Ranbaxy: Aggressive As Ever
By Priya Nigam
Ranbaxy is being very aggressiveLess than a decade back, traveling home from a party in the wee hours of the morning was quite a lonely journey. Ours would be the only car on the road. Now it’s not unusual to see Maruti gypsies zooming past at breakneck speed. Young boys and girls working in “call centers” are headed home after having persuaded (under a pseudonym of Julia or Bob) folks living in the US to pay back their credit card dues.
India was initially seen by the developed world as a good place to outsource low-end services. That image is changing rapidly. India has certainly moved up the value chain in its contribution to the world. An example of this can be seen in the recent trends in the pharmaceutical industry. Major overseas pharma companies are increasingly joining hands with their Indian counterparts to accrue a cost advantage. We have seen tie-ups between Ranbaxy and GlaxoSmithKline, Merck and Nicholas Piramal India, Tata Group controlled Advinus Therapeutics and Merck as well as Eli Lilly and Nicholas Piramal India.
It’s a win-win situation really. While the overseas drug companies can reduce their researching and development costs, Indian firms get an opportunity to transition from making cheap generics of popular drugs to participating in R&D. In the latest development on this front, we have India's largest pharmaceutical company, Ranbaxy Laboratories, inking an agreement with US-based pharma major Merck & Co. The two companies have agreed to collaborate on drug discovery and clinical development of anti-infective drugs.
Ranbaxy is to be involved with drug discovery and the initial phases of clinical testing for anti-bacterial and anti-fungal drug candidates. The most promising products will be passed onto Merck. The US company will carry out the late-stage clinical trials, which are typically more complex and more expensive. Ranbaxy will receive an undisclosed upfront payment and will be eligible for potential payments of more than $100 million related to the achievement of various milestones. The company will also receive royalties on the worldwide sales of any drugs commercialized under the deal.
Ranbaxy has not altered its guidance of 18% to 20% revenue growth and about 20% to 25% net profit growth for the year ending December 31.
The pharma sector has immense potential and the anti-infective sphere is likely to grow. Pharma is also better insulated against an economic slowdown than most other sectors. Moreover, we should see some more M&A and partnership deals in this sector in the forthcoming months. Ranbaxy has an international presence, a healthy pipeline and a diversified business model. Furthermore, it has been entering into deals, which should yield benefits in the longer term. The stock appears to be a good way to play this sector.