Ranbaxy CEO Malvinder Singh On U.S. FDA’s Investigation And The Daiichi Sankyo Deal: An Interview With PharmAsia News

During the last few months, India's largest drug maker Ranbaxy has been in the news more than almost any other manufacturer. Ranbaxy settled patent disputes on two of the largest global drug brands, Lipitor and Nexium. The company's CEO Malvinder Singh sealed a "game-changer" deal with Japan's third largest drug maker Daiichi Sankyo and sold 34.8 percent of his personal and family stake for over $4 billion (PharmAsia News, June 11, 2008). And a U.S FDA investigation of Ranbaxy continues to heat up over allegations of good manufacturing practices deviations at one of the company's manufacturing sites in India (PharmAsia News, July 29, 2008). This week, PharmAsia News' India bureau sat down with Singh to get his take on the action.

During the last few months, India's largest drug maker Ranbaxy has been in the news more than almost any other manufacturer. Ranbaxy settled patent disputes on two of the largest global drug brands, Lipitor and Nexium. The company's CEO Malvinder Singh sealed a "game-changer" deal with Japan's third largest drug maker Daiichi Sankyo and sold 34.8 percent of his personal and family stake for over $4 billion (Also see "Japan’s Daiichi Sankyo In “Transformational” Deal to Buy Majority Stake In India’s Ranbaxy Labs" - Scrip, 11 Jun, 2008.). And a U.S FDA investigation of Ranbaxy continues to heat up over allegations of good manufacturing practices deviations at one of the company's manufacturing sites in India (Also see "Ranbaxy Sees Light At The End Of DoJ Investigation Tunnel - CEO Interview" - Scrip, 29 Jul, 2008.). This week, PharmAsia News' India bureau sat down with Singh to get his take on the action.

PharmAsia News: You have described the Ranbaxy-Daiichi Sankyo deal as "transformational." How does it alter the global pharmaceutical business?

Malvinder Singh: This is a path-breaking deal and will be a trendsetter in many ways. It brings together the complementary strengths of a top-ranking innovator company with that of a major generics firm catapulting both in a single stroke to the top 15 pharmaceutical giants in the world. It is a significant move and will surely transform the pharma landscape globally.

PharmAsia News: Given Ranbaxy's strengths in manufacturing, you could have aligned with larger multinationals than Daiichi. Was it the price that Daiichi offered that made the difference, the comfort of independent operations or something else?

Singh: Ranbaxy had various options before closing the deal with Daiichi Sankyo. After a careful evaluation, we came to the conclusion that the arrangement with Daiichi Sankyo would be in the best interest of the company and its shareholders. The rationale for Ranbaxy joining hands with Daiichi Sankyo was primarily because of the great complementary business strengths of both companies and the compelling synergies available. The Ranbaxy-Daiichi Sankyo combine potentially enhances the scope, scale, size and reach of the marketing, manufacturing and research functions across global markets while harnessing the benefits from each link in the pharmaceutical value chain.

There is also an alignment of our vision and we have developed a very good chemistry and clear understanding of how the business will be operated. DS is strong on the innovation side and we have strengths in the generics space. The deal is path-breaking and will create a new business model - that of a global pharma powerhouse with the combined strengths of an innovator pharmaceutical giant and a sizable, highly regarded generics company.

Separately, at a price of 737 rupees, it is financially very beneficial to the Ranbaxy stakeholders

PharmAsia News: What are the immediate changes that can be expected with the two companies?

Singh: The Ranbaxy-Daiichi Sankyo deal will be consummated by the end of this year in Q1 2009. The synergies and mutual benefits will begin to accrue from next year. Ranbaxy will operate as an independent and autonomous company and will closely cooperate with Daiichi Sankyo to explore opportunities and drive growth across the entire pharmaceutical value chain. All management and people structures at Ranbaxy will continue to operate independently. I, as Chairman and CEO and MD, together with my existing team, will drive the company to the next higher level in the global pharma landscape.

PharmAsia News: Despite government efforts to increase generic use, the Japanese drug market generally has not been friendly to generics. Will Ranbaxy help Daiichi Sankyo better exploit the market?

Singh: The Ranbaxy-Daiichi Sankyo combine is today in a far stronger position to create a comprehensive value chain and product basket across branded, innovative, generics and OTC products, at a global scale that includes Japan. Our alignment with Daiichi Sankyo certainly gives us a significant advantage and propels us to aim for a leading role in the Japanese generics market.

PharmAsia News: You have given a strong outlook for the global generics market, but the biggest markets are seeing profit margins beaten to a pulp. As an independent entity, how will you retain decent margins? Which markets do you think can still be seen as entry points at this stage?

Singh: We feel that there is a lot of scope in emerging markets, which are primarily branded generics and have relatively higher growth and profit margins with sustainable earnings. Over the years we have created a more balanced business model with a greater emphasis on emerging markets. This makes Ranbaxy more resilient in facing market pressures.

PharmAsia News: You have predicted that more innovator-generics deals are in the offing. Will you be looking to make additional acquisitions in the generics space to further grow your position?

Singh: I believe that the trend-setting deal with Daiichi Sankyo is a game changer that will redefine the global paradigm for the pharmaceutical industry. We have the early mover advantage and are best positioned to gain from the complementary strengths of both partners to capitalize on the various growth opportunities across the pharmaceutical value chain. We will continue to scan and evaluate the global environment for any potential business opportunities based on the synergies with our existing business and the potential to add shareholder value, in the near and long term.

PharmAsia News: Ranbaxy shares are currently trading in the range of 500 rupees. Many analysts wonder how you can reach the transaction price of 737 rupees with Daiichi?

Singh: We are awaiting approval from the concerned authorities and once we get that, we will find the most optimal way of doing the transaction.

Daiichi Sankyo will acquire a majority stake of at least 50.1 percent at a price of 737 rupees per share. As has been previously said by both companies, the deal is final and binding. The majority stake will be acquired by Daiichi Sankyo through a combination of steps that include an open offer of up to 20 percent to the existing shareholders of the company at a price of 737 rupees per share or the price as determined by SEBI guidelines, whichever is higher. Both companies have expressed their faith in the deal and remain committed to making it happen.

PharmAsia News: You have always maintained that you would like to see consolidation in the domestic Indian market. Now with free cash of about a billion dollars at your disposal, will you make moves to buyout good targets?

Singh: We will pursue inorganic growth opportunities more aggressively than before. The company's potential for fund raising will be substantially higher, and including the cash surplus would be in the range of $3-4 billion. With a much stronger balance sheet, the company will be in a better position to explore M&A opportunities. Inorganic growth will remain an integral part of our business strategy and a key driver to expand our business.

PharmAsia News: You had plans to spin off your research wing [PharmAsia News, Dec. 10, 2007]. What happens to that now in the changed scenario? Daiichi has a moderate NCE pipeline and is struggling to enhance it. How will Ranbaxy step in to help Daiichi?

Singh: In view of the Ranbaxy-Daiichi Sankyo deal, the board of the company has decided not to proceed with the R&D de-merger. The strategic deal with Daiichi Sankyo will in itself enable Ranbaxy to achieve its goals and aspirations in new drug discovery and research. Further, the two organizations will also look to synergize their strengths for mutual benefit, going forward.

PharmAsia News: During the last 18 months, Ranbaxy has made several high-profile patent settlements, including litigation related to Pfizer's Lipitor and AstraZeneca's Nexium [ (Also see "Ranbaxy and Pfizer Settle Lipitor Litigation" - Scrip, 19 Jun, 2008.)]. Has there been any change in strategy?

Singh: It is the company's objective to secure six months exclusivity for molecules where we believe we have a strong case based on scientific merit. If required, this would be through litigation or out-of-court settlement of pending litigation. We are open to settlement opportunities and consider them on a case-to-case basis. Our objective is to gain an early entry for our generic products, provide certainty of launch, make available affordable drugs and maximize shareholder value. We will continue to focus on Para IV challenges.

Today Ranbaxy has one of the largest ANDA pipelines in the U.S. that includes 18 [first-to-file] opportunities with a market size of around $27 billion. The company has already made five significant settlements, which includes two of the biggest and most comprehensive settlements in the global pharmaceutical industry - Lipitor and Nexium - thereby effectively optimizing our first-to-file opportunities. This provides certainty of launch for the American consumer prior to patent expiry. Besides that, it provides us with assured revenue flows and offers significant commercial upside to our organic growth plans in the coming years.

PharmAsia News: How much of the money that you get from selling your stake to Daiichi may be invested in Ranbaxy in your personal capacity?

Singh: We retain the flexibility to buy the shares from the market.

PharmAsia News: Local industry reactions are mixed to your move to sell Ranbaxy. Some say Parvinder Singh's vision has been dashed while others say it's a smart survival strategy in line with global changes. Your comments?

Singh: It was strongly felt that the time was right to make the next big leap that would put the company in a new orbit and a much higher growth trajectory. Being a leader, it was necessary to transform the business by creating a new model that combined the strengths of a big pharmaceutical company and a generics company. This agreement is mutually beneficial and in its present form is strategically and financially in the best interest of the company, its employees and all its stakeholders.

It was always my father's vision to make Ranbaxy a strong global company and to do things in the larger interest of the organization. The Ranbaxy-Daiichi Sankyo deal furthers the same vision.

PharmAsia News: U.S. FDA is investigating Ranbaxy for alleged deviations from good manufacturing practices. Ranbaxy has repeatedly denied any wrongdoing. But FDA has come under fire from Congress for not taking stronger action to remove Ranbaxy products from the market (Also see "Ranbaxy Alleges Rivals Of Meddling With Daiichi Sankyo Deal; U.S. House Committee Enters Fray" - Scrip, 18 Jul, 2008.). Given this environment, what is the worst-case scenario for Ranbaxy and how do you plan to move forward?

Singh: Ranbaxy strongly denies the allegations contained in the motion that has been filed by the U.S. Department of Justice, seeking certain documents. No charges or legal proceedings have been initiated. The company continues to cooperate with the DOJ in regard to the investigation and has agreed to produce the specific documents sought by the motion. Upon production of these documents, the DOJ has communicated to us that the motion will be withdrawn.

[Editor's note: Shortly after this interview, DOJ requested that its motion be held in abeyance to allow Ranbaxy to produce audit documents. The court ordered a 60-day abeyance starting July 29 (Also see "Ranbaxy Granted 60 Days To Produce Audit Documents in DOJ Investigation" - Scrip, 31 Jul, 2008.).]

Ranbaxy has already filed a response in the U.S District Court and will strongly defend its position.

The company would like to state that an investigation has been underway for approximately three years and no charges have been filed against the company. The FDA has also gathered over 200 random samples of various products marketed by the company in the U.S. These products have been independently tested by the U.S. FDA and were found to be complying with all the specifications.

Under these circumstances the company finds that the allegations are baseless.

Ranbaxy remains committed to providing high-quality generic medicines at affordable prices to its customers and patients throughout the world including in the United States. We will continue to fully cooperate with the U.S. FDA and the DOJ in all respects.

- Vikas Dandekar ([email protected])