Friday, December 05, 2008

Deals of the Year Nominee: Daiichi/Ranbaxy

Ah, awards season. Why should film critics have all the fun? And voting! It's not just for presidential elections. This year your IN VIVO Blog team is nominating a handful of alliances, acquisitions, financings, regulatory negotiations and legislative compromises in our First Annual DOTY competition. And then you, dear readers, will vote (early and often, we hope) for the winner. Imaginary federal and international biopharmaceutical statutes prohibit us from awarding a monetary prize. But our winners, when they die, on their deathbeds, they will receive total consciousness. So they've got that going for them, which is nice.

Your next IVBDOTY nominee is Daiichi's bid to buy a big old $4 billion stake in the Indian generic drugmaker Ranbaxy Laboratories. And what a bumpy ride it has been.

Lets start at the beginning. Ranbaxy announced in June the Japanese Pharma's bid for a controlling interest in the company, which it would buy in large part from the founding Singh family. The bid valued the company at about $8.5 billion based on currency values at the time.

The word on the street was that Daiichi's move, to be financed with cash and debt, was "bold and entirely out of character." But as we said then, it should not have been surprising that Daiichi was going to do something with its $6 billion cash reserves. To remain competitive with its Japanese brethren, particularly Takeda and Eisai which have been particularly acquisitive, the firm needed to ink a major transaction that would extend its reach beyond the stagnant home market, where annual government-mandated price-cuts on drugs and a slower regulatory approvals process make for a tough business climate. (For more on the pressures facing Japanese pharmas, check out this story from our January 2007 IN VIVO.)

And like Takeda and Eisai, which are facing patent exipirations on crucial drugs such as Prevacid, Actos, and Aricept, Daiichi has its own pipeline worries to think about: the company's website lists just three Phase III compounds, including the oft-discussed and risky prasugrel it has partnered with Eli Lilly (we later chimed in with some big news about when that drug might meet an FDA advisory committee). In May it acquired the German antibody developer U3 Pharma, presumably to increase its large molecule capabilities.

What is surprising about the Daiichi/Ranbaxy deal is that Daiichi chose to invest in a company focused primarily on generics and geographically situated in an emerging market. While India is undoubtedly an important arena, companies such as Takeda, Astellas, and Eisai have focused their efforts on building a US presence, especially in oncology.

So: We've got Daiichi betting big on both a massive emerging market and generics. And not to go all Arlo Guthrie on you two weeks in a row, but one deal like this might be odd (and we're paraphrasing here) but three deals where large pharmas start putting bets down on generics players in emerging markets, well that might be considered a movement.

And guess what: Sanofi-Aventis did after all buy a stake in Zentiva this year and GSK acquired the South African generics play Aspen Pharmaceuticals. Maybe it's not a movement, but it's certainly a trend to watch.

Not that it has been easy for Daiichi in the months between its initial bid and closing the deal. First there is the small matter of a US Department of Justice probe into Ranbaxy related to "systemic fraudulent conduct" by the generics maker, plus complications from India's Securities and Exchange Board (as detailed here by our cousin publication PharmAsiaNews), and doubtful investors.

By mid-October Daiichi had secured about 20% of Ranbaxy and the deal was expected to close by the end of the year. So why vote for Daiichi/Ranbaxy? For the brand-generic yin and yang? For the emerging market strategy? For the drama and the intrigue? At Deals of the Year we've got a bit of everything.

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