India's Ranbaxy Gives Headache To Japanese Drugmaking Parent

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.”

Reader Comments

Arvind Saxena

May 27, 2009 11:52 AM

Mehul,
Please do your ground work before using statements like "Ranbaxy sold either fake or adulterated versions of an HIV drug". It seems like you have no clue about Ranbaxy. Just like every other article you write, you lack basic knowledge. You are a shame to journalism.

Anil Agarwal

May 28, 2009 2:08 AM

It was clear early on that Malvinder Singh had sold a lemon to Daiichi Sankyo.

Mehul might have slipped on a couple of not-so-significant facts, but he's spot on that Ranbaxy's buccaneering will cost everybody else--especially the Indian pharma industry--a lot.

raju

May 28, 2009 2:18 AM

arvvind,
my sentiment exactly.you dont expect one of the leading indian entrepreneurs to simply walk away like this .

Amitabh Verma

May 28, 2009 5:35 AM

Malvinder has got no contribution in bringing Ranbaxy to a respectable level neither he was emotionally involved. It was his grandfather & father who were instrumental in the bringing Ranbaxy on the global map.

In fact malvinder was born with the golden spoon. He had no option but to walk away before things got out of hand. The only wise decesion he made was to sell Ranbaxy as he was totally incapable of handling the affairs at this level.Whatever money he got from the sell off is more than sufficient for his next couple of generations.

Now you will not find him on Indian business Scenerio.

purist969

May 28, 2009 9:57 AM

not leading entreprenmeur man- that was his Dad- when a ship starts sinking the rats get out- especially the rats who are well fed already. Indian Pharma will nto suffer- as long as the "Canadian Pharmacys" work. The best thing for Daiichi to do is place an arbirtration case in London- otherwis ehis ass is going to prison for a long time. He cannot claim incorrect due diligence. Hopefully PWH was involved- they can probably lay the blame on the guys who are already in prison with Raju. Otherwise Singh and family will move their operations to a neighboring country which happily provides safe haven as long as they bribe the right people. A certain Dark glassed Ibrahim will be their neighbor. They can all watch cricket together!!Contact Javed for guidance!!

Indian Patriot

May 28, 2009 4:43 PM

Looks like this joker Mehul Srivastava is in the Chinese payroll. He is out to screw India's image to make the Chinese audience feel happy. Truth is no one can do any damage to Indian Pharma.

Madhusudan V

May 28, 2009 11:32 PM

Mr.Mehul
Before making sensational statements for the sale of your magazine please go through the facts.How can you use the statements like "Ranbaxy sold either fake or adulterated versions of an HIV drug" with out knowing basic facts.
Most of your news is either false or an exaggeration.

srinu

May 29, 2009 7:05 PM

I truely agree with Mr.Madhusudan v comment. If ranbaxay supplied fake/ adulterated drugs in US market. How come FDA gave statement to US consumeres to use the drugs whatever being sold without making alert to stop using the medication. Plase read the import ban letter issued by FDA before making any comments. The statements and decisions are contradicting each other.

Just Bing Objective ( Mr JB Objective)

June 7, 2009 12:37 PM

>> I believe with the professional team of managers and more involvement of the Daiichi manager, the chances of resolution of USFDA issues improves.

>> The real architects of Ranbaxy brand - were Malavinder's Dad and Mr. DS Brar.

>> Can't blame Malavinder for selling the company - that his decision. He is a rationale human being and he has the right to do what is best for him.

>> No one forced Daiichi to pay that price. Their investment bankers made them pay a hgher price. Does anyone know their name ?

>> As for India pharma - nothing changes on the ground. Maybe next time the acquirer would do the due diligence more religiously and more objectively.

Gaurav Arora

June 11, 2009 12:57 AM

this is really sad for the indian industry !!!!! but at a certain level it was cheating by Mr.SIngh who , may be , did not provide any data to Diichi to evaluate the things propoerly . WOrking for a japanese company does give me an idea that it may not have escaped the notice of Diichi , given Japanese are so much detail seekers and there may be a larger motive of seeking Ranbaxy which escapes our notice !!!!!

Jai Maharaj

July 2, 2009 11:10 PM

Mehul Srivastava is not the one saying that "Ranbaxy sold either fake or adulterated versions of an HIV drug". He, correctly, states that the FDA alleges that. What's the matter with you people? Can't you read?

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