Journal of Case Research Volume II Issue 01

Global Strategy for Growth: A Case of Ranbaxy Laboratories

Padmanabha Ramachandra Bhatt1

“Personally, I feel that companies who constantly innovate to provide better products and services and who can offer superior value propositions to the consumer are the ones likely to command more respect globally than others”2

Malvinder Mohan Singh, CEO and MD, Ranbaxy Laboratories Ltd

Indian was worth of $ 8 billion in 2006 and had been growing at an average rate of 8–9 %. The industry was highly fragmented with more than 20,000 registered units and 30% of market was controlled by top ten companies and the rest of 70% by small companies. The Global pharmaceutical industry was estimated at $ 600 billion in 2006. Indian pharmaceutical industry has become more innovative and enterprising with more investment in R&D especially since the WTO agreement was signed.

Ranbaxy Laboratories Ltd. was ’s largest pharmaceutical company with revenue of US $ 260 million in the domestic market and $ 1.3 billion in the global market in 2006. In the domestic market Ranbaxy enjoyed a share of 5.1% with nine brands in the Top 100 list in 2006. It is one of the largest ANDA (Abbreviated New Drug Application) filers with US FDA ( United States Food and Drug Administration). The company’s offices have spread over 49 countries with employment of 12,000. It is one of the ten generics players in the world. Three-forth of Ranbaxy’s revenue comes from international sales, with the US alone accounting for almost one third. The range of products covers a wide band of therapies with a total over 5000 SKUs (Stock Keep Units) globally.

Ranbaxy’s vision was “To become a research based international pharmaceutical company”.

1 Padmanabha Ramachandra Bhatt, Ph.D., Visiting Professor, Universiti Utara Malaysia Email: [email protected]

2 Ranbaxy’s World, December, 2007

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Journal of Case Research Volume II Issue 01

Ranbaxy Laboratories Limited

Ranbaxy was founded by Ranjit Singh and Dr. Gubax Singh in Amristsar to distribute Vitamin A and anti-tuberculosis drugs to Japanese Pharmaceutical companies in 1937. The company set up a manufacturing unit in Okahla in 1961, in collaboration with Lepatit, an Italian Pharmaceutical company to produce the patented drug chlorophenicol for typhoid. Later Ranbaxy bought the company in 1967. The company went public in 1973 to establish an Active Pharmaceutical Ingredients (API) manufacturing plant at Mohali, Punjab. When Drug Price Control Order (DPCO) was enacted in India in 1970, the prices of all drugs were stipulated by the Government. As a result, the prices had fallen for all drugs. The company had then started exporting bulk drugs (APIs) to Malaysia, Thailand, Srilanka, Middle-East and Singapore in 1975. In Malaysia, it established a joint venture to manufacture and distribution of formulations. API plant was set up to manufacture antibiotics/antibacterial at Taonsa in India in 1987.

Parvinder Singh (1993-1999)

Ranbaxy Pharmaceutical Ltd had remained as a small company under Bhai Mohan Singh till 1990. Parvinder Singh wrested the control of the company from his father Bhai Mohan singh in 1993. He was a doctorate in chemistry from the University of Michigan. He joined the company to help his father in 1967. He was a visionary and a forward looking CEO. When Indian Patent Act (1970) came into exist in India, Parvender Singh exploited the opportunities of new patent act to manufacture formulations and generics. The act abolished the product patents for all pharmaceutical and agricultural products and process patents were permitted for 5-7 years. He had invested heavily in setting up a plant in Mohali to manufacture bulk drugs.

Parvinder Singh was always ahead of others in the industry. He wanted to make Ranbaxy a global company. He adopted global strategy through acquisition in US, UK and India. He set up a state-of-the-art Research and Development Centre at Gurgaon, India. R & D acted as an engine of growth for the company. In the R & D Centre, he established Chemical Research, Pharmaceutical Research, Fermentation Research, Novel Drug Delivery System (NDDS), and

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New Drug Discovery Research (NDDR). The company focused on Urology, anti-infectives, respiratory, anti inflammatory and metabolic disorders segments.

Bhai Mohan Singh’s initial strategy was to focus on Active Pharmaceutical Ingredients (API).When Parvinder Singh took over the reign, the strategy was shifted to manufacture generics which were off-patents drugs. Parvinder Singh made far reaching changes in the company. He introduced management by self control in the company to facilitate all members of the company to participate in the decision making process. He abandoned top-down policy pursued by his father Bhai Mohan Singh. He set up a stretch target of sales of US $ 1 billion to be achieved by 2004. Ranbaxy set up a joint venture with Eli Lilly with 50-50 partnership to manufacture products of international quality in India in 1993. The joint venture manufactured Lily’s products and marketed in India, Sri Lanka and Nepal. Ranbaxy was benefited in terms of technology and Eli lilly got the advantage of low cost manufacturing.

Parvinder Singh looked forward to set up international business in USA, UK, and Latin American countries. He has adopted global strategy through joint ventures and acquisition to achieve sustainable growth. He formed a joint venture Ranbaxy Guangzhou China Ltd (RGCL) in China in 1993 and started manufacturing bulk drugs and formulations in 1995 ( see Table 7). The joint venture manufactured antibiotics, analgesics, cardiovascular and other drugs and marketed all over China. Later Ranbaxy has increased its stake in RGCL to 70%. Its brand cefran was the market leader in China. It acquired Thai Pharmaceutical Company Unicher in 1995 and formed Ranbaxy Unicher Co. Ltd (RUCL). RUCL was importing more than 50% of the products manufactured in India. It has a strong presence in Antiinfectives, Haematinics, Cardiovasculars, Nutritional & GI Tract segment in Thailand and India. Parvinder Singh established a global alliance with Eli Lilly to manufacture and market cefactor in US in 1994. The joint venture helped Eli Lilly to increase its market share of cefactor in USA whereas Ranbaxy was befitted in acquaintance of stringent regulatory requirements of Food and Drugs Administration (FDA) in the USA. Ranbaxy sourced cheap cefactor intermediates to Eli Lilly and Eli Lily in turn marketed cofactor as branded product. Ranbaxy has entered the US market and operated through two

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Journal of Case Research Volume II Issue 01 subsidiaries Ranbaxy Pharmaceutical Inc( RPI) and Ohm Laborataries Inc, the over the counter drug manufacturer in 1995 ( Table 7). Ohm Laboratory had exceptional FDA approval record.

There was immense opportunity to sell generics in Europe. European market is attractive because of aging population and high health costs forcing the goods to open the generics market. Parvinder Singh wanted to exploit huge potential in Europe and keeping that in mind, he set up a subsidiary namely Ranbaxy UK Ltd to sell its branded products in 1996. He acquired another company Rima Pharmaceuticals, the semisynthetic pencillins maker to sell generics products in Europe. His basic strategy was to keep the acquired units as profit centres which helped Ranbaxy to keep acquired firms self sufficient. Also the acquisition process did not adversely affect the managerial culture, openness, self motivation and positive attitude. The acquired centre was given full responsibility of profit and loss of the company. The regional managers were given high degree of autonomy. He had adopted three tier organizational structures. The first tier consisted of senior managers and second tier regional managers and the third country managers.

In 1990s, Ranbaxy’s effort was to sell formulations under its own brand name. It wanted to move up from low-margin bulk pharmaceuticals to high margin branded formulations. The major markets for branded generics are Russia, China and other developing countries. However, in US and UK, Ranbaxy focused on formulations rather than branded products because of stiff competition from other major players in branded generics.

In UK, Ranbaxy was successful to market branded formulations as it has received approval from Medicines Control Agency (MCA) for many branded generics. Ranbaxy’s manufacturing strength has been established in the field of process development, scaling up and commercialization of APIs, world class generics, and branded generics. It set up world class manufacturing facilities in seven countries viz. India, China, Ireland , Malaysia, Nigeria, US and Vietnam. In Malaysia it set up Ranbaxy Malaysia Sdn Bhd (RMSB) as a joint venture between Ranbaxy and Malaysian shareholders in 1984. A manufacturing unit was set up in Sungai Petani, Kedah to cater the need of Malaysia and Singapore market. Later it has increased its stake in RNSB to 55%.

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Ranbaxy’s Manufacturing facilities were approved and audited by international regulatory agencies like US FDA, UK MCA, South Africa MCC, and Australia TGA.

Parvinder Singh made significant value addition to products efficacy or delivery in its NDDS program. For example, the company made a significant improvement to ciprofloxacin, a Bayer patented drug which cut the required dosage to once a day against several times a day as needed for Bayer’s drug. It later out-licensed the technology to Bayer for $ 65 million and also earned royalties on resulting sales. Ranbaxy has come up with three new chemical entities (NCEs) in the area of asthma, urology and malaria. These were at various stages of clinical development. One entity for malaria has entered Phase II of clinical trials. The molecule was aimed at mainly for the under developing countries. In 2002, it had out-licensed a NCE, codenamed RBx2258 (for treating the enlargement of the prostate gland in people above 50 years), to Germany’s Schwarz Pharma for further development and clinical trials. But Schwarz Pharma had to abandon trials in late phase II due to a lack of desired results, measured in terms of safety, efficacy, and superiority.

Ranbaxy’s international operations were spread over four regions viz. India and Middle East; Europe, CSI, and Africa; Asia-Pacific and Latin America and North America. Parminder Singh set up manufacturing facilities in each region to manufacture drugs at low cost.

The company has changed its financial year to January- December from April-March with effect from January 1999.The company dropped those products the sales of which yielded low margins. It rationalized the whole product portfolio in domestic and foreign market to achieve the target of US$ 1 billion by 2004.

Devinder Singh Brar (1999-2004)

Paravinder Singh died of cancer in July 1999. Before his death, he established a strong base for the company. Devinder Singh Brar was appointed as CEO and Managing Director by Bhai Mohan Singh, Parvinder Singh’s 80 year old father in 1999. Bhai Mohan Singh did not consider Paravinder Singh’s son Malvinder Mohan Singh for CEO as Malvinder Singh was very young and did not have maturity to become CEO of the company. Bhai Mohan Singh commented after the

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Journal of Case Research Volume II Issue 01 appointment of D S Brar as CEO, “Brar will ensure the professionalism inculcated in the company by Parvinder Singh and take the company to new heights”.

D S Brar has envisioned ‘Vision Garuda’ of achieving a target revenue of US $ 5 billion by 2012, 70% of revenue should come from International business. He wanted to reiterate Ranbaxy “a research based international pharmaceutical company”. He continued to follow the global strategy of Parvinder Singh. His first acquisition was German generic business Bayer in 2000.

D S Brar took a major decision to pull out of its Indian joint venture with Eli Lilly. He felt that Eli Lilly’s 50-50 partnership was no longer required for the production of the drugs in India. He argued that Ranbaxy has come of age and could manufacture and market quality product independently in Indian and overseas market. D S Brar found that there was a huge market potential for anti-AIDS drugs in India. There were 3.7 million HIV positive patients in India. Ranbaxy wanted to launch anti-AIDS drugs lamivudine, nevirapine, abacavir and indinavir in the Indian market. The market was dominated by Cipla and GlaxoSmithcline who did aggressive marketing for the drug. He used low cost manufacturing facilities to manufacture the anti-AIDS drugs and sold directly to consumers to capture the market. The company entered Consumer Healthcare which was thriving business in India. The company launched four brands viz. Revital, Pepfiz, Garlic Pearl and Gesdyp. The business turnover of these products was Rs. 552 million in 2003.

D S Brar launched generic blockbuster antibiotic Augmentin in the U S Market in January 2002. It has garnered a market share of only 1% against a market share of 80 % enjoyed by Geneva Pharmaceuticals of Switzerlands and Tava of Israel. Ranbaxy Branded Products Division, a marketing arm of Ranbaxy which marketed exclusive company owned branded products had launched another branded generic product Sotret, the company’s brand for Isotretinoin capsule in the U S market which has market size of US $ 540 million. Ranbaxy gained a market share of 8% for Sotret. It had also got approval from US FDA to make and sell a generic version of ’s antifungal drug Diflucan. Its another product Ceftin accounted one third of Ranbaxy’s total sales in U S.

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During 2003, Ranbaxy’s business operations in the US had widened with revenue of US $ 412 million, representing 42% of the company’s global turnover. The company had obtained 24 approvals from US FDA in 2003. The company received US FDA approval for manufacture and maketing of Isotretinoin of 30 mg strength in June 2003. This was not available to generic players and even the originator itself. The US market for Isotretinoin was $ 6 million in 2003. The company acquired the generics business of RPG Aventis Life Sciences in France to increase the market in Europe.

D S Brar identified two focus areas viz. New Drug Discovery Research ( NDDR) and alliance management as the key growth engines in R & D. He made an alignment with Geneva-based Medicines for Malaria Venture (MMV) and developed synthetic peroxide anti-malarial drug RBx 11160. Ranbaxy Laborataries and GlaxoSmithKline Plc (GSK) have entered into collaboration for drug discovery and clinical development covering a wide range of therapeutic areas. Ranbaxy would be responsible for activities from optimization of lead components to generation of a development candidate. Once a compound has been selected as development candidates, GSK would complete the development. GSK has also got the responsibility of commercialization of the product.

“The best companies are the best collaborators”3- Thomas & Friedman

Brian W Tempest (2004-2005)

D S Brar exit in July 2004 after completing his five year tenure and Dr. Brian W Tempest (57 years) was appointed as CEO and MD from July 05, 2004 to December 31, 2007. He was a doctorate in Chemistry from Lancaster University. Tempest has 32 years of experience with 4-5 companies such as Glaxco Holidays, G D Searle, Becham and Fisons. He was more of a operations person rather than a strategist and visionary. Tempest followed the path of D S Brar. After taking over as CEO, Tempest said, “I feel immense pride and honour to lead Ranbaxy,

3 Ranbaxy World, December 2007

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India’s truly global organization. ……Ranbaxy would endeavor to be at the forefront in delivering the India centric advantages to the advanced and developing countries of the world”.4

Ranbaxy had signed another collaborative Research agreement with Avestha Gengraine Technologies Pvt Ltd (Avesthagen) in the area of NDDR. Avesthagen was the first India’s discovery based bio-technology and bioinformatics company. Dr. Patell, Founder and CEO, Avesthagen commended on the collaboration, “Avesthagen’s vision has been to promote new drug discovery and support and enable our Indian Pharma companies to reach and address the needs of the people of the global markets. We are glad to partner with Ranbaxy in ths endeour and look forward to a very fruitful relationship”5. Dr. Kasim Mookhtiar, Vice President NDDR, R & D Ranbaxy said, “With the rapid growth of new drug discovery research at Ranbaxy, opportunities exist for collaborative work. We are glad to avail of Avesthagen’s quality R & D services in cutting edge technology to augment our capacity so that our current needs can be met in a timely manner”6 The company wanted to climb up the value chain to increase revenues from dosage forms sales. Dosage forms marketing operations are structured through India; Europe, CIS, Africa; Asia Pacific, Latin America & Canada; North America, The Middle East. Dr. Rasmi Barbhaiya, R & D President said “This collaboration provides an avenue to Ranbaxy to leverage its discovery and early product development strengths and gain access to cutting edge technologies”7.

Dr. Rashmi Barbhaiya, President, R & D who had held this position since April 15, 2002, left the company in 2003. Dr Tempest himself took charge of R & D with separate heads for NDDR and NDDS and generic Drugs Developments reporting to him directly. The company spent US $ 75 million in R & D in 2004, showing an increase of 43%. The sales of company was the highest in USA (US$ 426 million) followed by BRIC countries (US$ 305 million) and Europe (US$ 192 million) in 2004 (Exhibit 1). The company invested in training and development needs of its employees through tailor made programmes and extensive workshops. There is a formal mechanism to reward employees for new ideas. It has launched a project called CRUSOE that

4 Business source Premier 5 Business source Premier 2004 6 Business source Premier 2004 7 ISI Emerging Market In India-Ranbaxy, 2003

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Journal of Case Research Volume II Issue 01 works on improving operational efficiencies. Under this project, employee’s suggestions are not only captured, but encouraged via contests. Brian Tempest used to spend two-three days in a week visiting labs and talking to scientists.

By February 2004, Ranbaxy crossed US $ 1 billion in revenues. Ranbaxy was the third largest filer of ANDAs (150) with US FDA in 2004. He focused four disease segments viz. Infection, Urology, Inflammation/ Respiratory and Metabolic disorders in his New Chemical Entities (NCE) pipeline. In Urology segment in India, Ranbaxy is leader and enjoyed a market share of 12.5% in 2006. Commenting on the company’s performance in Urology segment, Sanjeev I Dani, Senior Vice President and Regional Director- Asia and CIS Ranbaxy said, “Ranbaxy has identified Urology as a focus area and as result launched superior therapeutic options for the specialists ……. Our dedicated and well trained Urology team helps deliver prompt therapeutic solutions to the Urologists and supporting specialists”8. During the first half of 2007, the company launched three NDDS based formulations viz. Niftran, Eligard and Roliflo9.

With India becoming signatory to the WTO and introduction of the Patent Product regime, the Indian market will be an attractive option for introduction of research-based products. In the new patent regime, only strong players in terms of research and technical capabilities can survive. Malvinder Singh, Regional Director -India Region of the company was appointed as an additional Director of the company with effect from January 1, 2004 and number two in the company. Tempest had lent his support to Malvinder Singh in his India business. Malvinder Singh wanted to enhance the business in India. He has rationalized the product portfolio and focused on speciality-oriented therapies. Expressing his delight at this development, Sanjeev Dani, Senior Vice President & Regional Director, Asia & CIS, Ranbaxy, said, “We have restructured our domestic operations to focus on high growth segments. Due to our strong marketing capabilities coupled with new product successes, our performance has been buoyant in recent years. It has culminated into rapid market share gains and now with the number one position in the domestic market, we intend to secure this leadership position in the coming months and years through attracting human resources & retaining talent. In-licensing and

8 Ranbaxy World, December 2007 9 Ranbaxy World, December 2007

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Journal of Case Research Volume II Issue 01 launching innovative products remain our prime focus areas”10. He understood that in order to be competitive, a company needs to be strong in the domestic market. He ensured right doctors to be covered by sales representatives. The coverage ratio has gone up from 30% to 70%. He improved fiscal discipline in the company. Malavinder Singh who joined the company in 1998 had worked in different projects such as Information Technology, generics, lifecycle brands and global licensing.

Malvinder Mohan Singh (2005-2008 )

Tempest retired in June 2005 and Malvinder Mohan Singh became CEO and MD. Like his father, Malvinder Mohan Singh also wanted to take Ranbaxy to a new height. His strategy was to focus on US, Europe, and emerging markets. It has a market share of 42% in the developed countries (Figure 1). Its market was growing at the rate of 31% in USA in 2006 (Figure 2). He bought a US midsized generic company Mutual Pharmaceuticals for US $ 300 million and five other global companies. He had taken shareholder’s approval to raise US$ 1.5 billion in equity and US $ 1.2 billion in debt. He raised another US $ 440 million through a Foreign Currency Convertible Bond (FCCB) offering.

Malvinder Mohan Singh acquired Terapia S.A in Romania to serve the European market efficiently and cost effectively in 2006. After the acquisition, it was renamed as Terapia- Ranbaxy and became the largest generic player in Romania. The combine sale was US $ 80 million in 2006. On the completion of the transaction, Malvinder Singh said, “Romania now becomes the third largest market for us in terms of revenue. We are committed to developing our operation here as strategic hub for Europe and the CIS. We will continue to fortfy our global presence, particularly in our key geographies”11.

Expressing his delight with progress of the company, Peter Burema, President, Global Pharmaceutical Business, said, “Our combined market share, in terms of volume exceeds 10%. This means that one out of every ten medicine packs being sold in Romania is currently being

10 Business source Premier 11 Ranbaxy World, December 2007

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Journal of Case Research Volume II Issue 01 manufactured by Terapia Ranbaxy”12. Ranbaxy can take advantage of Terapia’s strong R&D and manufacturing infrastructure as also their highly skilled senior management team. He acquired another Be-Tabs of South Africa for US $ 70 million in 2006. Malvinder Singh after the acquisition of Be-Tabs said, “The acquisition results in considerable synergies and further strengthen Ranbaxy’s foothold in South Africa. It reinforces our position by expanding our portfolio in a key market that is exhibiting strong growth potential. The move will help us to provide effective disease management solutions in support of the government/s objective to make health care affordable to a wider cross-section of the population”13. The company made nine mergers and acquisition amounting to a value of US 450 million to expand its presence in emerging and profitable markets such as Romania and South Africa in 2006. The company’s return of net worth was 13.2% in 2006 (Exhibit 2). The company made an impressive performance by increasing its sale to US $ 40.6 billion in 2006 (Exhibit 3). It made a net profit of US $ 3.8 billion in 2006 (Exhibit 3).

Ranbaxy is vertically integrated in production and research. To strengthen the vertical integration capabilities and fermentation capacities, it acquired Cardinal drugs, an API manufacturer at Malanpur near Gwalior and a strategic stake of 15% in Kerbs Biotechnicals in India and Jupital Biosciences Ltd, a company specializing in the development and manufacture of peptitude products. Ranbaxy entered the fast growing Oncology therapeutic segment in the NDDR agenda. It had a partnership with Zenotech Laboratory Ltd in India to strengthen oncology therapy and bio-generics in 2007. It had marketed 11 oncology products as generic formulations in the US and Canada. “Having worked with Zenotech for almost two years, we believe that this investment and partnership provides a strong platform for us to leverage these opportunities”14 Malvinder Singh said.

Malvinder Singh’s strategy was to focuss on out-licensing, in-licensing and NDDS. He out- licensed Ranbaxy’s Statin molecule to Pharmaceutical Product Development Inc (PPD), a leading contract research organization. PPD will have an exclusive worldwide licence to develop,

12 Ranbaxy World, December 2007 13 Ranbaxy World, December 2007 14 Ranbaxy World, December 2007

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Journal of Case Research Volume II Issue 01 manufacture and market Ranbaxy’s Statin for the treatment of dyslipidemia, chlolestrol lowering drugs account for $ 32.4 billion in sales for 200515. The company also received a milestone payment from PPD Inc for the completion of the Phase I clinical studies. Ranbaxy launched blockbuster anti-cholesteremic Simvastalin 80 mg and Pravastatin 80 mg in the US market with a 180 days marketing exclusivity which has captured 56% market share during 180 days exclusivity period in 2006. In the post exclusivity period, the company launched 5, 10, 20, 40 mg strength of . The company also launched the first under the brand name Storvas in Malaysia. The success of Sotret 30 mg led to growth in the overall prescription market share for the product from 21% to 25.5 % in 2006.

As of December 2006, Ranbaxy holds US FDA approvals for 121 ANDAs and 76 ANDAs are pending for approvals. During 2006, Ranbaxy received 10 approvals and filed 28 ANDAs including 1 PEPFAR (The US President’s Emergency Plan for AIDS Relief) ANDA for approval by the US FDA. Malvinder Singh continued to focus on NDDS and in-licensing as strategic areas for future growth of the company. NDDS has developed proprietary “platform technologies” and contributed 9% to the turnover of Indian business. The in-licensing products were Synasma (Doxophylline) and Trambax ( Tramadol Flash Tabs). In 2006, Ranbaxy entered into an agreement with Senetek PLC, to purchase patents, trademarks and automated manufacturing equipments for proprietary disposable auto-injector technology.

Global Consumer Healthcare registered a sales of US $ 35 million globally and US $ 19 million in India. Revital is a powerful brand of Ranbaxy which has a market share of 72% in India.

Ranbaxy had a strong Internal Audit function with accreditation of ISO 9001-2000 certificate. The Audit function is headed by Vice President who reports directly to the CEO and the Audit Committee.

Ranbaxy set up a Global Quality Assurance team which ensures quality manufacturing process across all locations.

15 Ranbaxy World, December 2007

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“It is an encouraging sign that Indian companies today are more convinced about their global strength of world-class quality, cutting-edge technology, cost competitiveness and human capital”16- Malavinder singh

Malvinder Singh gave the strategic direction for the company to move from the generics to New Drug Delivery System (NDDS) to New Drug Discovery Research (NDDR). Under NDDR mission, he wanted to discover and develop novel therapies that meet large unmet medical needs and transform Ranbaxy into a respected international research based pharmaceutical company. Ranbaxy has spent Rs. 428 crore on R&D in 2007 to move up to the value chain.

Acquisition by Daiichi

Ranbaxy was facing many issues such as poor financial position, no major R&D breakthroughs, increasing price wars and stiff competition in the generics market. In order to maintain its growth and market position, Ranbaxy needed an influx of fresh funds and Malvinder Singh was looking for a partner to tide over the financial and other issues.

Daiichi Sankyo, second largest and an innovator company in Japan wanted to manufacture low cost generics because of Japan government’s new policy of helping the aging population by low cost generic substitution for branded drugs. Daiichi lacked the low-cost expertise and looking for a low cost generics company. They found an opportunity to buy Ranbaxy because of its low cost production and research facilities to save on costs and drive growth (see Exhibit 4 for comparison). In June 2008, acquired over 51% stake in Ranbaxy Laboratories Ltd at Rs. 737 per share. Malvinder Singh sold out his stake of 34.8% to Daiichi Sankyo. The new entity can create better market coverage by producing low cost manufacturing. With Ranbaxy’s pool of scientific, technical and managerial resources and talent the new entity can enter a new orbit to chart a higher trajectory of sustainable growth in the medium and long term in the developed and emerging markets. The new entity is a significant milestone in the Ranbaxy’s mission of becoming a research-based international pharmaceutical company. As the company moves into a next level of growth it would benefit the organization, its shareholders and the employees. The proposed transaction is also in line with Daiichi Sankyo’s goal of becoming an innovator

16 Ranbaxy World, December 2007

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Journal of Case Research Volume II Issue 01 global company. Thus the creation of new entity would synergize to serve people globally in terms of low cost drugs. Ranbaxy’s R&D capabilities of low cost manufacturing and Daiichi Sankyo’s competency of innovation will provide the new entity with a sustainable, long-term competitive advantage.

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Exhibit 1: Sales of Ranbaxy Laboratories by Key Market-2004 Sales in US$ in Million USA 426 Europe 192 UK 50 Germany 26 France 73 BRIC Countries 305 Brazil 31 Russia(Including Ukraine) 45 India 217 China 12

Source: Annual Report 2004

Exhibit 2: Key Parameters of Ranbaxy

Particulars 2006 2005 2004 EBIDTA to Sales % 15.5 7.2 20.4 PAT to Sales % 08.5 5.0 13.1 ROCE % 13.2 5.3 29.6 RONW % 20.3 10.6 30.0 Earnings Per Share(Fully diluted) Rs. 13.2 06.9 18.7

EBIDTA Earnings before Interest, depreciation, Tax and Amortization PAT Profit after Tax ROCE Return on Capital Employed RONW Return on Net Worth

Source: Annual Report 2006

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Exhibit 3: Ranbaxy at a Glance Rs. billions 1999 2000 2001 2002 2003 2004 2005 2006 Results for the year Sales 15.6 17.4 20.5 28.2 35.3 36.1 35.4 40.6 Index 1.8 2.0 2.4 3.2 4.1 4.1 2.7 3.0 Exports 7.3 8.1 10.3 18.5 24.7 24.6 23.2 27.2 Index 1.8 2.0 2.5 4.5 6.1 6.0 3.9 4.6 Gross Profit 2.6 3.2 3.9 7.3 10.1 7.2 3.2 6.1 Index 1.4 1.7 2.1 4.0 5.5 3.9 1.3 2.5 Profit before Tax 2.1 1.9 2.8 7.1 9.6 6.3 2.0 4.4 Index 1.3 1.2 1.8 4.5 6.0 4.0 1.0 2.2 Profit after tax 2.0 1.8 2.5 6.2 7.9 5.3 2.2 3.8 Index 1.5 1.4 1.9 4.6 5.9 3.9 1.2 2.0 Equity Dividend( in Rupees) 869.2 869.2 1158.9 2434.0 3156.3 3162.6 3,166.70 3,168.90 Index 3.7 3.7 4.9 10.3 13.3 13.3 6.0 6.0 Equity Dividend (%) 75 75 100 150 170 170 170.00 170.00 Earnings per share(Rs.) 17.0 15.7 21.9 28.9 42.6 28.3 5.68 9.87 Year-end Position Gross Block+ 8.7 9.2 9.3 10.4 12.5 16.7 22.3 24.4 Index 1.9 2.0 2.0 2.3 2.7 3.6 3.0 3.30 Net Block 6.3 6.4 6.1 6.8 8.0 11.4 16.3 17.4 Index 1.7 1.8 1.7 1.8 2.2 3.1 2.8 3.00 Net Current Assets 8.2 8.3 7.5 9.6 13.3 9.5 11.3 12.6 Index 1.1 1.1 1.0 1.3 1.8 1.3 1.2 1.40 Net Worth 15.0 15.8 17.4 19.6 24.3 26.3 23.8 23.5 Index 1.8 1.9 2.1 2.4 3.0 3.2 1.8 1.80 Share Capital 1.2 1.2 1.2 1.9 1.9 1.9 1.9 1.9 Reserve & Surplus 13.8 14.7 16.2 17.7 22.5 24.4 21.9 21.6 Book value per share(Rs.) 129.3 136.6 149.8 105.71 131.1 141.4 63.84 63.05 No. of Employees 5347 5784 6424 6297 6797 7195 7,174.00 8,020.00

Source: Annual Report 2005

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Figure 01: Global Market Mix 2006

others 9%

Emerging 49%

Developed 42%

Source: Annual Report 2005

Figure 02: Growth Contribution 2006

ROW 15% Europe 33%

India 21%

N.America 31%

Source: Annual Report 2006

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Exhibit 4: A comparison between Ranbaxy and Daiichi Sankyo (US$ in billions) Daiichi Ranbaxy Sankyo Laboratories Net Sales 8.2 1.0 Overseas sales 3.3 0.6 Research and Development 1.5 0.1 Operating Income 1.4 0.2 Net income 0.9 0.1 Assets 13.9 0.5 Return on Equity 7.8% 28.8% Earnings per share $ 1.26 $ 0.35 Number of consolidated subsidiaries 43 18 Number of employees 15,349 8,141

Source: Business World, June 13, 2008

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Exhibit 5: Discovery Process and Stages of Drug Development

DISCOVERY PROCESS

Period: upto 6 yrs Cost: Roughly $ 60 million Odds of drug reaching market: 1: 10,000

Identifying & validating targets: this involves developing the concept of how a new drug can treat a disease. Compound that should be pursued further are short listed.

Screening: compound that have desirable potencies and that react encouragingly are pulled out. These are the ‘Hits’, converting Hits into ‘Leads’ calls for further refinement in the compound, during which solubility, toxicity (quality of safe doses), absorbtion, metabolism etc, are tested even as the potency and activity are maintained.

STAGES OF DRUG DEVELOPMENT

Period: upto 12 years

Cost: upto $200-250 million Odds of drug reaching market: 1:200

Pre-clinical trials: toxicity and pharmacokinetics (absorption, distribution, metabolism, elimination) are observed via tests in labs and in animals.

IND FILING: Company files an application for an investigational new drug (IND) with the FDA. This filing includes results of pre-clinical trials and the plan for human clinical trials.

PHASE 1 TRIALS: Conducted on 20-100 healthy volunteers to prove safety. Once molecules enters clinical trials, odds of success drop to 1:5

PHASE 2 TRIALS: 100-300 persons suffering from the disease are treated. Considered by many companies as the stage to opt for licensing agreement.

PHASE 3 TRIALS: involves between 1,000 to 5,000 patients in a bid to verify previous trials.

NEW DRUG APPROVAL FILING: FDA reviews information, and if satisfied gives its approval. If it feels molecules isn’t yet ready for market, may call for phase 4 trails.

POST -MARKETING SURVEYS: Companies have to conduct continuous surveillance once drug hits market, all through the life of the drug. Serious reactions can result in drug withdrawal. Sales and marketing cost can take the entire cost of exercise right from drug discovery to development to as much as $450 million.

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Source: BUSINESS TODAY Ocotber 13 2002.

Exhibit 6: Ranbaxy Laboratories in Historical Perspectives

YEAR DESCRIPTION 1961  Company Incorporated

1973  Ranbaxy goes public  A multipurpose chemical plant is setup for the manufacture of APIs at Mohali in India 1977  Ranbaxy’s first joint venture in Lagos (Nigeria) is setup

1983  A modern dosage forms facility at Dewas (MP) in India goes on stream

1985  Ranbaxy Research Foundation is established  Stancare, Ranbaxy’s second pharmaceutical marketing division, starts functioning 1987  Production start-up at the modern APIs plant at Toansa (Punjab), makes Ranbaxy the country’s largest manufacturer of antibiotics/antibacterials 1988  Ranbaxy’s Toansa plant gets US FDA approval

1990  Ranbaxy is granted US patent for Doxycyline

1991  New state-of-the-art facility for Cephalosporins set up at Mohali  US patent granted for Cephalosporins 1992  Company enters into an agreement with Eli Lilly & Co of USA for setting up a joint venture in India to market select Lilly products 1993  Company enters into an agreement to setup a joint venture in China Ranbaxy (Guangzhou China) Limited  Ranbaxy enunciates its corporate mission ‘to become a Research based International Pharmaceutical Company 1994  The new Research Centre at Gurgaon,(near Delhi), becomes fully operational  Established Regional Headquarters in London (UK) and Raleigh (USA)  The Fermentation pilot plant at Paonte Sahib is commissioned  Ranbaxy’s GDR listed in Luxembourgh Stock Exchange 1995  Acquisition of Ohm Laboratories, a manufacturing facility in the US. Inauguration of FDA approved, state-of-the-art new manufacturing wing, at Ranbaxy’s US subsidiary Ohm Laboratories Inc. 1997  Ranbaxy Laboratories Limited crosses a sales turnover of Rs. 10,000 million, with its exports reaching an all time high of Rs. 5,000 million

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1998  Ranbaxy enters USA, world’s largest pharmaceutical market, with products under its own name.  Ranbaxy filed its first Investigational New Drug (IND) application with the Drugs Controller General of India (DCGI) for approval to conduct Phase I clinical trials

1999  DCGI grants approval to conduct phase I clinical trials for RBx-2258, and the trials commence from June 10, 1999  Bayer AG, Germany and Ranbaxy sign an agreement where Bayer obtains exclusive development and worldwide marketing rights to an oral once daily formulation of Ciprofloxacin, originally developed by Ranbaxy. 2000  Ranbaxy files IND application for Asthma Molecule RBx-7796 after successful completion of preclinical studies.  Ranbaxy acquires Bayer’s Generics business (trading under the name of Basics) in Germany  Ranbaxy forays into Brazil, the largest pharmaceutical market in South America and achieves global sales of US $ 2.5 million in this market 2001  Ranbaxy took a significant step forward in Vietnam by initiating the setting up of a new manufacturing facility with an investment of US $ 10 million  Ranbaxy achieved a turnover of US $ 600 million for the year 2001 and moved closer to achieving the target of 1 billion dollar by 2004.  Ranbaxy USA crosses sales of US $ 100 million, fastest growing company in the US 2002  Ranbaxy files IND for an Anti-bacterial Oxazolidine-RBx-7644  Ranbaxy launched Cefuroxime Axetil post approval from USFDA for 125mg, 250mg, 500mg Tablet, first approval granted to any generic company for this product  Ranbaxy receives permission from DCGI to conduct Phase-I clinical trials for RBx 7796 (Anti-Asthma)

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2003  Ranbaxy receives The Economic Times Award for Corporate Excellence for ‘The company of the year 2002-03’  Ranbaxy and Glaxo SmithKline Plc (GSK) accelerate their discovery programmes through a global alliance for drug discovery and development. While Ranbaxy will leverage its early product development strengths, Glaxo would use its expertise at late development stage to complete the development process  RBx 7796, Ranbaxy’s first NCE in the respiratory segment successfully completes Phase I clinical trials and steps into Phase II.  Ranbaxy files an IND application for RBx 9001, its second NCE for the treatment of Benign Prostatic Hyperplasia (BPH)  Cipro XR 500mg and 1g, based on the techonogy developed by Ranbaxy, were launched in USA by Bayer AG  Ranbaxy launched the first branded product Sotret (isotretinoin) for 10mg, 20mg and 40mg capsules in USA 2004  Ranbaxy acquired the generics business of RPG Aventies Life Sciences in France to enter European Market

2005  Ranbaxy acquired 18 generic drugs from Spain’s Eframes for sale the local market

2006  Ranbaxy’s US arm buys patents, trademarks, and automated manufacturing equipment from Senetek for its disposable autoinjector for self- administration of parental drugs for anaphylactic shock  Ranbaxy’s Italian subsidiary acquires the unbranded generic business of Allen, a division of GlaxoSmithKline, to complement its own pipeline for the Italian Market.  Buys 96.7% of Romanian drug maker Terapia from Advent International for $324 million. Combined with Ranbaxy’s own operation in Romania, the Terapia acquisition creates Romania’s largest generic firm  Aquires genrics company, Ethimed, atop 10 player in Belgium. Provide Ranbaxy a base from where to manage and expand its operations in the Benelux countries  Ranbaxy’s Spanish subsidiary purchases the Mundogen generics business of GlaxoSmithKiline in Spain. The acquisition beefs up Ranbaxy’s product portfolio in the country. 2008  Daiichi Sankyo acquired over 51% stake in Ranbaxy Laboratories Ltd at Rs. 737 per share. Malvinder Singh sold out his stake of 34.8% to Daiichi Sankyo.

Source: www.ranbaxy.com/history_ranbaxy.htm Business Today, September 10, 2006

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