Securing US Food and Drug Administration approvals for Ranbaxy will be at the top of the agenda for Sun Pharmaceuticals, its Chairman Israel Makov said on Wednesday (April 9). Sun, which bought Ranbaxy recently for an all-share deal of $4 billion, will focus on decreasing costs and increasing productivity at Ranbaxy's facilities, he added.
"When the real issues are solved, the reputation related issues will solve themselves," Makov said. Ranbaxy has in the past few months received a series of warnings and withdrawal of approvals from the US regulator, impairing its ability to continue growing in the US, by far its largest market.
In February this year, Ranbaxy stopped all raw material shipments from its Toansa and Dewas facilities which manufacture API, the basic chemicals that go into medicines, in order to review "processes and controls" at these facilities. This is where Sun will bring in its own strengths, Makov said, to increase productivity and create synergies within the two companies.
The company has identified many potential synergies where revenues can be increased by the merger, he said. These will come from crossing products between companies and markets. The acquisition will reinforce Sun's presence in India, where the company was number one in seven therapeutic segments before the acquisition. Now it will be the first in 13 segments. Thanks to Ranbaxy, Sun will be getting a good entry into the acute therapeutic categories.
In the US, the merged company will have a much larger presence supplying to key customers, Makov said. The merged company will be in a better position to address key concerns in the US, where a broad range of products help serve large customers better.
The purchase was a 'relatively short process' after the Sun management approached Daiichi Sankyo. "We approached the company. It was not on sale as far as we know," Makov said. However, now Sun wants to develop further collaboration with Japan's fourth biggest medicine manufacturer by revenues. While nothing has been explored as yet, Ranbaxy had started some work in Japan, which may now be taken forward. Sun wants to be present in that country, Makov added.
Analysts feel that it is a good deal for Sun Pharmaceuticals, especially at the price it has paid for Ranbaxy. Alok Dalal, who tracks Sun Pharma at Motilal Oswal Securities Ltd., said that the there is little Sun Pharma should be concerned about, since there are no lawsuits against Ranbaxy. "No lives have been lost due to any products. Hence their problems are not product, but process-related, which can be solved," Dalal said.
Sun is confident it would be able to turn around Ranbaxy. "We know the company very well, it is an Indian company. It is not a company in Alaska; it is very close to us. It is in the same business that we are. And by the way, we know them for more than a day or two," he said.
Sun Pharma announced that it will acquire Ranbaxy entirely in an all-stock transaction day before yesterday.
Ranbaxy shareholders will receive 0.8 share of Sun Pharma for each share of Ranbaxy. This exchange ratio represents an implied value of Rs. 457 for each Ranbaxy share, a premium of 18% to Ranbaxy's 30-day volume-weighted average share price and a premium of 24.3% to Ranbaxy's 60-day volume-weighted average share price, in each case, as of the close of business on April 4, 2014, according to a release by the two companies.
The combination of Sun Pharma and Ranbaxy will create the fifth-largest specialty generics company in the world and the largest pharmaceutical company in India. The combined entity will have operations in 65 countries, 47 manufacturing facilities across 5 continents, and a significant platform of specialty and generic products marketed globally. The combined entity's revenues are estimated at US$ 4.2 billion with EBITDA of US$ 1.2 billion for the twelve month period ended December 31, 2013. The transaction value implies a revenue multiple of 2.2 based on 12 months ended December 31, 2013, the release said further.
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