Sun Pharma

Sun Pharma was established in 1983 at Vapi by Mr Dilip Sanghavi along with 5
people. Initially it had five products and today it is the 2 nd largest player in the Indian
market. Mr. Sanghvi had a fair idea of the industry since he was already dealing in
whole-selling medicine business He rightly identified a gap in the Psychiatric
Medicine industry and hence used it to create value by developing a product in this
category thereby enabling him to become a market leader.
Till 2014, Sun Pharma has acquired about 18 companies globally ranging from Knoll
Pharma of Gujrat to Generic Business of URL Pharmaceutical. As a result Dilip
Sanghvi became the 5th richest person in the world in 2013 with a wealth of 11 billion
dollars
Before acquisition, Sun Pharma has a product line of 500 products with 5% market
share and $ 2.5 billion revenue and was the 2 nd largest Pharmaceutical Company in
India and was the market leader in 7 product categories. Also it was the 5 th largest
speciality generic pharmaceutical company in the world
USA market has been the biggest market for Sun Pharmaceutical contributing to
about 60% of the total revenue whereas the Indian market contributes around 23%.
Mr Sanghvi wanted to further grow the company inorganically & hence was looking
for prospective acquisition target and hence decided to acquire Ranbaxy due to
complimentary product range, diversified market access and various other synergies.
Ranbaxy
Ranbaxy was established in 1937, by two brothers named Ranjit and Gurbax Singh
as a drug distribution centre but was soon acquired in 1947 by Bhai Mohan Singh
who had lend money to the two brothers who failed to return the same. Bhai Mohan
Singh has prevented 2 hostile takeovers attempts on the company by former owners
themselves and Lapetit from Italy.
Under his leadership, Ranbaxy was established as a company in 1961with its first
blockbuster product named Calmpose in 1969. From 1969 to 1980 the company
grew organically and was taken over by Bhai Mohans son Parvinder in 1980, who
along his trusted aid, D. S Brar, expanded the horizon of the company not just in
India but also across the world.
In 2000, Parvinders son Malvinder took over the company. He took over Bayers
generic business in Germany and created an alliance with GSKs Italian operations
for research and development in drugs. Hence with this the company started to grow
inorganically and led to the Global expansion of the company resulting in rapid
growth and development. In the next 6 years Ranbaxy further acquirrd/formed
alliance with 3 more companies.
In 2008, Daiichi Sankyo from Japan bought major stake in Ranbaxy for a price of
$4.2bn, the largest till date, for an Indian pharmaceutical company. All was well for
Daiichi but unfortunately Ranbaxy began to lose its market share in USA due to
regulatory conflict with the USFDA (US Food and Drug Administration). As a result,
US FDA banned three plants of the company namely Paonta Sahib, Himachal
Pradesh; Mohali, Punjab and Dewas, Madhya Pradesh

Moreover, in 2013, the company was found guilty to fraudulent activity and hence
was posed with a fine of over $500 million. This had a severe impact on the Ranbaxy
as a Brand. As a result it became a burden on the Daiichi Sankyo and they were
contemplating the next move. They were rethinking about their decision to venture
into the Indian market through Ranbaxy which had backfired. As a result, they
wanted to exit from this painful alliance and Sun Pharma came to their rescue.
Pharmaceutical industry in India
Indian pharmaceutical industry is the 4th largest pharmaceutical industry in the world
with total revenues of more than $34 billion. Figure 1 in Exhibit 1 shows the top 10
players in this industry based on LTM revenue and market capiltralisation. The
driving factors in the pharmaceutical industry are increasing middle class, sizable
increase in the income of the people and the increasing awareness about healthcare
and hence it is expected to reach USD 48 billion by 2017-18 with a CAGR of around
14%. Indian formulation sales volume is only $ 10.9 billion. Indian pharmaceutical
industry is highly fragmented with more than 1500 players in the market. The
formulation industry is dominated by a few players with top 10 players providing
42.3% of the sales volume of total formulation industry sales. The pharmaceutical
industry can be broadly classified into following 4 segments:
1 API manufacturer/ Traders (Bulk drug)
Active pharmaceutical ingredient is manufactured using basic raw material by
both physical & chemical means. TAPI and Dr. Reddys are the major players
in this segment. The total market size was around $ 11.9 billion in 2013-14
with 80-90% of the bulk production in India was being exported. A large chunk
of patented drugs will go off the patent resulting in a market growth at a
CAGR of 15% in the next 5 years.
2 Formulation manufacturer
Domestic formulation industry saw huge pressure because of the
implementation of Drug Price Control Order (DPCO). Under this strict price
regulation order, there are around 348 molecules. As a result the trade margin
was restricted close to around 10% and the wholesale margin to around 8%.
The major players in this segment are Ranbaxy, Sun pharma, Lupin and Dr.
Reddys are the main players in this segment.
3 Contract research and manufacturing services
The companies in this segment provide research facility support to
pharmaceutical companies and medical device manufacturers on contractual
basis This segment is expected to growl tremendously and according to GOI
2020 report India will be among the top 5 pharmaceutical research hub in
India. Dr. Reddys and Aurobindo pharma are the key players in this segment.
4

Biotechnology companies
This section focuses on application of the technology on living organization to
make improvement in plants and animals & is growing at CAGR of 20% with
current valuation of $ 4 billion.

Evolution of pharmaceutical industry

Indian pharmaceutical industry can broadly be classified into 2 domains:
Pre-patent regime (before 2005)
Due to the absence of patent, MNCs were threatened to introduce any new product
in Indian market in this period which eventually led to the enhancement of Indian
own pharmaceutical companies.

As per Indian Patent Act, 1970: Patents were based on the process innovation
rather than new drug introduction which encouraged Indian industry to get
expertise in process chemistry
Also, Drug Price Control Order (DPCO), 1970 ensured a price control on the bulk
drugs to make it available for the wider audience at a reasonable price.

As a result, introduction of new products in formulation segment by MNC was

impacted by the said
Post-patent regime (Post 2005)
In line with Indias commitments to the WTO, product pattern regime was introduced
in India in line with the international standard and discouraged the process reengineering which had helped Indian domestic pharmaceutical industry to grow.
Hence, enabling MNCs to enter into Indian market. Some key points are as follows:

India improved its stand in the export market and currently has highest number of
manufacturing facility approved by US Food and Drug Administration.
Prices were fixed according to national Pharmaceutical Pricing authority (NPPA),
thereby reducing the autonomy of Pharmaceutical companies to fix prices.
In 2013 the drug Controller general of India (DCGI) issued directive for the
withdrawal of certain fixed dose combinations (FDCs). As a result it increased the
compliance and facility up gradation cost for the industry.
DPCO, 2013: the earlier regulation i.e. DPCO 1995 had price control over only 74
bulk medicines whereas the new regulation had a price control over 348 essential
drugs.

Exhibit 1
Figure 1: Top Ten Players in Pharmaceutical Industry according to LTM & Market
Capitalisation