Journal of Case Research Volume II Issue 01

Global Strategy for Growth: A Case of Ranbaxy Laboratories

Padmanabha Ramachandra Bhatt1

“Personally, I feel that companies who constantly innovate to provide better

products and services and who can offer superior value propositions to the
consumer are the ones likely to command more respect globally than others”2

Malvinder Mohan Singh, CEO and MD, Ranbaxy Laboratories Ltd

Indian pharmaceutical industry was worth of $ 8 billion in 2006 and had been growing at an
average rate of 8–9 %. The industry was highly fragmented with more than 20,000 registered
units and 30% of market was controlled by top ten companies and the rest of 70% by small
companies. The Global pharmaceutical industry was estimated at $ 600 billion in 2006. Indian
pharmaceutical industry has become more innovative and enterprising with more investment in
R&D especially since the WTO agreement was signed.

Ranbaxy Laboratories Ltd. was India’s largest pharmaceutical company with revenue of US $
260 million in the domestic market and $ 1.3 billion in the global market in 2006. In the
domestic market Ranbaxy enjoyed a share of 5.1% with nine brands in the Top 100 list in 2006.
It is one of the largest ANDA (Abbreviated New Drug Application) filers with US FDA ( United
States Food and Drug Administration). The company’s offices have spread over 49 countries
with employment of 12,000. It is one of the ten generics players in the world. Three-forth of
Ranbaxy’s revenue comes from international sales, with the US alone accounting for almost one
third. The range of products covers a wide band of therapies with a total over 5000 SKUs (Stock
Keep Units) globally.

Ranbaxy’s vision was “To become a research based international pharmaceutical company”.

1
Padmanabha Ramachandra Bhatt, Ph.D., Visiting Professor, Universiti Utara Malaysia
Email: prbhatt@uum.edu.my
2
Ranbaxy’s World, December, 2007

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Journal of Case Research Volume II Issue 01

Ranbaxy Laboratories Limited

Ranbaxy was founded by Ranjit Singh and Dr. Gubax Singh in Amristsar to distribute Vitamin A
and anti-tuberculosis drugs to Japanese Pharmaceutical companies in 1937. The company set
up a manufacturing unit in Okahla in 1961, in collaboration with Lepatit, an Italian
Pharmaceutical company to produce the patented drug chlorophenicol for typhoid. Later
Ranbaxy bought the company in 1967. The company went public in 1973 to establish an Active
Pharmaceutical Ingredients (API) manufacturing plant at Mohali, Punjab. When Drug Price
Control Order (DPCO) was enacted in India in 1970, the prices of all drugs were stipulated by
the Government. As a result, the prices had fallen for all drugs. The company had then started
exporting bulk drugs (APIs) to Malaysia, Thailand, Srilanka, Middle-East and Singapore in 1975.
In Malaysia, it established a joint venture to manufacture and distribution of formulations. API
plant was set up to manufacture antibiotics/antibacterial at Taonsa in India in 1987.

Parvinder Singh (1993-1999)

Ranbaxy Pharmaceutical Ltd had remained as a small company under Bhai Mohan Singh till
1990. Parvinder Singh wrested the control of the company from his father Bhai Mohan singh in
1993. He was a doctorate in chemistry from the University of Michigan. He joined the company
to help his father in 1967. He was a visionary and a forward looking CEO. When Indian Patent
Act (1970) came into exist in India, Parvender Singh exploited the opportunities of new patent
act to manufacture formulations and generics. The act abolished the product patents for all
pharmaceutical and agricultural products and process patents were permitted for 5-7 years. He
had invested heavily in setting up a plant in Mohali to manufacture bulk drugs.

Parvinder Singh was always ahead of others in the industry. He wanted to make Ranbaxy a
global company. He adopted global strategy through acquisition in US, UK and India. He set up a
state-of-the-art Research and Development Centre at Gurgaon, India. R & D acted as an engine
of growth for the company. In the R & D Centre, he established Chemical Research,
Pharmaceutical Research, Fermentation Research, Novel Drug Delivery System (NDDS), and

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Journal of Case Research Volume II Issue 01

New Drug Discovery Research (NDDR). The company focused on Urology, anti-infectives,
respiratory, anti inflammatory and metabolic disorders segments.

Bhai Mohan Singh’s initial strategy was to focus on Active Pharmaceutical Ingredients
(API).When Parvinder Singh took over the reign, the strategy was shifted to manufacture
generics which were off-patents drugs. Parvinder Singh made far reaching changes in the
company. He introduced management by self control in the company to facilitate all members
of the company to participate in the decision making process. He abandoned top-down policy
pursued by his father Bhai Mohan Singh. He set up a stretch target of sales of US $ 1 billion to
be achieved by 2004. Ranbaxy set up a joint venture with Eli Lilly with 50-50 partnership to
manufacture products of international quality in India in 1993. The joint venture manufactured
Lily’s products and marketed in India, Sri Lanka and Nepal. Ranbaxy was benefited in terms of
technology and Eli lilly got the advantage of low cost manufacturing.

Parvinder Singh looked forward to set up international business in USA, UK, and Latin American
countries. He has adopted global strategy through joint ventures and acquisition to achieve
sustainable growth. He formed a joint venture Ranbaxy Guangzhou China Ltd (RGCL) in China in
1993 and started manufacturing bulk drugs and formulations in 1995 ( see Table 7). The joint
venture manufactured antibiotics, analgesics, cardiovascular and other drugs and marketed all
over China. Later Ranbaxy has increased its stake in RGCL to 70%. Its brand cefran was the
market leader in China. It acquired Thai Pharmaceutical Company Unicher in 1995 and formed
Ranbaxy Unicher Co. Ltd (RUCL). RUCL was importing more than 50% of the products
manufactured in India. It has a strong presence in Antiinfectives, Haematinics, Cardiovasculars,
Nutritional & GI Tract segment in Thailand and India. Parvinder Singh established a global
alliance with Eli Lilly to manufacture and market cefactor in US in 1994. The joint venture
helped Eli Lilly to increase its market share of cefactor in USA whereas Ranbaxy was befitted in
acquaintance of stringent regulatory requirements of Food and Drugs Administration (FDA) in
the USA. Ranbaxy sourced cheap cefactor intermediates to Eli Lilly and Eli Lily in turn marketed
cofactor as branded product. Ranbaxy has entered the US market and operated through two

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subsidiaries Ranbaxy Pharmaceutical Inc( RPI) and Ohm Laborataries Inc, the over the counter
drug manufacturer in 1995 ( Table 7). Ohm Laboratory had exceptional FDA approval record.

There was immense opportunity to sell generics in Europe. European market is attractive
because of aging population and high health costs forcing the goods to open the generics
market. Parvinder Singh wanted to exploit huge potential in Europe and keeping that in mind,
he set up a subsidiary namely Ranbaxy UK Ltd to sell its branded products in 1996. He acquired
another company Rima Pharmaceuticals, the semisynthetic pencillins maker to sell generics
products in Europe. His basic strategy was to keep the acquired units as profit centres which
helped Ranbaxy to keep acquired firms self sufficient. Also the acquisition process did not
adversely affect the managerial culture, openness, self motivation and positive attitude. The
acquired centre was given full responsibility of profit and loss of the company. The regional
managers were given high degree of autonomy. He had adopted three tier organizational
structures. The first tier consisted of senior managers and second tier regional managers and
the third country managers.

In 1990s, Ranbaxy’s effort was to sell formulations under its own brand name. It wanted to
move up from low-margin bulk pharmaceuticals to high margin branded formulations. The
major markets for branded generics are Russia, China and other developing countries.
However, in US and UK, Ranbaxy focused on formulations rather than branded products
because of stiff competition from other major players in branded generics.

In UK, Ranbaxy was successful to market branded formulations as it has received approval from
Medicines Control Agency (MCA) for many branded generics. Ranbaxy’s manufacturing strength
has been established in the field of process development, scaling up and commercialization of
APIs, world class generics, and branded generics. It set up world class manufacturing facilities in
seven countries viz. India, China, Ireland , Malaysia, Nigeria, US and Vietnam. In Malaysia it set
up Ranbaxy Malaysia Sdn Bhd (RMSB) as a joint venture between Ranbaxy and Malaysian
shareholders in 1984. A manufacturing unit was set up in Sungai Petani, Kedah to cater the
need of Malaysia and Singapore market. Later it has increased its stake in RNSB to 55%.

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Ranbaxy’s Manufacturing facilities were approved and audited by international regulatory

agencies like US FDA, UK MCA, South Africa MCC, and Australia TGA.

Parvinder Singh made significant value addition to products efficacy or delivery in its NDDS
program. For example, the company made a significant improvement to ciprofloxacin, a Bayer
patented drug which cut the required dosage to once a day against several times a day as
needed for Bayer’s drug. It later out-licensed the technology to Bayer for $ 65 million and also
earned royalties on resulting sales. Ranbaxy has come up with three new chemical entities
(NCEs) in the area of asthma, urology and malaria. These were at various stages of clinical
development. One entity for malaria has entered Phase II of clinical trials. The molecule was
aimed at mainly for the under developing countries. In 2002, it had out-licensed a NCE,
codenamed RBx2258 (for treating the enlargement of the prostate gland in people above 50
years), to Germany’s Schwarz Pharma for further development and clinical trials. But Schwarz
Pharma had to abandon trials in late phase II due to a lack of desired results, measured in terms
of safety, efficacy, and superiority.

Ranbaxy’s international operations were spread over four regions viz. India and Middle East;
Europe, CSI, and Africa; Asia-Pacific and Latin America and North America. Parminder Singh set
up manufacturing facilities in each region to manufacture drugs at low cost.

The company has changed its financial year to January- December from April-March with effect
from January 1999.The company dropped those products the sales of which yielded low
margins. It rationalized the whole product portfolio in domestic and foreign market to achieve
the target of US$ 1 billion by 2004.

Devinder Singh Brar (1999-2004)

Paravinder Singh died of cancer in July 1999. Before his death, he established a strong base for
the company. Devinder Singh Brar was appointed as CEO and Managing Director by Bhai Mohan
Singh, Parvinder Singh’s 80 year old father in 1999. Bhai Mohan Singh did not consider
Paravinder Singh’s son Malvinder Mohan Singh for CEO as Malvinder Singh was very young and
did not have maturity to become CEO of the company. Bhai Mohan Singh commented after the

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Journal of Case Research Volume II Issue 01

appointment of D S Brar as CEO, “Brar will ensure the professionalism inculcated in the
company by Parvinder Singh and take the company to new heights”.

D S Brar has envisioned ‘Vision Garuda’ of achieving a target revenue of US $ 5 billion by 2012,
70% of revenue should come from International business. He wanted to reiterate Ranbaxy “a
research based international pharmaceutical company”. He continued to follow the global
strategy of Parvinder Singh. His first acquisition was German generic business Bayer in 2000.

D S Brar took a major decision to pull out of its Indian joint venture with Eli Lilly. He felt that Eli
Lilly’s 50-50 partnership was no longer required for the production of the drugs in India. He
argued that Ranbaxy has come of age and could manufacture and market quality product
independently in Indian and overseas market. D S Brar found that there was a huge market
potential for anti-AIDS drugs in India. There were 3.7 million HIV positive patients in India.
Ranbaxy wanted to launch anti-AIDS drugs lamivudine, nevirapine, abacavir and indinavir in the
Indian market. The market was dominated by Cipla and GlaxoSmithcline who did aggressive
marketing for the drug. He used low cost manufacturing facilities to manufacture the anti-AIDS
drugs and sold directly to consumers to capture the market. The company entered Consumer
Healthcare which was thriving business in India. The company launched four brands viz. Revital,
Pepfiz, Garlic Pearl and Gesdyp. The business turnover of these products was Rs. 552 million in
2003.

D S Brar launched generic blockbuster antibiotic Augmentin in the U S Market in January 2002.
It has garnered a market share of only 1% against a market share of 80 % enjoyed by Geneva
Pharmaceuticals of Switzerlands and Tava of Israel. Ranbaxy Branded Products Division, a
marketing arm of Ranbaxy which marketed exclusive company owned branded products had
launched another branded generic product Sotret, the company’s brand for Isotretinoin capsule
in the U S market which has market size of US $ 540 million. Ranbaxy gained a market share of
8% for Sotret. It had also got approval from US FDA to make and sell a generic version of
Pfizer’s antifungal drug Diflucan. Its another product Ceftin accounted one third of Ranbaxy’s
total sales in U S.

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During 2003, Ranbaxy’s business operations in the US had widened with revenue of US $ 412
million, representing 42% of the company’s global turnover. The company had obtained 24
approvals from US FDA in 2003. The company received US FDA approval for manufacture and
maketing of Isotretinoin of 30 mg strength in June 2003. This was not available to generic
players and even the originator itself. The US market for Isotretinoin was $ 6 million in 2003.
The company acquired the generics business of RPG Aventis Life Sciences in France to increase
the market in Europe.

D S Brar identified two focus areas viz. New Drug Discovery Research ( NDDR) and alliance
management as the key growth engines in R & D. He made an alignment with Geneva-based
Medicines for Malaria Venture (MMV) and developed synthetic peroxide anti-malarial drug RBx
11160. Ranbaxy Laborataries and GlaxoSmithKline Plc (GSK) have entered into collaboration for
drug discovery and clinical development covering a wide range of therapeutic areas. Ranbaxy
would be responsible for activities from optimization of lead components to generation of a
development candidate. Once a compound has been selected as development candidates, GSK
would complete the development. GSK has also got the responsibility of commercialization of
the product.

“The best companies are the best collaborators”3- Thomas & Friedman

Brian W Tempest (2004-2005)

D S Brar exit in July 2004 after completing his five year tenure and Dr. Brian W Tempest (57
years) was appointed as CEO and MD from July 05, 2004 to December 31, 2007. He was a
doctorate in Chemistry from Lancaster University. Tempest has 32 years of experience with 4-5
companies such as Glaxco Holidays, G D Searle, Becham and Fisons. He was more of a
operations person rather than a strategist and visionary. Tempest followed the path of D S Brar.
After taking over as CEO, Tempest said, “I feel immense pride and honour to lead Ranbaxy,

3
Ranbaxy World, December 2007

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Journal of Case Research Volume II Issue 01

India’s truly global organization. ……Ranbaxy would endeavor to be at the forefront in delivering
the India centric advantages to the advanced and developing countries of the world”.4

Ranbaxy had signed another collaborative Research agreement with Avestha Gengraine
Technologies Pvt Ltd (Avesthagen) in the area of NDDR. Avesthagen was the first India’s
discovery based bio-technology and bioinformatics company. Dr. Patell, Founder and CEO,
Avesthagen commended on the collaboration, “Avesthagen’s vision has been to promote new
drug discovery and support and enable our Indian Pharma companies to reach and address the
needs of the people of the global markets. We are glad to partner with Ranbaxy in ths endeour
and look forward to a very fruitful relationship”5. Dr. Kasim Mookhtiar, Vice President NDDR, R
& D Ranbaxy said, “With the rapid growth of new drug discovery research at Ranbaxy,
opportunities exist for collaborative work. We are glad to avail of Avesthagen’s quality R & D
services in cutting edge technology to augment our capacity so that our current needs can be
met in a timely manner”6 The company wanted to climb up the value chain to increase
revenues from dosage forms sales. Dosage forms marketing operations are structured through
India; Europe, CIS, Africa; Asia Pacific, Latin America & Canada; North America, The Middle East.
Dr. Rasmi Barbhaiya, R & D President said “This collaboration provides an avenue to Ranbaxy to
leverage its discovery and early product development strengths and gain access to cutting edge
technologies”7.

Dr. Rashmi Barbhaiya, President, R & D who had held this position since April 15, 2002, left the
company in 2003. Dr Tempest himself took charge of R & D with separate heads for NDDR and
NDDS and generic Drugs Developments reporting to him directly. The company spent US $ 75
million in R & D in 2004, showing an increase of 43%. The sales of company was the highest in
USA (US$ 426 million) followed by BRIC countries (US$ 305 million) and Europe (US$ 192
million) in 2004 (Exhibit 1). The company invested in training and development needs of its
employees through tailor made programmes and extensive workshops. There is a formal
mechanism to reward employees for new ideas. It has launched a project called CRUSOE that

4
Business source Premier
5
Business source Premier 2004
6
Business source Premier 2004
7
ISI Emerging Market In India-Ranbaxy, 2003

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Journal of Case Research Volume II Issue 01

works on improving operational efficiencies. Under this project, employee’s suggestions are not
only captured, but encouraged via contests. Brian Tempest used to spend two-three days in a
week visiting labs and talking to scientists.

By February 2004, Ranbaxy crossed US $ 1 billion in revenues. Ranbaxy was the third largest
filer of ANDAs (150) with US FDA in 2004. He focused four disease segments viz. Infection,
Urology, Inflammation/ Respiratory and Metabolic disorders in his New Chemical Entities (NCE)
pipeline. In Urology segment in India, Ranbaxy is leader and enjoyed a market share of 12.5% in
2006. Commenting on the company’s performance in Urology segment, Sanjeev I Dani, Senior
Vice President and Regional Director- Asia and CIS Ranbaxy said, “Ranbaxy has identified
Urology as a focus area and as result launched superior therapeutic options for the specialists
……. Our dedicated and well trained Urology team helps deliver prompt therapeutic solutions to
the Urologists and supporting specialists”8. During the first half of 2007, the company launched
three NDDS based formulations viz. Niftran, Eligard and Roliflo9.

With India becoming signatory to the WTO and introduction of the Patent Product regime, the
Indian market will be an attractive option for introduction of research-based products. In the
new patent regime, only strong players in terms of research and technical capabilities can
survive. Malvinder Singh, Regional Director -India Region of the company was appointed as an
additional Director of the company with effect from January 1, 2004 and number two in the
company. Tempest had lent his support to Malvinder Singh in his India business. Malvinder
Singh wanted to enhance the business in India. He has rationalized the product portfolio and
focused on speciality-oriented therapies. Expressing his delight at this development, Sanjeev
Dani, Senior Vice President & Regional Director, Asia & CIS, Ranbaxy, said, “We have
restructured our domestic operations to focus on high growth segments. Due to our strong
marketing capabilities coupled with new product successes, our performance has been buoyant
in recent years. It has culminated into rapid market share gains and now with the number one
position in the domestic market, we intend to secure this leadership position in the coming
months and years through attracting human resources & retaining talent. In-licensing and

8
Ranbaxy World, December 2007
9
Ranbaxy World, December 2007

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launching innovative products remain our prime focus areas”10. He understood that in order to
be competitive, a company needs to be strong in the domestic market. He ensured right
doctors to be covered by sales representatives. The coverage ratio has gone up from 30% to
70%. He improved fiscal discipline in the company. Malavinder Singh who joined the company
in 1998 had worked in different projects such as Information Technology, generics, lifecycle
brands and global licensing.

Malvinder Mohan Singh (2005-2008 )

Tempest retired in June 2005 and Malvinder Mohan Singh became CEO and MD. Like his father,
Malvinder Mohan Singh also wanted to take Ranbaxy to a new height. His strategy was to focus
on US, Europe, and emerging markets. It has a market share of 42% in the developed countries
(Figure 1). Its market was growing at the rate of 31% in USA in 2006 (Figure 2). He bought a US
midsized generic company Mutual Pharmaceuticals for US $ 300 million and five other global
companies. He had taken shareholder’s approval to raise US$ 1.5 billion in equity and US $ 1.2
billion in debt. He raised another US $ 440 million through a Foreign Currency Convertible Bond
(FCCB) offering.

Malvinder Mohan Singh acquired Terapia S.A in Romania to serve the European market
efficiently and cost effectively in 2006. After the acquisition, it was renamed as Terapia-
Ranbaxy and became the largest generic player in Romania. The combine sale was US $ 80
million in 2006. On the completion of the transaction, Malvinder Singh said, “Romania now
becomes the third largest market for us in terms of revenue. We are committed to developing
our operation here as strategic hub for Europe and the CIS. We will continue to fortfy our global
presence, particularly in our key geographies”11.

Expressing his delight with progress of the company, Peter Burema, President, Global
Pharmaceutical Business, said, “Our combined market share, in terms of volume exceeds 10%.
This means that one out of every ten medicine packs being sold in Romania is currently being

10
Business source Premier
11
Ranbaxy World, December 2007

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Journal of Case Research Volume II Issue 01

manufactured by Terapia Ranbaxy”12. Ranbaxy can take advantage of Terapia’s strong R&D and
manufacturing infrastructure as also their highly skilled senior management team. He acquired
another Be-Tabs of South Africa for US $ 70 million in 2006. Malvinder Singh after the
acquisition of Be-Tabs said, “The acquisition results in considerable synergies and further
strengthen Ranbaxy’s foothold in South Africa. It reinforces our position by expanding our
portfolio in a key market that is exhibiting strong growth potential. The move will help us to
provide effective disease management solutions in support of the government/s objective to
make health care affordable to a wider cross-section of the population”13. The company made
nine mergers and acquisition amounting to a value of US 450 million to expand its presence in
emerging and profitable markets such as Romania and South Africa in 2006. The company’s
return of net worth was 13.2% in 2006 (Exhibit 2). The company made an impressive
performance by increasing its sale to US $ 40.6 billion in 2006 (Exhibit 3). It made a net profit of
US $ 3.8 billion in 2006 (Exhibit 3).

Ranbaxy is vertically integrated in production and research. To strengthen the vertical

integration capabilities and fermentation capacities, it acquired Cardinal drugs, an API
manufacturer at Malanpur near Gwalior and a strategic stake of 15% in Kerbs Biotechnicals in
India and Jupital Biosciences Ltd, a company specializing in the development and manufacture
of peptitude products. Ranbaxy entered the fast growing Oncology therapeutic segment in the
NDDR agenda. It had a partnership with Zenotech Laboratory Ltd in India to strengthen
oncology therapy and bio-generics in 2007. It had marketed 11 oncology products as generic
formulations in the US and Canada. “Having worked with Zenotech for almost two years, we
believe that this investment and partnership provides a strong platform for us to leverage these
opportunities”14 Malvinder Singh said.

Malvinder Singh’s strategy was to focuss on out-licensing, in-licensing and NDDS. He out-
licensed Ranbaxy’s Statin molecule to Pharmaceutical Product Development Inc (PPD), a leading
contract research organization. PPD will have an exclusive worldwide licence to develop,

12
Ranbaxy World, December 2007
13
Ranbaxy World, December 2007
14
Ranbaxy World, December 2007

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manufacture and market Ranbaxy’s Statin for the treatment of dyslipidemia, chlolestrol
lowering drugs account for $ 32.4 billion in sales for 200515. The company also received a
milestone payment from PPD Inc for the completion of the Phase I clinical studies. Ranbaxy
launched blockbuster anti-cholesteremic Simvastalin 80 mg and Pravastatin 80 mg in the US
market with a 180 days marketing exclusivity which has captured 56% market share during 180
days exclusivity period in 2006. In the post exclusivity period, the company launched 5, 10, 20,
40 mg strength of Simvastatin. The company also launched the first Atorvastatin under the
brand name Storvas in Malaysia. The success of Sotret 30 mg led to growth in the overall
prescription market share for the product from 21% to 25.5 % in 2006.

As of December 2006, Ranbaxy holds US FDA approvals for 121 ANDAs and 76 ANDAs are
pending for approvals. During 2006, Ranbaxy received 10 approvals and filed 28 ANDAs
including 1 PEPFAR (The US President’s Emergency Plan for AIDS Relief) ANDA for approval by
the US FDA. Malvinder Singh continued to focus on NDDS and in-licensing as strategic areas for
future growth of the company. NDDS has developed proprietary “platform technologies” and
contributed 9% to the turnover of Indian business. The in-licensing products were Synasma
(Doxophylline) and Trambax ( Tramadol Flash Tabs). In 2006, Ranbaxy entered into an
agreement with Senetek PLC, to purchase patents, trademarks and automated manufacturing
equipments for proprietary disposable auto-injector technology.

Global Consumer Healthcare registered a sales of US $ 35 million globally and US $ 19 million in

India. Revital is a powerful brand of Ranbaxy which has a market share of 72% in India.

Ranbaxy had a strong Internal Audit function with accreditation of ISO 9001-2000 certificate.
The Audit function is headed by Vice President who reports directly to the CEO and the Audit
Committee.

Ranbaxy set up a Global Quality Assurance team which ensures quality manufacturing process
across all locations.

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Ranbaxy World, December 2007

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“It is an encouraging sign that Indian companies today are more convinced about
their global strength of world-class quality, cutting-edge technology, cost
competitiveness and human capital”16- Malavinder singh

Malvinder Singh gave the strategic direction for the company to move from the generics to New
Drug Delivery System (NDDS) to New Drug Discovery Research (NDDR). Under NDDR mission,
he wanted to discover and develop novel therapies that meet large unmet medical needs and
transform Ranbaxy into a respected international research based pharmaceutical company.
Ranbaxy has spent Rs. 428 crore on R&D in 2007 to move up to the value chain.

Acquisition by Daiichi

Ranbaxy was facing many issues such as poor financial position, no major R&D breakthroughs,
increasing price wars and stiff competition in the generics market. In order to maintain its
growth and market position, Ranbaxy needed an influx of fresh funds and Malvinder Singh was
looking for a partner to tide over the financial and other issues.

Daiichi Sankyo, second largest and an innovator company in Japan wanted to manufacture low cost
generics because of Japan government’s new policy of helping the aging population by low cost
generic substitution for branded drugs. Daiichi lacked the low-cost expertise and looking for a low
cost generics company. They found an opportunity to buy Ranbaxy because of its low cost
production and research facilities to save on costs and drive growth (see Exhibit 4 for comparison).
In June 2008, Daiichi Sankyo acquired over 51% stake in Ranbaxy Laboratories Ltd at Rs. 737 per
share. Malvinder Singh sold out his stake of 34.8% to Daiichi Sankyo. The new entity can create
better market coverage by producing low cost manufacturing. With Ranbaxy’s pool of scientific,
technical and managerial resources and talent the new entity can enter a new orbit to chart a
higher trajectory of sustainable growth in the medium and long term in the developed and
emerging markets. The new entity is a significant milestone in the Ranbaxy’s mission of
becoming a research-based international pharmaceutical company. As the company moves into
a next level of growth it would benefit the organization, its shareholders and the employees.
The proposed transaction is also in line with Daiichi Sankyo’s goal of becoming an innovator

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Ranbaxy World, December 2007

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Journal of Case Research Volume II Issue 01

global company. Thus the creation of new entity would synergize to serve people globally in
terms of low cost drugs. Ranbaxy’s R&D capabilities of low cost manufacturing and Daiichi
Sankyo’s competency of innovation will provide the new entity with a sustainable, long-term
competitive advantage.

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Journal of Case Research Volume II Issue 01

Exhibit 1: Sales of Ranbaxy Laboratories by Key Market-2004

Sales in US$ in
Million
USA 426
Europe 192
UK 50
Germany 26
France 73
BRIC Countries 305
Brazil 31
Russia(Including Ukraine) 45
India 217
China 12

Source: Annual Report 2004

Exhibit 2: Key Parameters of Ranbaxy

Particulars 2006 2005 2004

EBIDTA to Sales % 15.5 7.2 20.4
PAT to Sales % 08.5 5.0 13.1
ROCE % 13.2 5.3 29.6
RONW % 20.3 10.6 30.0
Earnings Per Share(Fully diluted) Rs. 13.2 06.9 18.7

EBIDTA Earnings before Interest, depreciation, Tax and Amortization

PAT Profit after Tax
ROCE Return on Capital Employed
RONW Return on Net Worth

Source: Annual Report 2006

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Exhibit 3: Ranbaxy at a Glance

Rs. billions
1999 2000 2001 2002 2003 2004 2005 2006
Results for the year
Sales 15.6 17.4 20.5 28.2 35.3 36.1 35.4 40.6
Index 1.8 2.0 2.4 3.2 4.1 4.1 2.7 3.0
Exports 7.3 8.1 10.3 18.5 24.7 24.6 23.2 27.2
Index 1.8 2.0 2.5 4.5 6.1 6.0 3.9 4.6
Gross Profit 2.6 3.2 3.9 7.3 10.1 7.2 3.2 6.1
Index 1.4 1.7 2.1 4.0 5.5 3.9 1.3 2.5
Profit before Tax 2.1 1.9 2.8 7.1 9.6 6.3 2.0 4.4
Index 1.3 1.2 1.8 4.5 6.0 4.0 1.0 2.2
Profit after tax 2.0 1.8 2.5 6.2 7.9 5.3 2.2 3.8
Index 1.5 1.4 1.9 4.6 5.9 3.9 1.2 2.0
Equity Dividend( in
Rupees) 869.2 869.2 1158.9 2434.0 3156.3 3162.6 3,166.70 3,168.90
Index 3.7 3.7 4.9 10.3 13.3 13.3 6.0 6.0
Equity Dividend (%) 75 75 100 150 170 170 170.00 170.00
Earnings per share(Rs.) 17.0 15.7 21.9 28.9 42.6 28.3 5.68 9.87
Year-end Position
Gross Block+ 8.7 9.2 9.3 10.4 12.5 16.7 22.3 24.4
Index 1.9 2.0 2.0 2.3 2.7 3.6 3.0 3.30
Net Block 6.3 6.4 6.1 6.8 8.0 11.4 16.3 17.4
Index 1.7 1.8 1.7 1.8 2.2 3.1 2.8 3.00
Net Current Assets 8.2 8.3 7.5 9.6 13.3 9.5 11.3 12.6
Index 1.1 1.1 1.0 1.3 1.8 1.3 1.2 1.40
Net Worth 15.0 15.8 17.4 19.6 24.3 26.3 23.8 23.5
Index 1.8 1.9 2.1 2.4 3.0 3.2 1.8 1.80
Share Capital 1.2 1.2 1.2 1.9 1.9 1.9 1.9 1.9
Reserve & Surplus 13.8 14.7 16.2 17.7 22.5 24.4 21.9 21.6
Book value per
share(Rs.) 129.3 136.6 149.8 105.71 131.1 141.4 63.84 63.05
No. of Employees 5347 5784 6424 6297 6797 7195 7,174.00 8,020.00

Source: Annual Report 2005

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Journal of Case Research Volume II Issue 01

Figure 01: Global Market Mix 2006

others 9%

Emerging 49%

Developed 42%

Source: Annual Report 2005

Figure 02: Growth Contribution 2006

ROW
Europe 15%
33%

India
21%

N.America
31%

Source: Annual Report 2006

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Journal of Case Research Volume II Issue 01

Exhibit 4: A comparison between Ranbaxy and Daiichi Sankyo

(US$ in billions)
Daiichi Ranbaxy
Sankyo Laboratories
Net Sales 8.2 1.0
Overseas sales 3.3 0.6
Research and Development 1.5 0.1
Operating Income 1.4 0.2
Net income 0.9 0.1
Assets 13.9 0.5
Return on Equity 7.8% 28.8%
Earnings per share $ 1.26 $ 0.35
Number of consolidated
subsidiaries 43 18
Number of employees 15,349 8,141

Source: Business World, June 13, 2008

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 Journal of Case Research Volume II Issue 01

Exhibit 5: Discovery Process and Stages of Drug Development

DISCOVERY PROCESS
Period: upto 6 yrs
Cost: Roughly $ 60 million
Odds of drug reaching market: 1: 10,000

Identifying & validating targets: this involves developing the concept of how a new drug can treat a
disease. Compound that should be pursued further are short listed.

Screening: compound that have desirable potencies and that react encouragingly are pulled out. These
are the ‘Hits’, converting Hits into ‘Leads’ calls for further refinement in the compound, during which
solubility, toxicity (quality of safe doses), absorbtion, metabolism etc, are tested even as the potency and
activity are maintained.

STAGES OF DRUG DEVELOPMENT

Period: upto 12 years

Cost: upto $200-250 million
Odds of drug reaching market: 1:200

Pre-clinical trials: toxicity and pharmacokinetics (absorption, distribution, metabolism, elimination) are
observed via tests in labs and in animals.

IND FILING: Company files an application for an investigational new drug (IND) with the FDA. This filing
includes results of pre-clinical trials and the plan for human clinical trials.

PHASE 1 TRIALS: Conducted on 20-100 healthy volunteers to prove safety. Once molecules enters clinical
trials, odds of success drop to 1:5

PHASE 2 TRIALS: 100-300 persons suffering from the disease are treated. Considered by many companies
as the stage to opt for licensing agreement.

PHASE 3 TRIALS: involves between 1,000 to 5,000 patients in a bid to verify previous trials.

NEW DRUG APPROVAL FILING: FDA reviews information, and if satisfied gives its approval. If it feels
molecules isn’t yet ready for market, may call for phase 4 trails.

POST-MARKETING SURVEYS: Companies have to conduct continuous surveillance once drug hits market,
all through the life of the drug. Serious reactions can result in drug withdrawal. Sales and marketing cost
can take the entire cost of exercise right from drug discovery to development to as much as $450 million.

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Journal of Case Research Volume II Issue 01

Source: BUSINESS TODAY Ocotber 13 2002.

Exhibit 6: Ranbaxy Laboratories in Historical Perspectives

YEAR DESCRIPTION
1961  Company Incorporated

1973  Ranbaxy goes public

 A multipurpose chemical plant is setup for the manufacture of APIs at
Mohali in India
1977  Ranbaxy’s first joint venture in Lagos (Nigeria) is setup

1983  A modern dosage forms facility at Dewas (MP) in India goes on stream

1985  Ranbaxy Research Foundation is established

 Stancare, Ranbaxy’s second pharmaceutical marketing division, starts
functioning
1987  Production start-up at the modern APIs plant at Toansa (Punjab), makes
Ranbaxy the country’s largest manufacturer of antibiotics/antibacterials
1988  Ranbaxy’s Toansa plant gets US FDA approval

1990  Ranbaxy is granted US patent for Doxycyline

1991  New state-of-the-art facility for Cephalosporins set up at Mohali

 US patent granted for Cephalosporins
1992  Company enters into an agreement with Eli Lilly & Co of USA for setting up a
joint venture in India to market select Lilly products
1993  Company enters into an agreement to setup a joint venture in China
Ranbaxy (Guangzhou China) Limited
 Ranbaxy enunciates its corporate mission ‘to become a Research based
International Pharmaceutical Company
1994  The new Research Centre at Gurgaon,(near Delhi), becomes fully
operational
 Established Regional Headquarters in London (UK) and Raleigh (USA)
 The Fermentation pilot plant at Paonte Sahib is commissioned
 Ranbaxy’s GDR listed in Luxembourgh Stock Exchange
1995  Acquisition of Ohm Laboratories, a manufacturing facility in the US.
Inauguration of FDA approved, state-of-the-art new manufacturing wing, at
Ranbaxy’s US subsidiary Ohm Laboratories Inc.
1997  Ranbaxy Laboratories Limited crosses a sales turnover of Rs. 10,000 million,
with its exports reaching an all time high of Rs. 5,000 million

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Journal of Case Research Volume II Issue 01

1998  Ranbaxy enters USA, world’s largest pharmaceutical market, with products
under its own name.
 Ranbaxy filed its first Investigational New Drug (IND) application with the
Drugs Controller General of India (DCGI) for approval to conduct Phase I
clinical trials

1999  DCGI grants approval to conduct phase I clinical trials for RBx-2258, and the
trials commence from June 10, 1999
 Bayer AG, Germany and Ranbaxy sign an agreement where Bayer obtains
exclusive development and worldwide marketing rights to an oral once daily
formulation of Ciprofloxacin, originally developed by Ranbaxy.
2000  Ranbaxy files IND application for Asthma Molecule RBx-7796 after
successful completion of preclinical studies.
 Ranbaxy acquires Bayer’s Generics business (trading under the name of
Basics) in Germany
 Ranbaxy forays into Brazil, the largest pharmaceutical market in South
America and achieves global sales of US $ 2.5 million in this market
2001  Ranbaxy took a significant step forward in Vietnam by initiating the setting
up of a new manufacturing facility with an investment of US $ 10 million
 Ranbaxy achieved a turnover of US $ 600 million for the year 2001 and
moved closer to achieving the target of 1 billion dollar by 2004.
 Ranbaxy USA crosses sales of US $ 100 million, fastest growing company in
the US
2002  Ranbaxy files IND for an Anti-bacterial Oxazolidine-RBx-7644
 Ranbaxy launched Cefuroxime Axetil post approval from USFDA for 125mg,
250mg, 500mg Tablet, first approval granted to any generic company for
this product
 Ranbaxy receives permission from DCGI to conduct Phase-I clinical trials for
RBx 7796 (Anti-Asthma)

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Journal of Case Research Volume II Issue 01

2003  Ranbaxy receives The Economic Times Award for Corporate Excellence for
‘The company of the year 2002-03’
 Ranbaxy and Glaxo SmithKline Plc (GSK) accelerate their discovery
programmes through a global alliance for drug discovery and development.
While Ranbaxy will leverage its early product development strengths, Glaxo
would use its expertise at late development stage to complete the
development process
 RBx 7796, Ranbaxy’s first NCE in the respiratory segment successfully
completes Phase I clinical trials and steps into Phase II.
 Ranbaxy files an IND application for RBx 9001, its second NCE for the
treatment of Benign Prostatic Hyperplasia (BPH)
 Cipro XR 500mg and 1g, based on the techonogy developed by Ranbaxy,
were launched in USA by Bayer AG
 Ranbaxy launched the first branded product Sotret (isotretinoin) for 10mg,
20mg and 40mg capsules in USA
2004  Ranbaxy acquired the generics business of RPG Aventies Life Sciences in
France to enter European Market

2005  Ranbaxy acquired 18 generic drugs from Spain’s Eframes for sale the local
market

2006  Ranbaxy’s US arm buys patents, trademarks, and automated manufacturing

equipment from Senetek for its disposable autoinjector for self-
administration of parental drugs for anaphylactic shock
 Ranbaxy’s Italian subsidiary acquires the unbranded generic business of
Allen, a division of GlaxoSmithKline, to complement its own pipeline for the
Italian Market.
 Buys 96.7% of Romanian drug maker Terapia from Advent International for
$324 million. Combined with Ranbaxy’s own operation in Romania, the
Terapia acquisition creates Romania’s largest generic firm
 Aquires genrics company, Ethimed, atop 10 player in Belgium. Provide
Ranbaxy a base from where to manage and expand its operations in the
Benelux countries
 Ranbaxy’s Spanish subsidiary purchases the Mundogen generics business of
GlaxoSmithKiline in Spain. The acquisition beefs up Ranbaxy’s product
portfolio in the country.
2008  Daiichi Sankyo acquired over 51% stake in Ranbaxy Laboratories Ltd at Rs.
737 per share. Malvinder Singh sold out his stake of 34.8% to Daiichi Sankyo.

Source: www.ranbaxy.com/history_ranbaxy.htm
Business Today, September 10, 2006

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