Story Transcript
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BHUPESH BHANDARI
PORTFOLIO
THE RANBAXY STORY The Ranbaxy Story is Bhupesh Bhandaris first book, though readers of business news will be familiar with his byline in Businessworld and Business Standard. Yet to face a dull moment in life, he reads about The Great Game on Sundays and often dreams of going back one day to the mountains from where he hails.
The Ranbaxy Stor y T h e R i s e o f a n I n d i a n Mu l t i n a t i o n a l
BHUPESH BHANDARI
PORTFOLIO USA | Canada | UK | Ireland | Australia New Zealand | India | South Africa | China Portfolio is part of the Penguin Random House group of companies whose addresses can be found at global.penguinrandomhouse.com
First published in Viking by Penguin Books India 2005 Published in Portfolio 2006 Copyright © Bhupesh Bhandari 2005 All rights reserved 10 9 8 7 6 5 4 3 2 ISBN 9780144000975 Typeset in Sabon Roman by SURYA, New Delhi
Printed at Repro India Limited
This book is sold subject to the condition that it shall not, by way of trade or otherwise, be lent, resold, hired out, or otherwise circulated without the publisher’s prior consent in any form of binding or cover other than that in which it is published and without a similar condition including this condition being imposed on the subsequent purchaser. www.penguin.co.in
1 Introduction
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n Thursday, 21 August 2003, shares of Pfizer Inc., the worlds largest pharmaceutical company, fell by 4 per cent, shaving off $7 billion from its market capitalization. This was preceded, the same day, by the investment banking firm Smith Barney cutting its rating on Pfizer after concluding that its largest selling drug, Lipitor, may soon be under threat from a cheaper clone from Indias Ranbaxy Laboratories Ltd. We disagree with the consensus view that the Lipitor patent challenge is frivolous, Smith Barney analyst George Grofik said in a report. After reviewing the relevant court documents and consulting our patent attorney, we believe there are significant risks to the Lipitor patent estate. Grofik cut his rating on Pfizer from outperform to inline. Smith Barney also removed the New York-based company from its recommended list. Grofik said the arrival of a generic alternative to Lipitor could coincide with a similar risk to several of the companys other blockbuster drugs, including the antidepressant Zoloft, the
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antibiotic Zithromax, hypertension drug Norvasc and allergy drug Zyrtec, the patent protection on all of which are to end between 2005 and 2007. The term generic refers to those drugs the patent on which has lapsed and they are no longer protected by a registered trademark. Any drug company is free to manufacture and market them. Pfizer faced the prospect of a serious dent in its business, thanks to a small Indian company operating out of the cramped and congested commercial district of Nehru Place in New Delhi. While Pfizer reported sales of $32.4 billion in 2002, at the time it made the Lipitor challenge, Ranbaxy had yet to touch a turnover of $1 billion and was hoping to close 2003 at around $950 million. Pfizers research and development budget of $7.1 billion in 2002 was more than 190 times Ranbaxys budget of $37 million. Pfizerwhich traces its origin to a modest red brick building in the Williamsburg section of Brooklyn, New York, in 1849immediately dismissed the Smith Barney report. But it had reasons to be anxious. Lipitor (flucanozole atorvastatin), the worlds most prescribed drug for lowering cholesterol, was an innovation of Warner-Lambert Co., the result of painstaking research for thirteen years. Even while the drug was in the development stage, Pfizer knew it had the potential to become a blockbuster. The company first got into a co-marketing alliance with Warner-Lambert to launch Lipitor in the American market in 1997. But the initial reports on the drug were too good to share the profits. With Lipitor in mind, Pfizer eventually took over Warner-Lambert in 2000. Pfizers gamble paid off: Lipitor recorded sales of $6 billion in 2000, before jumping to $8.6 billion in 2002. It was the crown jewel in Pfizers portfolio. In early 2003, Ranbaxy approached the United States Food and Drug Administration (USFDA) for approval to launch its version of flucanozole atorvastatin. Under existing guidelines, the USFDA cannot take more than thirty months to approve a drug after the application is filed, if the bio-
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equivalence and bio-availability reports are satisfactory. If USFDA finds that the drug has the same results as that of Pfizers, it can allow Ranbaxy to launch the drug by late2005. Pfizers patents on the drug run till 2011. Ranbaxy has challenged two of these, which were extended from 2006 to 2008 and 2010. Pfizer in turn has filed two suits against Ranbaxy in the district court in Delaware for patent infringement. It is now for the American courts to decide when Pfizers patent on the drug expires and generic versions of Lipitor can be launched. Whatever the dates fixed by the courts, Ranbaxy will be the first to launch generic flucanozole atorvastatin. Others can follow only after it has had a free run for 180 days. Thus, Ranbaxy will have no competition for six months. Lipitor has achieved a turnover of $10 billion. Once the patent expires in 2008, prices could crash by up to 60 per cent, shrinking the drugs turnover to $4 billion. Ranbaxy can hope to get at least a quarter of this market, or about $1 billion in turnover, during that year. By 2007, drugs with sales worth $5560 billion are expected to go off-patent. The business opportunities running into billions of dollars that this opens up for generic companies has led to a race amongst the worlds leading producers of generic medicine to become the first-to-file for any drug. Ranbaxy is a leading player in this global game. In 2002 and 2003, no other company (including Israels Teva Pharmaceutical Industries, the worlds largest generics company) had filed more patent applications with USFDA to launch generic drugs than Ranbaxy. Though Lipitor is the biggest drug targeted by Ranbaxy, by the end of 2003 the company was claiming that it could have first-to-file approvals for nine such drugs. Every quarter, the USFDA releases the list of applications for generic drugs. By monitoring it carefully, pharmaceutical companies the world over find out who has filed first to get the first movers advantage. A detailed study of these lists
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gave Ranbaxy reasons to believe that it would be the first to launch nine generic drugs in the United States over the next few years. Apart from Lipitor, the list includes at least one more drug with sales of over a billion dollars simvastatin 80 mgwhich recorded sales of $1.4 billion in 2002. The Lipitor opportunity was identified early by Ranbaxy. In 2000, Devinder Singh Brar, the then managing director and chief executive officer (CEO), had set up a multidisciplinary committee within the company to look beyond routine filings with USFDA to launch generic drugs. Over the years, Big Pharma, the collective label for the worlds top pharmaceutical companies, had been extending patents on bestseller drugs in order to protect their profits, a practice known as the evergreening of patents. Brar knew that often an extension for patents was taken on grounds that could be challenged in a court of law. The committee that he formed had the brief to identify the drugs where patents could be challenged and Ranbaxy could be the firstto-file for a generic version. The committee met every quarter after the members had done an in-depth study of the patents of several drugs. One such drug was Lipitor. Ranbaxy felt that two of Pfizers patents on Lipitor could be challenged. Confident of its position, the companys scientists started work on developing a generic version of the drug. The day after the scientists reported that they had developed flucanozole atorvastatin, a Ranbaxy functionary flew out of Delhi to the United States and filed for USFDA approval the very next day. Speed, in the business of generics, is the deciding factor. And Ranbaxy had proved it could beat all others in the game. *
On 22 October 2003, the board of directors of Ranbaxy had met in Delhi to place on record the companys financial
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results for the quarter ending September 30. The results were sent to leading publications in India and abroad in the afternoon. The numbers were good and in line with expectations. Even as journalists and research analysts were poring over the results, Paresh Chaudhry, Ranbaxys energetic head of communications, called up Ranbaxy trackers to tell them to hold their storiesbigger news was on its way. Ranbaxy and GlaxoSmithKline Plc (GSK) had entered into a drug discovery and clinical development collaboration covering a wide range of therapeutic areas. Business newspapers had found their leading story of the day. The next mornings papers carried the announcement prominently. This was GSKs first collaboration in the developing world, though it has two such tie-ups in Japan, one each with A. Shiniogi and Tanabe Seiyaku. For Ranbaxy, it was nothing short of a coup. Headquartered in the United Kingdom and with operations based in the United States, GSK has an estimated 7 per cent share of the worlds pharmaceutical market and is in a leadership position in four major therapeutic areas anti-infectives, central nervous system drugs, respiratory drugs and gastro-intestinal/metabolic drugs. In addition, it is a leader in the important area of vaccines and has a growing portfolio of oncology products. Based on the 2002 annual results, GSK had sales of $31.8 billion and profit before tax of $9.7 billion. GSK has over 1,00,000 employees worldwide and its research and development unit is based at twenty-four sites in seven countries and has a budget of $4 billion. GSK came into being in 2000 after a century of mergers of drug companies beginning in 1891, when Smith, Kline & Company acquired French, Richards & Company to become Smith Kline & French Company. Over the years, the various constituents of GSK had come out with a number of pathbreaking treatments, collecting a string of Nobel
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awards in the process. But since the early 1990s, like all other Big Pharma companies, it was faced with the prospect of rising research and development costs, coupled with a fall in productivity. As compared to $500 million a decade ago, the cost of developing a new chemical entity had risen to between $800 million and $1 billion by the turn of the century. Like all other big pharmaceutical companies, GSK was looking at ways and means to contain these costs, while driving up productivity. One way of doing it was by forging alliances with low-cost companies with proven scientific skills. As a result, GSK started scouting for opportunities in India, kicking off discussions with a handful of companies like Hyderabad-based Dr Reddys Laboratories, Ahmedabadbased Torrent Laboratories and Ranbaxy. Around the same time, Ranbaxy was seriously considering becoming a research-based company with its own pipeline of products. One way was to diligently pursue its own research and development programme. But that would be a time-consuming process. Besides, the costs involved could be astronomical, much more than Ranbaxy could afford. The learning process could be shortened if Ranbaxy could join hands with some multinational research company. Soon after he took over as Ranbaxys head of research in 2002, Rashmi Barbhaiya, an American citizen, started sounding out companies abroad for such an alliance. One of the first companies he contacted was GSK. In late 2002, he set up a meeting with Prof. Tamaqua Yamada, GSKs head of research, at Philadelphia in the United States. The two scientists had heard of each other and hit it off instantly. Once the meeting got over and they shook hands, Barbhaiya could see the deal he had in mind taking shape. It was now left for Ranbaxy vice-president (global licencing) Sanjiv Kaul and his team to take the negotiations to their logical conclusion. Kaul made innumerable trips to the United States, while three different teams from GSK came to India to carry out a due diligence on Ranbaxy, especially its research and development capabilities.
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The commercialization of a new chemical entity involves two processesdiscovery and development through clinical trials. Initially, GSK wanted to involve Ranbaxy only in the late-discovery part, which meant that leads thrown up by its scientists could be tested more rigorously at Ranbaxys laboratories. But seeing Ranbaxys skills, the partnership finally included early development work as well. The deal was sealed in ten months flat. Several collaborative scenarios were envisioned, with GSK and Ranbaxy leveraging their respective resources and expertise. Under the terms of the agreement, Ranbaxy would be responsible for activities from optimization of a lead compound to generation of a development candidate; leads could be provided by either of the two partners. For a proportion of the candidates selected within the collaboration, Ranbaxy was expected to conduct early clinical work. GSK and Ranbaxy would form an Executive Steering Committee to oversee the research. Once a compound is selected as a development candidate, in most instances GSK would complete development and have the exclusive commercialization responsibilities worldwide, while Ranbaxy will take the lead in India. Ranbaxy, with the consent of GSK, may co-promote in the United States and the European Union. The financial terms of the agreement were not disclosed, though Ranbaxy would be entitled to a royalty on sales of co-developed products including milestone payments. GSK and Ranbaxy came together even though they were locked in legal battles in the United States, with GSK alleging that Ranbaxy and a few other generic companies used stolen bacteria to come out with generic versions of its bestseller drug Augmentina charge Ranbaxy denied. However, at no point, did the matter affect the negotiations for the research and development collaboration. It was a humbling experience, Kaul said after the deal was inked. More to the point, Ranbaxy now was a business partner of
A gripping account of ambition, enterprise and corporate strategies It took a sleeping pill to get a somnolent company up and running. The drug was Calmpose—Ranbaxy’s answer to Roche’s Valium—and its launch in 1969 was the hitherto unknown company’s first step on the long road to global stardom. India accounts for a tiny fraction of the world pharmaceuticals market— just 1.2 per cent. To become really big, Ranbaxy realized early in life, it had to go global. But success doesn’t come easy in the world market which is dominated by players like Pfizer, Novartis and GlaxoSmithKline. With each of these putting billions of dollars into research every year, it takes a great deal of courage and wisdom to venture into their territory—markets like the United States and Europe. The Ranbaxy Story sets down, for the first time, Ranbaxy’s remarkable journey from a distributor of medicine to a multinational corporation, deriving over eighty per cent of its business from outside India. It is also the story of the Singh family, of Bhai Mohan Singh’s dogged pursuit to expand the company during the licence-permit-quota raj and of Dr Parvinder Singh who was convinced way back in the 1970s that Ranbaxy’s destiny lay in the international markets. Bhupesh Bhandari, a business journalist who has followed the company closely for over a decade, traces Ranbaxy’s growth against the backdrop of the global pharmaceutical business. An intimate portrait of this pioneering company, The Ranbaxy Story is a must-read at a time when going global is high on the agenda of most Indian companies. ‘[The Ranbaxy Story] illuminates the corporate landscape over five decades of dramatic change’ —Business Standard ‘[A] racy account of Ranbaxy’s success’ —Business Today ‘Written in a crisp and anecdotal style, The Ranbaxy Story . . . is remarkable for its depth and coverage’ —Pitch
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