42%.
The last straw may have been news, first reported by the Economic Times, that Ranbaxy would take a $50 million hit because it couldn’t get ingredients for Nexium to UK’s Astrazeneca on time.
But the safety issue remains unresolved – the US FDA has halted imports of some 30 Ranbaxy drugs produced at two specific plants, but told US consumers that it was safe to take the drugs. The investigation drags on, almost two years after the FDA first raided Ranbaxy’s New Jersey offices.
With Singh gone, though, Daiichi is putting its own people in charge. Japan’s business daily, the Nikkei, said it “is poised to get further involved”, and that the first order of business is likely to be working through the investigation with the FDA, which had charged that Ranbaxy was stalling the investigation by refusing to turn over the results of an audit done by an independent company.
Singh, meanwhile, told the Times of India that he was ready to move on to the other healthcare businesses, and that in response to the billions his family and him earned from the deal, that “money was not important.”