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What happens to the rest of Indian pharma when the leader takes the consolidation dose? virat bahri & manish k. pandey discuss the fallout...
In times of despair that they live in, rarely do pharma CEOs have an opportunity to cheer. Pfizer CEO Jeffrey Kindler, though, did get one with the Ranbaxy stake sale. After all, his company has crossed swords with Ranbaxy for quite some time now on the issue of the Lipitor drug. What could be better than one of your most bitter competitors getting bitten by the consolidation bug?
Or, taking a more realistic view, what could be worse? Once Ranbaxy is under the control of Daiichi Sankyo, Pfizer will face a larger, more formidable competitor, with strengths in both generics and R&D, which would be ranked 15th in the global pharmaceutical space. And even if rumours of Pfizer attempting to put in a competing bid for the open offer for Ranbaxy shares are grossly untrue, it is for sure that such a strategic calculation would have crossed Kindler’s mind too.
If it is still a consideration, analysts now feel he needs to brush it under the carpet. Sujay Shetty, Associate Director, PriceWaterhouseCoopers, avers, “The way valuations are going, it isn’t such a good idea, even if we consider the benefits of Lipitor. Besides, it is difficult to carry on without the support of promoters.” He feels that they may compel Daiichi to pay more, but even that does not bring any compelling benefits to Pfizer. They may indeed end up overpaying. Comparisons being made with Pfizer’s acquisition of Warner Lambert, where it overpaid by around $20 billion to acquire it for around $90 billion. But then, Warner Lambert had Lipitor, which has been delivering annual sales of around $13 billion for Pfizer (nearly 13 times Ranbaxy’s annual revenue for 2007!).
So in all probability, the coast is clear for Daiichi, which unveiled its open offer to buy an additional 20% stake in Ranbaxy through an open offer (the promoter family, led by CEO & Chairman Malvinder Singh, have already committed their 34.8% stake to Daiichi) at a price of Rs.737 a share, which effectively values Ranbaxy at $8.5 billion. A shocker indeed for the Indian pharma industry and India in general, which is used to seeing the other side of the consolidation needle so far. If at all, we could raise a toast to East-East solidarity, even if that kind of emotion hardly ever crossed our mind before this landmark divestment of India’s largest pharmaceutical company!
For more articles, Click on IIPM Article.
Source : IIPM Editorial, 2008
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
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