Timely acquisition

Ranbaxy Laboratories did not have many options other than being taken over by another company. 

It had done much to develop the generics drugs business and was among the few Indian companies that made an impact abroad. 

But in the last few years, it has severely damaged its own reputation with supply of substandard products and fraudulent practices. 

The sale of the company by its Indian owners to the Japanese company Daiichi Sankyo did not improve things. 

Product quality and governance issues combined to erode more than half the worth of the company in a short period.

Under its own name and address the company would have taken a long time to live down its bad image and get back to good business ways. 

But it has a good portfolio of drugs which can still make business. Sun Pharma has found that opportunity with its acquisition of the company.

 

There is still a lot of scope for the growth of the generics market both in the developed and the developing world. 

The $ 3.2 billion acquisition of Ranbaxy makes Sun Pharma the world’s fifth biggest generics manufacturer and gives it the size and scale to exploit the potential. 

The bigger size and resources make the new company better placed to promote research which is the key to growth but is the weak point of Indian companies.

There is the need for consolidation in all operational areas. 

The US is the world’s biggest drug market and half of the revenues of Indian drug companies will come from there in the near future.

That makes it imperative that all drug companies follow and implement the stringent standards of quality prescribed by the US Food and Drug Administration (FDA).

 

So the first challenge for Sun Pharma will be to resolve the regulatory issues in Ranbaxy’s record. Drugs from four Ranbaxy plants are banned in the US. 

There is the need to get the decisions reversed and establish trust and confidence in the products. 

 

Sun Pharma also had a brush with a regulatory problem last month but it is better placed to handle them.

 

The cultural and operational issues in the merger, with the combined entity working 47 plants across five continents, will also have to be addressed. 

A message from the Ranbaxy experience is that compromise on quality never pays but only hurts ultimately. This is a lesson which can be usefully learnt by other companies too in all sectors.