Business Strategy Case Presentation (Case - Cultural Challenges of Integration: Value Creation and Daiichi Sankyo'S Indian Acquisition)

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Business Strategy Case

Presentation
(Case - Cultural Challenges of
Integration: Value Creation and
DAIICHI SANKYO’s Indian
Acquisition)
Group - 2
Apratim Kumar Singh | Asif Ghazi | Divya Pandey Course Instructor - Prof. Pragya Bhawsar
Divyani Pandey | Kumar Saurav Prasad
INTRODUCTION

▰ India’s largest pharmaceutical company.

▰ Incorporated in 1961

▰ Atul Sobti is currently Ranbaxy CEO and Managing Director

▰ Present Chairman- Dr. Tsutomu Une

▰ Exports its products to 125 countries

▰ Ground operations in 46 countries

▰ Manufacturing facilities in 7 countries.

▰ HQ: Gurgaon, Haryana.


2
History

▰ Started by Ranbir Singh


and Gurbax Singh in 1937.
▰ In 1998, Ranbaxy entered
the United States market
▰ Japanese company Daiichi
Sankyo gained majority
control in 2008.
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Introduction: Daiichi Sankyo

▰ Founder: Takamine Jōkichi


▰ Founded: 28 September 2005,
▰ Headquarters: Chuo City, Tokyo, Japan
▰ Daiichi Sankyo Company, Limited is a global
pharmaceutical company and the second-largest
pharmaceutical company in Japan.
▰ The company owns the American biotechnology
company Plexxikon, the German biotechnology
company U3 Pharma, and recently sold Ranbaxy
Laboratories in India
4
History

▰ Daiichi Sankyo was established in 2005


▰ Merger of Sankyo Company, Limited and
Daiichi Pharmaceutical Company, Limited
which were century-old pharmaceutical
companies based in Japan. Sankyo Co.,
Ltd.
▰ Founded by Dr. Jokichi Takamine
(patented the isolation of adrenalin).
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Case Summary - Part 1
The innovator business model of the various
1 pharmaceutical MNCs was under pressure because
the patents were to expire.

Increasing number of checks for the


drugs that were under development for
2 treating complex diseases .

Low price equivalents of the branded innovator


3 drugs were flooding the markets

The innovator companies began searching for


4 new strategies to improve earnings and
maintain growth.

Some of the strategies - moving into emerging


5 markets, focusing on generic medicines, reducing the
production of high risk and high cost R&D drugs.
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Case Summary - Part 2

This lead to the emergence of the hybrid model -


6 innovator drug companies moving into generic drug
markets.

Daiichi Sankyo was the first leading Japanese drug


7 company to adopt this hybrid model - with the
acquisition of Ranbaxy in June 2008.

The events led to major changes in the Ranbaxy board


and executive management team which ultimately led to
8 the end of the Singh era at the Ranbaxy.

7
The Indian Pharmaceutical Industry

▰ Over four decades, the Indian pharmaceutical industry


transformed.
▰ The country ranked 3rd in terms of volume of production and 14th
largest by value.
▰ India had the largest number of US FDA-approved plants outside
of the US.
▰ Until the 1960s, foreign pharmaceutical MNCs supplied almost
85% of medicines in India and drug prices were among the highest
in the world.
▰ In January 2005, India amended its patent laws to comply with
WTO’s TRIPS agreement.
▰ Global pharmaceutical MNCs began to establish offshore research
and manufacturing facilities in India. 8
Daiichi Sankyo’s Acquisition Goals

Operations

Innovative Pharmaceuticals Established Pharmaceuticals

Vaccines OTC Products

Value Chain
Build Synergies by taking advantage of the strengths of Daiichi Sankyo and Ranbaxy

R&D Pharmaceutical Supply Chain Quality and Sales and


Technologies Safety Marketing
(CMC) Management
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Threat of New Entrants
The threat of new entrant is low to moderate

Threat of Substitute Competitive Rivalry


Products presence of a number of
The threat of substitute large and small firm this
ranges from moderate to market is highly competitive.
high.
Porter's Five
Forces
Analysis Bargaining Power of
Bargaining Power of Buyer The buyer's
Suppliers bargaining power is
The bargaining power of moderate.
suppliers in market is low
10
Conclusion

▰ Seemed a win-win, but was not a win win.


▰ Access to best FTF pipeline, access to the
generics product line, access to new markets
and an opportunity to diversify away from
Japan into the emerging markets.
▰ Post Acquisition financial statements of
these companies

11
Conclusion (Contd.) and Recommendations

▰ Ranbaxy reported a loss of INR 9,512.05 million.


▰ Daiichi in spite of diversifying its geographic footprint
booked a loss of ¥215,499 million and they also made a
one time goodwill write-down of ¥351.3 billion for
investment in Ranbaxy.
▰ These losses were mainly rooted in Ranbaxy’s poor
performance owing to the FDA ban and bad decision in
hedging currency risks.
▰ The pre-acquisition due diligence should have understood
that Emerging markets are lucrative but corporate
governance and integrity are surely not to be assumed in
12
these markets.
Recommendations

▰ Valuations in pharma markets.


▰ Markets with stricter regulations are the main
revenues streams due to higher margins.
▰ Ease in clearing the Indian drug regulations.
▰ Top-management retention rates, organizational
structure, internal firewalls and proper use of
financial instruments to hedge risks.
13
Cultural Recommendations

▰ Ranbaxy in the past decade has strived to make a culture


based on transparency and trust.
▰ It aims to harbor a strong culture of productivity,
responsibility and learning.
▰ They strive to provide the highest quality products to their
customers to achieve maximum customer satisfaction, which
is fundamental to their business.
▰ Ranbaxy has seen a cultural transformation from a promoter-
led organization to a 100% professionally run organization
managed by professionals where there is shared
responsibility and accountability, 14
Thank you

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