‘Plan To Keep Ranbaxy Alive’

As the euphoria over acquiring Ranbaxy Laboratories wears off, Sun Pharmaceutical Industries will have to come to grips with the Herculean task of integrating a global generic major much larger than itself. Israel Makov, chairman of Sun Pharma since 2012 and former president and CEO of Israel-based Teva Pharmaceutical Industries between 2002 and 2007, in an e-mail questionnaire from BW’s P.B. Jayakumar, says integration and profitability are not his immediate concerns. For the man who was instrumental in making Teva the largest generic company in the world through a series of large and small acquisitions, readying Sun Pharma for more acquisitions is top priority. Excerpts from the interview:

Does the expectation to turn Ranbaxy around quickly put unnecessary pressure on you and your team now?
There is no pressure to speak of. If you look at our acquisition track record since 1995, we have successfully integrated large acquisitions as well as small acquisitions and have created shareholder value.

Sun’s growth strategy has been to record big profits quarter after quarter with specialty products. By acquiring a bigger but less profitable Ranbaxy, are you sacrificing profitability?
In the short term, the profitability of the combined entity will be substantially lower than that of Sun Pharma.  It is difficult to predict the level of profitability that Ranbaxy can reach.  We expect to realise revenue and operating synergies of $250 million by the third year, post the closing of the transaction.

Though Sun and Ranbaxy are India-born companies, there are cultural and operational differences. How do you plan to address human resource-related issues?
We are committed to a successful and timely integration. At this time, it is too early to comment on the specifics; each of the issues listed in your question will be addressed. It will suffice to say that Sun Pharma intends to capitalise on the human capital that has supported both companies to drive future growth.
 
How difficult will it be to integrate the global supply chain, marketing and manufacturing? How do you plan to address related-country overlap issues?
We are committed to carrying out a successful integration, including supply chain, marketing and manufacturing, leading to value creation for both sets of shareholders.  Related-country overlap issues will be addressed on a country-by-country basis.

How will you bring about synergistic savings of $250 million within a couple of years?
The transaction allows Sun Pharma to build on Ranbaxy’s strong global footprint and well-established product portfolio. Since the product offerings are complementary, we expect to derive immediate synergies from enhanced footprint across geographies, opportunities for brand building, and cross-selling. These synergies are expected to result primarily from topline growth, efficient procurement and supply chain efficiencies.

Caraco and Taro retain their identities, though changes were mainly to top management and direction of business. Will it be the same with Ranbaxy? 
The Ranbaxy entity will be merged into Sun Pharma and Sun Pharma will be the surviving entity post-merger. However, Ranbaxy has branded generics in more than 100 markets. We plan to keep the brands alive in most markets. Moreover, Brand Ranbaxy itself has a rich heritage and value. We would like to preserve that. Beyond this, the specifics are still being worked out.

The combined entity will be in the fourth position in the Indian pharma market. Clearly there are overlapping products and brands. Will there be common marketing, production and supply chains for the market?      
We don’t see the new entity facing any issues. In fact, all of the above are strengths, without any negative impact on consumers.

How do you plan to rationalise and integrate the research focus of the combined entity?
We can put together resources and do much more than what each company is doing individually — address more products, more markets.

How long will it take to resolve Ranbaxy’s US troubles? Your operations in the US are now spread between Taro and Caraco-Sun. With Ranbaxy coming in, how will you integrate strategies to tackle US regulations, manufacturing norms and supply chain?
As an industry leader in regulatory compliance and industry safety standards, Sun Pharma has a proven track record of investing the necessary resources to successfully integrate acquired companies. We are unwavering in our commitment to these standards and are focused on upholding our rigorous approach to regulatory compliance through the combination with Ranbaxy. We cannot put a definitive time frame to the process right now.

Analysts estimate Sun to have a cash balance of Rs 18,000-20,000 crore by 2016-17. How do you plan to use this cash reserve?
All the cash that we hold in the business is to be used for purposes of acquisition. 

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(This story was published in BW | Businessworld Issue Dated 19-05-2014)