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SUGGESTIONS/ RECOMMENDATIONS</li></ul>Ranbaxy Laboratories Ltd. is a research based International pharmaceutical company with its headquarters in India. It manufactures a range of high quality, affordable generic drugs. The company has manufacturing facilities in around 9 countries. It has strong presence in around 49 countries, products available in around 125 countries globally. It has dedicated workforce of about 10,500 employees representing 51 different countries.<br />Formation:<br />Ranbaxy was started by Ranbir Singh and Gurbax Singh in 1937 as a distributor for a Japanese company Shionogi. The name Ranbaxy is a portmanteau word from the names of its first owners Ranbir and Gurbax. Bhai Mohan Singh bought the company in 1952 from his cousins Ranbir Singh and Gurbax Singh. After Bhai Mohan Singh's son Parvinder Singh joined the company in 1967, the company saw a significant transformation in its business and scale. His sons Malvinder Mohan Singh and Shivinder Mohan Singh sold the company to the Japanese company Daiichi Sankyo in June 2008.<br />Ranbaxy was established in 1961 and went public in the year 1973. It has global sales of US $1340 million for the year ended on 31st December, 2006. It has the largest market in USA (sales appx. US $380 million); then come Europe and BRICS (Brazil, Russia, India, China, South Africa). <br />Company Details:<br />Type-Public<br />Founded-1961<br />Headquarters-Gurgaon, Haryana, India<br />Employees-1100 in R&D<br />Website-www.ranbaxy.com<br />Working Details:<br />Ranbaxy has a strong R&D competence that provides a sustainable competitive advantage to the company. It has scholarly pool of about 1100 scientists, engaged in out-of-box researches. Ranbaxy spends over 7% of its sales on R&D. Licensing of once-a-day Ciprofloxacin formulation, using NDDS (Novel Drug Delivery System) on a worldwide basis, was the first international success for the company. <br />Ranbaxy is focused on Discovery and development of drugs on anti-infectives, urology, respiratory/ inflammatory and metabolic diseases. <br /><ul><li>Top 20 Molecules:</li></ul>• Simvastatin • AmoxiClav Potassium • Isotretinoin • Amoxycillin and Combinations <br />• Ciprofloxacin and Combinations • Ketorolac Tromethamine • Omeprazole and Combinations<br />• Cefuroxime Axetil • Cephalexin • Loratadine and Combinations • Clarithromycin • Ginseng+Vitamins<br />• Diclofenac and Combinations • Ranitidine • Cefaclor • Cefpodoxime Proxetil • Efavirenz<br />• Atorvastatin and Combinations • Fenofibrate • Ofloxacin and Combinations<br />Business Overview<br />Ranbaxy Laboratories Limited encompasses the entire pharmaceutical value chain from manufacturing to marketing generic pharmaceuticals; value added generic pharmaceuticals, branded generics, Active Pharmaceuticals Ingredients (API) and intermediates. As a research driven company, over 6% of it's revenues are invested in R&D, amongst the pharmaceutical companies in India, Ranbaxy has the largest R&D budget with an R&D spend of over US $ 100Mn. In 2008 it demerged its New Drug Discovery Research division into a separate entity, Ranbaxy Life Science Research Limited (RLSRL).<br />The company has manufacturing operations in eight countries with a ground presence in 49 countries, and its products are available in over 125 countries. It has been aggressively entering into joint ventures and strategically acquiring companies in past few years. Besides concluding its acquisition of Be-Tabs in South Africa, which makes Ranbaxy the 5th largest generic pharmaceutical company in South Africa, the Company acquired 13 Dermatology products from Bristol-Myers Squibb in the USA in 2007. Ranbaxy made an acquisition of RPG Aventis, France which has since been renamed as Ranbaxy Pharmacie Generiques SAS. It also has subsidiaries in Spain, Netherlands, Russia and Australia. <br />Anti-infectives amoxycillin, ciprofloxacin, and simvastatin are in Ranbaxy's top selling class of medications. In 2007, the company entered the specialty and niche therapeutic areas of Bio-generics, Oncology,Penems, Limuses, Peptides,etc. The company also has a groundbreaking anti-malarial candidate in late-phase trials.<br />Business and Financial Metrics<br /><ul><li>Revenue versus Profit after tax from 2004-2008</li></ul>From FY2004 to FY2008, sales revenue grew from Rs. 36,143.4 millions to Rs. 44,814.3 millions. The net profit for the same period increased from Rs.2,237 millions to Rs.6,177.2 millions. From FY2007 to FY2008 the sales revenue increased from Rs.41,844.9 millions to Rs.45857.80 million. However, the company reported a net loss of Rs (10323.34) million for FY 2008 compared to net profit Rs 6177.20 million for FY2007.<br />In Q3'08 Consolidated Revenue was Rs. 18,884 Mn (USD 431 Mn) against Rs.16,520 Mn in Q3'07, exhibiting a growth of 14.3%. The growth was due to the weakening in Rupee against US Dollar and sales growth which was 6% in dollar terms at $428mn. Sales were hindered by an import ban imposed by the U.S. Food and Drug Administration (FDA) on 30 different generic drugs imported from its Dewas and Batamandi (Paonta Sahib) Facilities. With the import ban coupled and with a forex hedging loss worth Rs 900mn, their operating margin fell to 7.8% in Q3'08 from 16.0% in Q3'07. The resultant operating profit stood at Rs 1440mn as against 2,831 mn in Q3'07, down by 49.1%. The provision for inventory write offs due to the import alert issued by the US FDA and due to the forex translation loss have resulted in net loss of Rs 3945mn against a net profit of Rs 2074mn in Q3'07.<br /><ul><li>Annual Sales : 5 years at a Glance</li></ul>Year20042005200620072008Sales36,143.435,366.540,587.141,844.944,814.3<br /><ul><li>Profit/Loss after Tax</li></ul>Year20042005200620072008PAT5,284.72,237.03,805.46,177.210,448.0<br />Figure 1<br /><ul><li>Quarterly Closings in 2009</li></ul> <br />QuarterQ1’09Q2’09Q3’09Sales8,022.2110,099.1811,937.67<br />QuarterQ1’09Q2’09Q3’09PAT7,777.786,754.501,860.67<br />Figure 2<br /><ul><li>Performance Highlights</li></ul>Net Sales de-grew by 3.7%: For 1QCY2009, Ranbaxy posted Net Sales of Rs1,554.5cr, a de-growth of 3.7% yoy, which was in line with our estimates. Net Sales declined on account of USFDA issues in the US and challenging environment in the EU region. In the EU region and North America, the company‘s Sales fell by 14% and 7% in Rupee terms to Rs283.1cr and Rs404.0cr. However, Emerging market Sales fell marginally by 2% to Rs837.6cr. The company has stated that it is in discussion with the USFDA to resolve the issues involving its plants. The USFDA inspection of Paonta and Dewas facilities is likely to take place during the year. Also, the company does not expect the current USFDA issue to impact its FTF settlements.<br />For CY2009, the company has guided for Top-line Rs7,000cr, a de-growth of 3% over CY2008. The company’s guidance does not include any upside from the launch of Valtrex. Ranbaxy is working on various synergies with Daiichi Sankyo, which includes launching of products from the parent’s portfolio in India and other Emerging markets. Operating Margins collapse: Ranbaxy reported Operating Losses of<br />Rs104cr as against a Net Profit of Rs225cr in the last corresponding period. Operating Losses can be attributable to realised foreign exchange losses of Rs84.5cr, shifting of operations to Ohm facility in the US post the ban of fresh imports from the company’s Paonta Sahib facility and on-going overheads at Paonta Sahib and Dewas facilities. The company expects a marginal sequential improvement in Operating Margins by restructuring costs.<br />Net Loss of Rs761cr: Ranbaxy reported a Net Loss of Rs761.3cr for 1QCY2009 primarily on the back of Rs1,046.1cr MTM losses on foreign hedges and FCCBs. The company has stated it has around US $1.4bn hedges, which are long term in nature. For CY2009, the company has guided for a loss of around Rs800cr provided that there is no further Rupee depreciation and no adverse impact from the USFDA front.<br />Y/E Dec (Rs cr)CY2007CY2008CY2009ECY2010ENet Sales6,6417,2226,4507,517% chg10.58.7-10.716.5Reported Profit774.0-914.6-813.9408.7% chg51.5000Adj Net Profit554440.6-62334.2<br /><ul><li>Business Performance</li></ul>For the quarter, the company posted Net Sales of Rs1,554.5cr registering 3.7% yoy de-growth. Emerging markets, which accounted for 54% of the company’s Total Sales, de-grew by 2.0% to Rs837.6cr. Meanwhile, the Developed Markets de-grew by 6% to Rs608cr. For CY2009, Ranbaxy has guided for Sales of around Rs7,000cr and Net Loss of Rs800cr. The company expects to break-even in 9MCY2009 provided there is no further Rupee depreciation and adverse impact on account of USFDA. The guidance does not include any upside from the launch of Valtrex. Ranbaxy is working with on various synergies with Daiichi Sankyo, which includes launching products from the parent’s portfolio in India and other Emerging markets.<br /><ul><li>Developed Markets</li></ul>For 1QCY2009, the North American region comprising the US and Canada posted 7% de-growth to Rs404.0cr. The US market de-grew by 14% yoy to Rs340.1cr despite of rupee depreciation primarily on account of the US ban on products from the Paonta Sahib facility. During the quarter, the company received four ANDA approvals from the USFDA. Imitrex was launched during the quarter in the US. The company is investing towards increasing its manufacturing capacity at its Ohm facility. The company expects to begin supplying Nexium API to Astra Zeneca by 4QCY2009.<br />Ranbaxy stated that it is in discussion with the USFDA to resolve issues at its plants. The USFDA inspection of Paonta and Dewas facilities is likely to take place during the year. Ranbaxy believes that supply from its Dewas facilities could start again if the USFDA finds the plants GMP compliant post the inspection. The Canada market grew at a faster pace of 57% yoy to Rs63.9cr and the company currently ranks seventh with a 4% share in the Generic market. <br />In the EU region, the company recorded Sales of Rs283.1cr, a de-growth of 14% yoy primarily on account of currency devaluation and channel de-stocking. Ranbaxy has adopted a cautious view on the EU region with focus shifting to Profitability replacing its earlier Volume-based approach. Further, it is reducing its fixed costs in the UK and Germany market.<br /><ul><li>Emerging Markets</li></ul>During 1QCY2009, the CIS region de-grew by 8% yoy to Rs86.5cr primarily on account of currency devaluation and stringent credit management adopted by the company. The Asia-Pacific region recorded Sales of Rs109.2cr growing at 9% yoy. In India, the company’s Sales during the quarter stood at Rs325.8cr, a yoy growth of 9% as the company continues to maintain its second rank in the domestic market with 4.8% marketshare. The company also launched the first product Olvance from Daiichi’s product portfolio. The company also plans to scale up Daiichi’s products in India and other Emerging markets.<br />Business Segments<br />There are three basic business divisions: pharmaceutical dosage forms, active pharmaceuticals ingredients (API) and allied business which comprises of animal healthcare, diagnostics and a range of other products. Of these, the pharmaceutical dosage forms division is the largest sector, accounting for two thirds of annual sales. <br />Dosage Form Sales (94% of total revenue) the dosage form sales grew from 91% of global sales in 2006 to 94% of global sales in 2007. It comprises the majority of Ranbaxy’s sales, including sales of generic pharmaceuticals, value added generic pharmaceuticals and branded generics.<br />API (Active Pharmaceutical Ingredients & Others) (6%) Ranbaxy supplies API to leading generic companies in more than 50 countries. The API division has in its portfolio over 50 products covering a wide therapeutic range such as Cardio-vasculars, Anti-infectives, Anti-ulcerants, Anti-diabetics, Anti-depressants, Anti-virals and others. In 2001 Ranbaxy identified Consumer Healthcare as its new business area with the launch of 4 brands: Revital, Pepfiz, Gesdyp & Garlic Pearls. During 2006, the business registered sales of US $ 19 Mn registering a growth of 19%. <br />Demand Forecasting: FY 2009-2010<br /><ul><li>Ranbaxy’s total sales year wise is:</li></ul>YearSales in Crores2004-0536,143.402005-0635,366.502006-0740,587.102007-0841,844.902008-0944,814.30<br /> <br /><ul><li>Graphical representation is given below:
Ranbaxy’s Profit/Loss Year wise:</li></ul>YearProfit in Crores20045,284.7020052,237.0020063,805.4020076,177.20200810,448.00<br /> <br /><ul><li>Graphical Representation is given below:
Comparison between years:</li></ul>Financial YearComparison(in Crores)2004-05Nil2005-063,047.702006-07-1,568.402007-08-2,371.802008-09-4,270.80<br /><ul><li> </li></ul>Trend analysis:<br />The equation for the straight line trend is Y = a + bx, <br />Where ‘a’ is an intercept, and ‘b’ shows impact of independent variable; the Y intercept and the slope of the line are found by making substitutions in the following normal equations: <br />∑Y = a + b ∑ x <br />∑XY = a ∑x + b ∑x2 <br />To calculate the demand forecasting, last 5years’ Sales (in Crores) are to be taken.<br />YearsSales in Rs.crores (Y)XX2XY2004-0536,143.401136,143.402005-0635,366.502470,733.002006-0740,587.10391,21,761.302007-0841,844.904161,67,379.602008-0944,814.305252,24,071.50N=5∑Y = 198756.20∑X = 15∑ X2 = 55∑XY = 620088.80<br />Substituting the above values in the normal equations:<br />198756.20 = 5a+15b…… (eq1) <br />620088.80 = 15a+55b…. (eq2)<br />Solving the two equations:<br />a = 32,605.18 and b = 2,382.02.<br />THE EQUATION FOR STRAIGHT LINE TREND IS: Y = 32,605.18 + 2,382.02X<br />TREND VALUES AND ESTIMATE FOR THE YEAR 2010 IS AS FOLLOWS:<br />Y2005 =32,605.18 + 2,382.02(1)34,933.20Y2006 =32,605.18 + 2,382.02(2)37,369.22Y2007 =32,605.18 + 2,382.02(3)39,751.24Y2008 =32,605.18 + 2,382.02(4)42,133.26Y2009 =32,605.18 + 2,382.02(5)44,515.28Y2010 =32,605.18 + 2,382.02(6)46,897.30<br />The Demand Forecast for the Year 2010 is Rs. 46,897.30 Crores.<br />TRADING<br />In 1998, Ranbaxy entered the United States, the world's largest pharmaceuticals market and now the biggest market for Ranbaxy, accounting for 28% of Ranbaxy's sales in 2005.<br />For the twelve months ending on 31 December 2005, the company's global sales were at US $1,178 million with overseas markets accounting for 75% of global sales (USA: 28%, Europe: 17%, Brazil, Russia, and China: 29%). For the twelve months ending on December 31, 2006, the company's global sales were at US $1,300 million.<br />Most of Ranbaxy's products are manufactured by license from foreign pharmaceutical developers, though a significant percentage of their products are off-patent drugs that are manufactured and distributed without licensing from the original manufacturer because the patents on such drugs have expired.<br />In December 2005, Ranbaxy's shares were hit hard by a patent ruling disallowing production of its own version of Pfizer's cholesterol-cutting drug Lipitor, which has annual sales of more than $10 billion. In June 2008, Ranbaxy settled the patent dispute with Pfizer allowing them to sell Atorvastatin Calcium, the generic version of Lipitor(R) and Atorvastatin Calcium-Amylodipine Besylate, the generic version of Pfizer's Caduet(R) in the US starting November 30, 2011. The settlement also resolved several other disputes in other countries.<br />On 23 June 2006, Ranbaxy received from the United States Food & Drug Administration a 180-day exclusivity period to sell simvastatin (Zocor) in the U.S. as a generic drug at 80 mg strength. Ranbaxy presently competes with the maker of brand-name Zocor, Merck & Co.; IVAX Corporation (which was acquired by and merged into Teva Pharmaceutical Industries Ltd.), which has 180-day exclusivity at strengths other than 80 mg; and Dr. Reddy's Laboratories, also from India, whose authorized generic version (licensed by Merck) is exempt from exclusivity.<br />On 16 September 2008, the Food and Drug Administration issued two Warning Letters to Ranbaxy Laboratories Ltd. and an Import Alert for generic drugs produced by two manufacturing plants in India.<br />On 10 June 2008, Japan's Daiichi Sankyo Co. agreed to take a majority (50.1%) stake in Ranbaxy, with a deal valued at about $4.6 billion. Ranbaxy's Malvinder Singh will remain CEO after the transaction. Malvinder Singh also said that this was a strategical deal and not a sell out.<br />On February 25, 2009 the U.S. Food and Drug Administration said it has halted reviews of all drug applications including data developed at Ranbaxy's Paonta Sahib Plant in India because of a practice of falsified data and test results in approved and pending drug applications. "Investigations revealed a pattern of questionable data," the FDA said.<br />Turn Around Strategies<br />Acquisition<br />On June 11 2008, Daiichi-Sankyo acquired a 34.8% stake in Ranbaxy, for a value $2.4 billion. In November 2008, Daiichi-Sankyo completed the takeover of the company from the founding Singh family in a deal worth $4.6 billion by acquiring a 63.92% stake in Ranbaxy.<br />The addition of Ranbaxy Laboratories extends Daiichi-Sankyo's operations - already comprising businesses in 21 countries. For Ranbaxy, the deal frees up its debt and imparts more flexibility into its growth plans. The combined company is worth about $30 billion.<br /><ul><li>Shareholding Pattern </li></ul>In November 2008, Japanese Pharma Daiichi Sankyo Company (4568-TO) completed the takeover of the company from the founding Singh family in a deal worth $4.6 billion by acquiring 63.92% stake in Ranbaxy.<br />Limited share holding patternEntityPercentageDaiichi Sankyo Company (4568-TO)63.92%General Public13.18%Banks Fin. Inst. and Insurance9.57%Private Corporate Bodies5.30%FII's4.16%Others1.72%NRI's/OCB's/Foreign Others0.14%<br />Key Trends and Forces<br /><ul><li>Gaining First-to-File exclusive rights to a generic through patent challenges</li></ul>Generic drug companies can challenge a patent's validity or argue that their version doesn't infringe on the existing drug's patent even before patent expiration. The first company to apply for FDA Approval for a generic, in spite of an existing patent, receives a 180-day period of exclusivity to produce and sell the generic version. <br />Ranbaxy has been filing more than 20 ANDAs to the U.S.Food and Drug Administration (FDA) each year. The cumulative abbreviated new drug applications (ANDA) filings stood at 239 with 141 approvals as on December 31, 2007. The company has entered into 3 independent litigation settlements with innovator companies, GlaxoSmithKline (GSK) for Valacyclovir (Valtrex) and Sumatriptan (Imitrex) and with Boehringer Ingelheim / Astellas Pharma for Tamsulosin (Flomax). It has one of the largest product pipeline in the US that includes 18 potential First-To-File opportunities with a market size of around US $ 27 Bn, at innovator prices. <br /><ul><li>Pricing Pressures in US & European generic markets affect Ranbaxy's revenue</li></ul>Due to an increase in number of pharma companies forging into the generics market, there has been downward pricing pressure on generics in the U.S. The generics market in Europe, which had become a safe haven for Indian pharmaceutical companies after competition pulled down margins in the US, has come under pricing pressure too, especially in countries like Germany, UK and France, the top three generics markets in the continent. These countries have seen margins in the generics segment erode as much as 80-90%. The pricing pressure has been adversely affecting revenue as both US & Europe occupy Ranbaxy's majority market share. Due to continuing competitive and pricing pressures, Ranbaxy's revenues dropped 6% to Rs 149.5 crore from the UK, France, Germany in the quarter ended September 30, 2008.<br /><ul><li>Regulatory issues raised by regulators in various countries where Ranbaxy operates pose a risk to it's markets:</li></ul>On September 16, 2008 the U.S.Food and Drug Administration (FDA) issued warning letters to Ranbaxy Laboratories Ltd., and an Import Alert for Drugs from Two Ranbaxy Plants in India affecting over 30 different generic drugs and citing serious manufacturing deficiencies. Following this the World Health Organisation (WHO) observed that several inspections of Ranbaxy's Paonta Sahib site - in June 2008 - revealed noncompliance with WHO good manufacturing practices standards. <br />Further, India's business daily Mint quoted the Canadian health ministry as saying a "regulatory letter" was sent to Ranbaxy Pharmaceuticals Canada requesting an action plan and a response to the FDA's move. Impending healthcare reforms in Romania, Ranbaxy's largest market in EU, is leading to a delay in the government's product and price approval list, and adding to uncertainty amongst customers and suppliers. The outcome of these regulatory issues pose a risk to the company's image as global generic player as well a risk to its markets worldwide <br />Latest Developments in Ranbaxy: At a Glance<br />Ranbaxy's sales in the key U.S. market fell 53% to $44 million in the third quarter ended Sept. 30. Overall, its revenue from developed markets, including the U.S., dropped 30% to $109 million, primarily due to lower business from the U.S. Its consolidated net sales were $356 million for the period. <br />Ranbaxy Laboratories has exited from Japan-based joint venture company—Nihon <br />Pharmaceutical Industry.<br />Ranbaxy entered into an agreement with Nippon Chemiphar to form a joint venture company — Nihon Pharmaceutical Industry, in September, 2002. Now it has sold its stake to Nippon Chemiphar for an undisclosed amount after an agreement that allowed Nippon Chemiphar (NC) to buy Ranbaxy’s entire stake in Nihon Pharmaceutical Industry (NPI), Ranbaxy Labs said in a filing to the Bombay Stock Exchange.<br />Both companies — Nippon Chemiphar and Ranbaxy Laboratories — held equal shares in the joint venture. Following the transaction, NPI would become a wholly-owned subsidiary of Nippon Chemiphar.<br />Nippon Chemiphar is a Japanese pharmaceutical company, involved in developing, manufacturing and selling generics, in addition to proprietary products.<br />Ranbaxy Laboratories, has posted a net profit of Rs 116.6 crore for its third quarter ended September, against a net loss of Rs 394.5 crore in the same period last year.<br />Ranbaxy Laboratories, India's top drugmaker by sales, will start supplying in December or January a key ingredient to AstraZeneca for anti-ulcer drug Nexium.<br />Competition<br />The pharmaceutical industry is characterized by rapid advances in scientific knowledge and ability to discover new drugs. The industry is therefore led by large manufacturers and marketers of drugs investing heavily in research & development, having clinical testing, marketing and distributing capabilities. Some of the main competitors of Ranbaxy are: <br /><ul><li>Sun Pharamceuticals Industires - It is No. 1 in India in speciality therapy areas like psychiatry, neurology, cardiology, gastroenterology, diabetology and respiratory.It has brands in 30 markets worldwide and also has a generic presence in the U.S. with Caraco Pharm Labs, Sun Pharmaceutical Industries Inc (subsidiary).
Cipla - Cipla is a leader in the domestic retail pharmaceutical market. It also exports raw materials, intermediates, prescription drugs, over-the-counter products, and veterinary products to some 180 countries around the world.
GlaxoSmithKline - It is one of the oldest pharma companies in India and with a turnover of Rs. 1500 crore is one of the market leaders(market share) in India with a share of 6.2 per cent. Its main portfolios consist of anti- infectives, dermatologicals and pain management drugs. </li></ul>Dr. Reddy's Laboratories - It is a global pharmaceutical company with it's headquarters in India and a presence in more than 100 countries.<br />RECOMMENDATIONS/SUGGESTIONS<br /><ul><li>Marketing Strategies : Increase sales