When executives of Ranbaxy Laboratories and Daiichi Sankyo met in Tokyo at the beginning of the year, it was – in the words of one Indian executive – a moment in the pharmaceuticals industry when McDonald’s met a Michelin-starred restaurant.
About a year after Daiichi Sankyo, the Japanese drugmaker, agreed to buy a 64 per cent stake in the Indian generics producer, Malvinder Singh, Ranbaxy’s chairman and chief executive, has unexpectedly left the kitchen.
The departure of Mr Singh at the weekend marks a big shake-up for Ranbaxy, a multinational business crafted by three generations of his family. It also represents a large gamble for the company’s new Japanese owners. The Japanese-Indian corporate relationship is barely tested outside of the carmaking industry in India. And now the Japanese owners are proceeding without the founding family on board in a challenging operating environment.
On top of this, these are testing times for India’s exports. Indian pharmaceutical exports to the US, one of its biggest markets, have fallen about 40 per cent in recent months. The fall is partly due to a costly import ban on some of Ranbaxy’s products by US regulators.
“When Ranbaxy was an independent entity controlled by the Singh family, decisions were taken in one way. It is now a subsidiary of another company and decisions are taken differently,” Atul Sobti, Ranbaxy’s new chief executive, said of the change in management culture over the past months.
For the time being, investors have viewed the weekend’s events optimistically. On the expectation that Mr Singh’s departure might lead to a Japanese buy-out, the share price shot up 21 per cent to Rs277. There was also relief that greater Japanese control might resolve what has been considered an “odd couple” alignment of two very different companies.
Mr Singh’s family built up Ranbaxy’s formidable reputation for breaking into emerging markets and aggressively challenging patent regimes with generic drugs. Ranbaxy’s new Japanese owner, by contrast, is a master of innovation serving only a handful of developed markets with high-quality products.
The odd-couple image was made all the more stark by the price Daiichi paid for control of Ranbaxy. Daiichi’s purchase looked very expensive almost from the moment it was agreed in June. The price of Rs737 a share reflected neither the difficulties Ranbaxy encountered with US regulators over standards at two of its Indian plants nor the global financial crisis.
Ranbaxy’s share price until Monday had coasted at about Rs220 a share. “[The change at the top] looks like it’s good news for both sides. It was always going to be difficult to see how Mr Singh could continue to work with Daiichi given the problems in America and the price [Daiichi] paid,” said Pelham Smithers, an analyst of Japanese equities at Pali International.
Executives at the Indian and Japanese companies claim their tie-up is a trendsetter the pharmaceutical industry will have to follow. They champion a model that marries a generics business spread across 125 countries with more focused Japanese ingenuity and clinical process.
For Daiichi, the attraction lies in Ranbaxy’s dynamic reach into new markets and its global marketing prowess, particularly in the English language. Ranbaxy, meanwhile, sees opportunity for its generic drugs in the Japanese market, the world’s second-largest and most stringent in terms of quality.
Daiichi needs to make the model work for impatient shareholders. At the beginning of the year, it was forced to reveal a staggering Y359.4bn ($3.7bn) loss on its Indian acquisition inflicted by Ranbaxy’s collapsed share price.
Ranbaxy’s management had not expected too many changes at their head office near New Delhi. While Mr Singh remained chairman, executives viewed an overhaul from Tokyo unlikely.
Some, however, will find little surprise in Mr Singh’s departure. The temptation to take the fortune he made out of selling the company and repeat his success elsewhere was overwhelming.
No sooner had he quit than he was talking up opportunities elsewhere in his business empire, such as a hospital group advertising low-cost treatment to international patients.
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