The Hindu Business Line : Winning formula

The acquisition of the entire promoter’s stake in Ranbaxy Laboratories by Daiichi Sankyo, with the prospect of the latter picking up a majority stake in the company, portends at once a deepening as well as a widening of Japanese investment interest in corporate India. For one, the projected outlay, estimated at $4.5 billion, is twice that of all foreign direct investments made by Japanese companies in India in the last eight years. Two, hitherto their investments hav e been mainly in the auto, auto ancillary and consumer electronics sectors; the pharma industry is making an entry for the first time. Three, Japanese industry is known to co-ordinate its investments in an economy, often with the active encouragement of the Government. The cautious behaviour may, at times, result in its making a belated entry into a country and thereby losing out on a pioneer investor’s advantage. But, equally, it is also known to take a long-term view of investments. In the event, each fresh round of investment carries with it, the potential to cause a shift in the momentum of investment flows. India could well see such an event unfolding, more so when Japanese anxieties with regard to their Chinese investments have heightened of late amid a chill in bilateral relations between the two nations.

The Indian pharmaceuticals industry had built itself principally on profitable forays into the generics market in the US and Europe. But this strategy has come under some stress in the face of aggressive litigation by manufacturers of proprietary products. In the event, Indian drug companies could either launch a product risking a patent infringement suit — not much of an option given the relative lack of financial muscle — or delay the launch pending resolution of the dispute, thus sacrificing the growth opportunities in a market. But the entry of a Japanese pharma company with deep pockets might just alter the equation in favour of the domestic entity. Also, for the second generation Indian promoter, this is as good a time to exit as any. Nurturing a mature business may not quite hold the same allure as establishing a new one and steering it through uncharted territory — something the entrepreneur might have found challenging.

Daiichi Sankyo, on its part, faces intensifying competition from generics in the home market with two of the largest global players in the generics business having a local presence. The Ranbaxy acquisition thus provides it with a low-cost manufacturing option. Moreover, drug discovery is proving expensive and time consuming. Here, too, Ranbaxy, with its talent pool and capacity to handle clinical trials out of the India, provides the Japanese company with an extra option. Looked at any which way, the deal is not without its strategic significance.

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Daiichi Sankyo makes a big splash
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More Stories on : Editorial | Pharmaceuticals | Ranbaxy Laboratories Ltd

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