Is sell-out the cure?

It was a decision at a different time, reminisces Ramesh Chauhan, Chairman of Bisleri, about how he sold the popular soft drink brands Thums Up and Limca to Coca-Cola about 15 years ago.

A decision that had industry watchers lamenting the sale of the home-grown brand. Years later, that sentiment is being revisited after the promoter family of drug-maker Ranbaxy sold its entire stake to Japanese research-driven company Daiichi Sankyo.

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Ranbaxy’s case is peculiar. It has national repercussions as the company makes generic drugs that are sold at cheaper prices at home and outside, says Chauhan. The prices are among the cheapest in India, and also compared to Pakistan, and the income levels here are low, he explains.

With Thums Up and Limca, it did not involve the nation. There were franchisee-related difficulties then, and so the trademarks were sold, not the company. It is sad that an Indian company has sold a controlling stake; it is difficult to build another Ranbaxy, he says. In the 1970s, Chauhan had interacted with Bhai Mohan Singh, the early promoter of Ranbaxy and grandfather of Malvinder Mohan Singh and Shivinder Singh.

Bhai Mohan Singh and his son, Dr Parvinder Singh, would not have taken such a decision; they had the passion that created and grew the company, he thinks.

How the senior Singhs may have acted in a similar situation is a debate that seems unlikely to die down too soon. But the Daiichi-Ranbaxy deal invariably elicits two clear responses: Excellent for business, but sad on an emotional note; that a dynamic homespun company now passes on to a foreign company.

Time to grow up?

Industry representatives say it is time for Indian companies to stop holding daddy’s coattails, metaphorically speaking. Domestic companies have to grow up and take hard decisions, even if that means completely exiting businesses built by family, they add.

Health advocacy representatives, however, counter that by saying it’s more than just a body blow delivered to a nation’s psyche when one of the most visible brand ambassadors of India Inc sells out to an overseas company. India is virtually a medicine shop to the world, and companies like Ranbaxy and Cipla have been spearheading this.

Domestic drug companies have grown on the back of benefits extended by the government and they had done well to make inexpensive generic drugs for the local market as well as other developing and developed nations, says a representative of the Centre for Trade and Development (Centad).

Despite the support, what ails domestic drug companies and prevents them from going the whole distance instead of bailing out on some pretext, asks another healthcare representative.

Steep challenges

Though shocked when the Ranbaxy-Daiichi deal went public, promoters of several domestic drug companies now concede that the road ahead is not easy. It shows that global companies are increasingly finding it difficult to grow, observed Piramal Healthcare’s Chairman Ajay Piramal.

There are fewer new drugs coming into the market from innovative drug companies. Research consumes time and capital and may or may not bring results.

On the generics front, several companies are in the race to make a drug whose patent is close to expiring. And when they do launch a generic similar of an innovative drug, the price is seen to erode by over 90 per cent.

With such steep challenges facing them, promoters of drug companies want to evaluate their businesses when the going is still good, say industry observers.

Glenmark’s Managing Director and Chief Executive Glenn Saldanha says Indian companies will have to ask themselves if they have strategies to sustain their performance as the going gets uphill.

But entrepreneurs do not always build businesses to pass on to the next generation, points out first-generation entrepreneur and Executive Director of Strides Arcolab K.R. Ravishanker.

Some seek to generate value and, after a certain milestone, entrepreneurs may step back and bring in fresh ideas through a new management. They may continue to associate with the company as a stakeholder at a different level, he says.

In Ranbaxy’s case, the deal was meant to take it to the next level of growth, its promoter-family said. But, in the process, Ranbaxy’s aggressive generic orientation will increasingly be influenced by Daiichi’s more conservative, intellectual property-oriented outlook, observes patent-expert Dr Gopakumar Nair.

And the recently concluded out-of-court settlement with Pfizer on its $13-billion cholesterol drug Lipitor is a sign that Daiichi may have something to do with the timing, he says.

If the Daiichi-Ranbaxy deal triggers off more such deals in future, the government will have to take measures to ensure that the multinational buyers do not cut off the supply of generic drugs from local drug companies, says the Centad representative.

Globalised reality

PricewaterhouseCooper’s Associate Director Sujay Shetty agrees there will be a slow “Daiichisation” of Ranbaxy. But he does not see cause for complaint.

As a country, we did applaud overseas acquisitions by Indian companies like the Tata-Corus deal and the more recent buyout of the prestigious Jaguar and Land Rover brands by Tata from Ford, he points out.

If you are in it for the penny, you are in it for the pound too, says Dr Amit Sengupta of the All India People’s Science Network, indicating one has to go with the flow in a globalised world.

Unhappy at how the nation’s entrepreneurs are willing to become traders and not engage in serious manufacturing and research, he feels the government needs to keep a watch on mergers and acquisitions in the pharmaceutical segment, as it can impact the supply of drugs.

Duality of interest

The days of feisty patent infringement challenges, like those waged by Ranbaxy or Dr Reddy’s, seem to be coming to an end, observes IP expert Shamnad Basheer. The uphill road involving drug discovery and generic competition is giving rise to a form of duality, where companies want to have a foot in both research and generics, he observes. An Ardhanarishwar sort of duality, he says, referring to the Hindu God Shiva’s form where he is half male and half female.

“The hybrid model” is how Ranbaxy’s former Chief Executive D.S. Brar describes it. Be it innovative drug major Novartis that has its generic arm in Sandoz or French drug-maker Sanofi Aventis’ predatory moves on Czech drug-maker Zentiva, it is clear that big pharma wants to be in both research and generics.

It is unclear how such deals will pan out for consumers, though, says Basheer. While the sting will gradually go out of Ranbaxy’s aggressive generic punch, will this model mean less generic drugs will flow into the markets? Or, because companies save on litigation cost, will money get invested in getting good drugs into the market?

With more multinational companies circling opportunities in the Rs 60,000-crore local drug market, especially as a base in India is strategic to overall growth plans, consolidation is close round the corner. But what worries entrepreneurs like Bisleri’s Chauhan is that multinationals may have an easy run of acquisitions in the country, affecting local supply in the long term.

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Public-listed companies can raise money from the markets or forge a strategic alliance to tackle hard times, they do not need to sell out their entire stake, he says. If caution is not exercised in acquisitions involving drug companies, the nation and its people could end up paying the price for it, he says.

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