Japan's Daiichi closes the book on India foray

Daiichi Sankyo has made a final exit from its problematic 2008 acquisition of Indian drugmaker Ranbaxy, selling its entire 8.9 per cent stake in India's Sun Pharma, which completed a merger with Ranbaxy last month.

The completion in March of Sun's all-stock tie-up with Ranbaxy, a once respected generic drugmaker that has run into trouble with US regulators, made Daiichi the second-largest shareholder in Sun, now India's biggest pharmaceutical company.

However, the timing of Daiichi's exit from Sun, which the Japanese company announced on Monday night and completed on Tuesday, caught investors off guard and sent the Indian drugmaker's shares tumbling. The stock fell as much as 11 per cent in morning trading and was down 8 per cent by mid-afternoon.

In Tokyo, Daiichi investors welcomed the divestment, sending shares in the Japanese company up 4.4 per cent.

"It was clear when they announced the merger Daiichi wanted to sell out from Sun Pharma, but the timing is a bit surprising," said Sarabji Kour Nangra, a pharmaceutical industry analyst at Mumbai's Angel Broking "They just got the nod for the merger, and I didn't expect they would exit so fast."

Analysts said the valuation was attractive for Daiichi, as shares in Sun Pharma have risen about 68 per cent in the last year.

After a review of the shares, the company "reached a conclusion to sell the shares entirely or partially", Daiichi said on Monday.

Daiichi said its stake in Sun was worth $3.2bn, and Barclay's estimated after-tax gains of roughly $1.8bn.

The company had said it would sell the shares into the stock market, but it did not reveal the price at which they were sold on Tuesday. It said it would announce any related gains or losses when it reports full-year results on May 14.

Indian media reported that Dilip Shanghvi, Sun's founder, was the buyer of the Daiichi stake.

Sun declined to comment.

Daiichi's exit from Sun ends a rocky ride begun in 2008 when it paid $4.7bn to buy Ranbaxy. The Japanese company was forced to take a $3.7bn writedown six months later when the depth of Ranbaxy's regulatory troubles - which pre-dated Daiichi's ownership - was fully revealed. Daiichi's own efforts to overhaul the troubled Indian drugmaker foundered as Ranbaxy was hit with additional US import bans.

Daiichi said it would maintain existing business tie-ups with Ranbaxy in markets such as Thailand, Brazil and Romania, and would consider options to expand in emerging markets "if necessary."

But analysts expect Daiichi to shift its focus away from emerging markets, saying it cannot afford risky bets at a time when it faces patent expiry of key drugs over the next three years, including blood pressure treatment drug Benicar.

"Daiichi Sankyo is like a department store that does everything" from oncology to cholesterol drugs to generics, said Barclays analyst Atsushi Seki. "They need to focus better."

Sun Pharma has a track record of acquiring troubled pharma companies and restoring their value, and Mr Shanghvi said last month that Sun's priority was regaining the trust of US regulators.

But analysts say fixing the problems within the former Ranbaxy operations will be its toughest challenge yet.

"Much needs to be done on the US front and that's really going to be a tall order for Sun Pharma," said Rakesh Nayudu, an analyst with Espirito Santo. "But there is definitely confidence among the investors that these guys should be able to eventually turn it round."

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