Sun Pharmaceutical Industries said today it is acquiring Ranbaxy Laboratories from Daiichi Sankyo for $4 billion including debt, in an all-stock deal that combines two Indian generic drug developers into the subcontinent’s largest biopharma. 

With annual revenues expected to exceed $4.2 billion, the combined company would be the world’s fifth-largest generic drug company, with 445 ANDAs and 47 manufacturing facilities across five continents. The combined company would also be better resourced to resolve manufacturing problems that have prompted the FDA to bar the active pharmaceutical ingredients produced at all four Ranbaxy plants in India.

Ranbaxy has asked FDA Commissioner Margaret A. Hamburg, M.D., to lift the ban during her visit to India in February, saying it needed the export activity to fund FDA-sought quality improvements—without success. Ranbaxy last year agreed to pay a $500 million fine for safety and record-keeping violations.

Sun Pharma has also run into manufacturing issues with FDA. Last month, it banned from the U.S. products produced at Sun’s cephalosporin plant in Karkhadi, following an inspection that turned up what the agency said were deviations from current Good Manufacturing Practice (cGMP) regulations. “The company remains fully committed to compliance and has already initiated several corrective steps to address the observations made by the U.S. FDA,” Sun stated on March 13.

The deal has been approved by the boards of Sun, Ranbaxy, and Daiichi Sankyo, which acquired a 63.9% controlling stake of Ranbaxy in 2008 for $4.2 billion. The Sun and Ranbaxy boards have recommended their shareholders approve the deal.

Ranbaxy shareholders will receive 0.8 shares of Sun Pharma stock for each share they own in Ranbaxy. The deal—$3.2 billion in equity, $800 million in debt—was valued at Rs. 457.5 ($7.64) per Ranbaxy share—a premium of 18% above the company’s 30-dayweighted average share price, and 24.3% premium to Ranbaxy’s 60-day volume-weighted average share price, both as of April 4.

Daiichi Sankyo will end up with an approximately 9% stake in the combined company.

Sun said it expects to realize revenue and operating synergies of $250 million by the third year after closing of the deal—through a combination of revenue growth, and greater procurement and supply chain efficiencies.

Sun was already India’s largest biopharma by market capitalization, but second in domestic drug sales. The combined Sun-Ranbaxy would hold the largest market share among biopharmas doing business in India, with 9.3%—unseating current leader Abbott India, which maintains a 6.5% share, according to Aiocd Awacs research.

“This new Sun-Ranbaxy combine would be amongst the top four companies by market share in all the 10 leading therapies in domestic market which account for 90% of total Indian drug market,” and the leader by market share in pain, neurology, and gynecology treatments, Ameesh Masurekar, director with Aiocd Awacs, told The Economic Times of India. Other leading categories for the combined company include anti-infectives, cardiology, gastro-intestinal therapy, respiratory, and vitamins and neutraceuticals.

The companies say their offerings are complementary: Sun has focused on treatment for chronic disorders in neurology and cardiology, while Ranbaxy has concentrated more on antibiotics and respiratory drugs aimed at acute illnesses.

“Ranbaxy has a significant presence in the Indian pharma market and in the U.S., where it offers a broad portfolio of ANDAs and first-to-file opportunities. In high-growth emerging markets, it provides a strong platform which is highly complementary to Sun Pharma’s strengths,” Dilip Shanghvi, managing director of Sun Pharma, said in a statement. “We see tremendous growth opportunities and are excited with the prospects to create lasting value for both our shareholders through a successful combination of our franchises.” 


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