WHY IS IT NOT JUST A DEAL

This article is bit old but still contemporary.

WHY IS IT NOT JUST A DEAL

Tokyo-based Daiichi is set to acquire a controlling stake around 51-62% in India’s biggest generic drug maker Ranbaxy Laboratories for $3.4-4.6 billion. Analysts called this deal as a very Bold Purchase. This is the first generic-proprietary partnership in global pharmacy. The deal would also extend Daiichi’s reach from 21 countries to 60, with much of the expansion in emerging markets. Surprisingly Pfizer was paying more, three years back but the deal did not come into existence. Ranbaxy will become debt- free after the deal and get $1 billion in cash.
In this scenario, when Ranbaxy is a leading player in the generic-drug market enjoying double-digit sales growth, the acquisition of Ranbaxy can not be seen as it is appearing. Question is why India’s biggest pharmacy major became a subsidiary of a Japanese company. One factor is, definitely, the heavy loan that Ranbaxy had to pay. There is tough competition among several generic drug maker companies at home as well as international grounds, resulting in decreasing profits. Losses in legal proceedings to brand-name drugmakers, strong rupee compare to dollar and ban on some generic drugs, all aggravated the problem. But only these few factors are not enough to explain this secretive deal. Indian companies have long been criticized, both in India and other parts of the world, for their low level of investment in research and development (R&D) and copying western products, aided by lax patent policies. Today, however, the situation has improved a little with a few companies leading the charge in the R&D. Ranbaxy was not very globally competitive in R&D. Even Daichi Sankyo management doesn’t take this deal merely as the expansion to the Japanese generic market, but as a short term gain, as Ranbaxy is very efficient in this field. Japanese Daiichi and Sankyo has been acquiring overseas rivals to expand their global presence amid stiffer competition and to boost their product pipelines with the expiry of some drug patents. Daichi Sankyo had $915.6 m net profit for financial year 2007 and think the long term value of this deal is most likely to be seen in the development of full scale R&D for Daichi Sankyo in india, creating a full-fledged global operation from there as in India heavy skilled human resources is easily and cheaply available. acquisition it is a good idea to outsource R & D activities Through route of in company which have brilliant human pool and environment with a good infrastructure. This is also seen as a better way to increase value and improve / out-source R&D than to buy one of the major up and coming companies in the low cost Indian environment. Daiichi is reducing the cost of drug discovery & clinical development and it is expected Ranbaxy R & D’s in future may become the Global Headquarters of Daichi’s Drug Discovery & Clinical Research.
Besieged by ever-increasing cost pressures, shorter product life cycles and numerous regulatory challenges in the Europe, US and other Developed nation, the industry is increasingly shifting its R&D base to these developing nations like India, China, South- Korea and Russia, to minimize the expenses, time and risk involved in R&D. Other factors includes dropping value of the dollar vs. Foreign currencies, the huge U.S. trade deficit and outsourcing successes drive up salaries and costs overseas. Bio-pharma firms are looking for ways to cut costs through outsourcing, and investors are provoking.  
  Actually this acquisition shows inefficiency of the Indian pharma industry which had not invested enough money in their R & D therefore is not competent enough to introduce new molecules and products to the ever-changing market. It is evident from this deal that only smart and intelligent enough players will survive. Indian companies have to learn a lesson and change their strategies and path. Indian software companies are successful because with just a little sum of money it is easy to catch outsourced business, but biotech and pharma industries are completely different. The cost of bringing one new molecule into the market amounts to USD 800.0 million. The European Federation of Pharmaceutical Industries and Associations (EFPIA) estimates that, on an average out of 10,000 molecules developed in laboratories, only one or two will successfully pass all stages of drug development and be commercialized. Are Indian companies ready enough to tackle this situation? Are they changing their own strategies? Now time has come to understand the nature of the problem and prepare themself as per situation and reap the opportunity. Investment of huge sum of money is not possible for Indian companies but they can divert their potential to the contract research organization (CRO) or research process outsourcing (RPO), as it is the demand of time and situation.
As the biotech industry crossed the thirty years it took a decade for the first wave of monoclonal antibody companies to move from contract production and service. In the past year, Merck and other biopharma firms have accelerated their profit making to collaborate or set up their own R&D centers in India, China and Singapore. Bharat Biotech, a Hyderabad based company, started out providing quality contract manufacturing, added in biogenerics and novel formulations, and now is working on proprietary pharmaceuticals and vaccines. This same firm recently cut a deal with ThromboGenics to in-license a Phase II thrombolytic in developing and some developed markets. Bharat Biotech will manufacture finished drug for all markets, and is responsible for the Phase III trials and getting the drug approved for market, initially in India. A similar March deal with Novavax encompasses a pandemic flu vaccine program. Roads have already opened and time has come to harness the benefits (See Table-1).
Another field where Indian pharma companies can do better is Medical tourism—India is preferred destination for health care and related services not only in underdeveloped or other developing country but also trends show some part of developed nation as well. Prior knowledge and experience of Indian population/demography and database of diseases and related information makes industry efficient and proficient. Ranbaxy decision to divert its money into family owned health care and related business Fortis Health Care, which has recently doubled its capacity by acquiring Escort Health Care System, is a smart idea.
Outsourcing is a two way concept. Indians companies are second to none and can be collaborate, invest, participate, Co-developers or Co-marketers, with MNC majors.
Another area where more space is available to work is value addition. Intense competitions among service providers for contracts have called for value-added services. Due to the vast expertise in Phase I studies of clinical trial, Indian companies can help a client design a drug development program which will minimize costs and save development time. For most pharma companies, speed is the key to success especially when the drug is patented and it is said that every day saved is valued at $1m. Other value added service is site management. This works as a link between the investigators and the CROs. The Site Management Organizations provide trained physicians, clinical research personnel and coordinators to monitor and coordinate the Phase II, III and IV clinical trials. Further, support services such as biometrics help in managing data. There are opportunities for clinical data management and statistical analysis of the clinical data. To facilitate the above, specialized IT solutions are required, which has triggered the growth of analytics industry in India. Organizations dealing in these services provide discovery software, database software and customized databases.
De-automation is the manufacturers outsourcing, where processes previously automated at great cost are returned to the older, labor-intensive system and moved overseas where labor costs make it more cost-effective. Firms specializing in animal testing, plant work in greenhouses and anything involving laborious cell culture or genotyping should especially consider de-automating their system. Custom antibody manufacturers, marker-assisted selection plant and animal breeders and pharma animal testing firms are all excellent candidates.  
Another emerging model in the pharmaceutical outsourcing sector is disease management. This is based on foreseeing demand and customizing treatment to enhance customer retention. A case in point is the Bangalore-based Medybiz which essentially is a distributor, but deals in patient relationship management (PRM). In a nut shell the prominent service Indian company can offer are in drug discovery, clinical trials, drug development activities, manufacturing & formulations, pre-clinical trials, bio-informatics and lab services. In addition, HR functions like finance are also being outsourced by pharma companies.
  Now time has come to think about our pros and cons of facilities and opportunities.
India has already built a repute in outsourcing of IT and IT enabled services and we are on the way to cash this repute.
India’s infrastructure can not compete with west or even China but India’s infrastructure work is in progress. However industrial-, biotech-, pharma– and science parks extend facilities like guarantee of power, water, and broadband internet access to high-level specifications. While many states of India and cities offer more lucrative support and incentives to firms to attract investment. The Southern states are the engine of India’s biotech sector, with Bangalore, Chennai, Hyderabad and Mumbai/Pune as the main destinations where the intellectual workforce tends to congregate and where services are most reliable. New Delhi and it’s abound cities like Gurgaon, Noida are also extending support to these industries.
 
Government Regulations, Incentives and dealing with any governments or bureaucracy in India or Asian country is not that easy so Western mind faced a lots of troubles though with increasing awareness, democratic value and heavy media presence, increasing the transparency in dealing. On the path of Software Technology Parks of India, Indian government also offers some tax bonuses, endorsement but only to a limited extent. Himachal Pradesh offers one of the more generous tax incentives at a 5-year holiday while most states offer little or none. Unlike Chinese incentives which are focused on export-oriented firms, India still needs to introduce a lot of measures. Regulations regarding the development and sale of biotechnology products are quite lax. Establishing a high-end biotech facility in any Indian state is no simple although government official’s claim cost savings for outsourcing biotechnology are enormous, to the tune of 80% on labor and 50-75% on facilities and equipment. Recent amendments to Schedule Y of Drugs and Cosmetics Rules of India, 1945, signify a progressive attitude on the part of the Indian Government, clarifying the environment for clinical research in the country
Malvinder Singh became a member of the senior global management of Daiichi showing the faith in Indian human resources. China and especially India often thought their millions of technical graduates and hundreds of thousands of postgraduates as their key strength. India lags behind when it comes to innovation despite the country's proliferation of research graduates. Some upsetting trend emerging in India like the availability of experienced PhDs as compared to lower level researchers and technicians is so low that the salaries of high-end researchers have shot up to near US levels. Second, the massive influx of investment has led to headhunting between biotech firms for experienced researchers at all levels, which is a disastrous situation considering the long project times in biotechnology. Firms now are focusing on non-financial motivations for keeping staff, such as high-tech campuses and benefits packages
The cultural and language barriers are significant for any industry. The Indians have a considerable advantage in this regard with substantially better English than the Chinese or Thai. Further, one could expect better written or email English as India holds the edge due to superior communication skills and IT talent.
Animal handling especially primates is very difficult in India because of heavy presence of animal right activist and some religious sentiments.  
Most equipments India uses are manufactured in the US or EU, with some from South Korea, China or Japan. They are usually not well supported by local suppliers; poor in after-sale services, with an import surcharge make more costly.
  India is definitely a big market but consumption wise it’s not that much attractive and mature for biotech and pharma and only few biotech firms make products that would be consumed by an average Indian.
  India is a Priority Watch country for IPR. A major concern for biotech firms is not just the infringement on their products but also the outright theft of their research data. Rule of law is strongest in India, with a well-established democratic tradition and western-style legal code. The only major issue is the timeliness of legal proceedings and extreme bureaucracy. India is a signatory to the TRIPs agreement and is committed to protect the product patents.
 
A costly lesson!
Ranbaxy acquisition has taught Indian company a costly lesson. Pharma and biotech industry is rapidly evolving and is taking sharp twist and turns. Outsourcing is increasingly becoming necessary for pharma companies. A major paradigm shift is on the anvil, as more companies are now moving up the value chain from tactical to preferred to strategic outsourcing. It’s high time that the industry had undermined the importance of alliance with academia. This would enhance the “translational research” and in turn bolster industry’s R & D and revenue. Small industries should collaborate among themselves and should share their infrastructure, information and skilled manpower for survival in the ever changing market.

Table-1 Leading service providers
Manufacturing & Formulations Jubilant Organosys (speciality chemicals/bulk drugs), Shasun Chemicals (Custom Synthesis), Medreich, Elder, Divi'sLaboratories
Clinical Research Quintiles, Syngene, Chembiotek, Aurigene, Synchron, Reliance, Covance, Parexel
Bio-informatics and other IT services Strand Genomics, TCS, Satyam, Infosys, GVK Bio, Ocimum, Jubilant Biosys
Drug Discovery/Medicinal Chemistry Aurigene, Divi's Laboratories, Syngene, Suven Lifesciences, GVK Bio
Pre-clinicals Vimta Labs, Lambda Therapeutic Research, Lotus Labs
Central Lab Services SRL Ranbaxy, Vimta Labs