New Delhi: Japan’s third largest drug maker, Daiichi Sankyo Co. Ltd, is in early talks with Lupin Ltd for a product marketing partnership, at least two people familiar with the discussions said.
Daiichi Sankyo owns India’s largest drug maker Ranbaxy Laboratories Ltd in which it acquired a 63.92% stake last year.
The talks between Daiichi Sankyo and Lupin, India’s fifth largest drug maker by revenue, are centred on the possibility of cooperation between the two firms in markets including Japan, the US and Europe. A partnership could help Lupin increase its presence in multiple markets, analysts said.
“This would mean that Lupin would supply generic drugs to Daiichi in the markets where it has a presence,” said a person from senior management in Lupin who didn’t want to be named. “These include Japan. Daiichi will pay Lupin to buy intellectual property (IP) and take generics from Lupin, as well as collaborate to create IP.”
“Daiichi would then pull out of generics in Japan and instead Lupin will step in,” the person said.
However, he added that the talks are at a preliminary stage and no details have been finalized as yet.
The talks may even end inconclusively before more details are discussed, the person cautioned.
Lupin operates in Japan through its subsidiary Kyowa Pharmaceutical Industry Co. Ltd, which it bought in 2007 and is the seventh largest generic pharmaceutical company in Japan.
Lupin is also the Indian drug maker with the most extensive business in the Japanese market, which accounts for 14% of its formulation sales worldwide. The US accounts for 39% and Europe 14%.
“A deal like this, if it happens, could mean that Lupin can focus more on the therapeutic segments and markets it wants to enter like the oral contraceptive segment it is entering in the US. So, it would focus energies on that and allow Daiichi to focus on segments where it is not so big,” said a Mumbai-based analyst with a foreign brokerage who didn’t want to be named because he isn’t authorized to speak to the media.
Lupin currently has at least 200 products in the Japanese market.
The Mumbai-based drug maker also has extensive operations in South Africa and former Soviet republics.
“Daiichi wants to gobble up as much competition as they can, so despite acquiring Ranbaxy, they are still scouting for partners,” said a second person familiar with the talks who also didn’t want to be named.
Daiichi Sankyo’s stock price has nearly halved over the year after it announced the acquisition of Ranbaxy in June 2008 for close to $5 billion (Rs24,350 crore) primarily because of Ranbaxy’s troubles with the US Food and Drug Administration (FDA).
FDA in September barred the import of 30 medicines manufactured in Ranbaxy’s factories at Paonta Sahib in Himachal Pradesh and Dewas in Madhya Pradesh.
According to the second person, Daiichi is being cautious in its dealing with Indian companies.
“After the Ranbaxy experience, Daiichi is very wary of Indian companies, so we don’t know how far this discussion will go,” he said.
Emails to Daiichi remained unanswered and Lupin declined to comment on the talks.
“Daiichi pulling entirely out of generics in Japan appears unlikely, given that they have acquired Ranbaxy,” said Prashant Nair, an analyst at Citi Investment Research.
“But if they enter into such a tie-up for different markets, it would be good for Lupin as it will be able to leverage Daiichi/Ranbaxy’s front-end presence to distribute its products in multiple markets and gain scale.
Daiichi, through Ranbaxy, has a larger presence than Lupin, especially in Europe,” Nair added.
Lupin has itself been on the lookout for another takeover target in Japan. It is also nearing an acquisition in Saudi Arabia, which it expects to complete within the next six months.
“The (Saudi) company we are planning to acquire, it will not be a 100% acquisition, but will be majority acquisition with (the) understanding that we will be able to acquire more. More than 30% is the profit-to-sales ratio of the company. In six months or less, we will enter this market,” said Desh Bandhu Gupta, chairman of Lupin.
An industry expert said collaboration, rather than confrontation and competition, was the way to go in the pharma industry.
“A collaborative model is generally more long-term oriented and more sustainable,” said Sanjiv Kaul, managing director of ChrysCapital.
“Today MNCs (multinational companies) are looking at how they can create opportunities after patent expiry and joining hands with generic companies. Similarly, generic companies have also realized that at the end of the day they can only feed on molecules coming from MNCs.”