In a year in which drug makers have been acquired left and right, this latest deal isn’t surprising to those who are familiar with the sector. This morning, Sun Pharmaceutical Industries Ltd. an India based pharmaceutical company has agreed to buy Ranbaxy Laboratories Ltd. for $3.2 billion. The deal was made in the hopes of fixing factory issues and quality malfunctions which has made the drugs nearly impossible to be approved in the United States.
This deal is an all share transaction, which is the biggest deal in the Asia pacific region this year and will create the fifth largest generic drug maker. Sun Industrial believes that this deal will be beneficial for now and many years to come, pharmaceuticals in the U.S. is worth north of $335 billion.
The owners of Ranbaxy are happy and relieved to have sold the company which has been facing problems with its products since its acquisition in 2008. The Japanese firm which has been watching their company lose value can finally breathe easy.
This deal is happening as sanctions are being tossed at Ranbaxy by the FDA due to its manufacturing processes of its Indian plants. The FDA believes that these plants that are being used aren’t being dealt with using the same standards of plants from Canada and other countries. These problems have made it easy for many people to think that the Japanese firm is selling the company because they believe that these issues won’t be solved anytime soon. The FDA, which last month called for more alliances with the Indian regulator to improve drug quality, has banned imports from all the Indian plants of Ranbaxy over production quality lapses
“This transaction helps us transition to our long-held ambition of becoming a successful Indian company in the global pharmaceutical space,” Dilip Shanghvi, managing director of Sun Pharma, India’s largest drug maker by market value, said in a conference call with analysts. Including Ranbaxy debt, the overall value of the transaction is $4 billion.
Many American firms and banks believe If Sun Pharmaceutical can handle the issues with meeting FDA standards that this deal makes sense to both parties and has huge potential. Bank of America Merrill Lynch (NYSE: BAC) upgraded Sun Pharmaceuticals to buy from neutral, saying that Ranbaxy’s regulatory situation was already at its height. There was “significant scope for operational improvement”, it said, since Sun has a successful track record of turning around distressed assets.