India's Sun Pharma looks ahead on verge of Ranbaxy deal approval

SINGAPORE--After seemingly taking forever, Sun Pharmaceuticals' $4 billion takeover of the embattled Ranbaxy Laboratories could win final approval as soon as Feb. 2--and close by mid-month. Seller Daiichi Sankyo will be glad to see it go. Sun remains cautious on the inside, and more relaxed on the outside.

Dilip Shanghvi

Sun Managing Director Dilip Shanghvi said that if the Punjab and Haryana High Court gives its approval of the merger at a Feb. 2 hearing, he could close the deal by the middle of the month. That would end a roller-coaster ride the two India drug makers have been on since last April when Daiichi Sankyo brokered the deal.

Sun knew it would face antitrust questions going in. It knew, for example, that Ranbaxy had $800 million in debt that would add to the cost of its $3.2 billion purchase offer. What it did not know was the extent of Ranbaxy's problems with regulatory authorities, mainly the U.S. FDA. Whether the downside of the deal has reached bottom likely will be revealed at the end of March, when Sun Pharma and Ranbaxy report fiscal fourth-quarter sales as a single entity.

At least four of Ranbaxy manufacturing plants in India have been declared off-limits by the U.S. FDA, and regulators in other countries also closed their shores to imports from the facilities. Ranbaxy had to shift production to a U.S. plant so at least some of its generics could remain on the world's largest market. Plus, some potentially big-selling generics--including knockoffs of Novartis' ($NVS) Diovan as AstraZeneca's ($AZN) Nexium--were delayed for months. In Diovan's case, more than a year.

Given all that, it was no wonder Shanghvi responded as he did when reporters asked about his plans for Sun's M&A plans: "Next acquisition may take a little longer." He hinted that he wanted a little time off after the pressure brought by the Ranbaxy deal. But if an acquisition were small enough or could continue to run on its own, he said, that might be doable. No more deals like the Ranbaxy one in the near future, he suggested.

Meanwhile, Sun would be working with the U.S. FDA to find ways that its and Ranbaxy's drugs could qualify for quick marketing approvals, Shanghvi said. The upside he sees to the Ranbaxy purchase lies in its major presence around the world, whereas Sun traditionally has had a market limited pretty much to Asia.

Closure of the Ranbaxy acquisition would make Sun the world's fifth largest producer of generic drugs. But that and other acquisitions have led to problems with the Competition Commission of India, which said Sun would have to sell at least seven of its products to prevent a technical monopoly. Shanghvi said he had buyers, but the deals have not been made final.

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