US troubles might force Ranbaxy to look beyond

Apart from India, company to focus on Malaysia, Australia, NZ, Japan & China

Even as drug maker Ranbaxy is struggling to emerge from various crises, recent enforcements by US authorities on the company's crucial India-based factories have raised questions on its future. Many say now, the company may have to look at India and other emerging markets.

On Friday, Ranbaxy faced a US import alert on its main active pharmaceutical ingredient (API)-manufacturing factory in Toansa (Punjab), after the US Food and Drug Administration found significant violations at the unit, following an inspection earlier this month. The plant is now barred from supplying raw material for any medicine to be sold in the US. The three key formulation-manufacturing facilities of the company - at Mohali (Punjab), Paonta Sahib (Himachal Pradesh) and Dewas (Madhya Pradesh) - were already barred from supplying to the US because of similar violations.

'Currently, the company is allowed to produce medicines for the US market only from its New Jersey-based factory Ohm Laboratories.

"The Ranbaxy management has a lot of ground work to do to regain its market share in the US. But now, with the US in the backdrop, till it puts back things into place, the company may opt for a more aggressive strategy for other markets," says Nirmal Bang senior analyst Praful Bohra.

In the past, the Ranbaxy management has indicated though US continues to be its largest market, India and other emerging markets will also be focused on. Ranbaxy Managing Director and chief executive Arun Sawhney had, on many occasions, said the company had identified certain key markets where Ranbaxy would strengthen its presence and make investments. For instance, apart from India, in the Asia-Pacific region, it would focus on Malaysia, Australia & New Zealand, Japan and China, the company said.

However, experts say though these markets have the ability to churn some revenue for the company, they cannot compensate for the impact on the company's operations in the US, the world's largest pharmaceuticals market.

So far, the US has been the biggest contributor to Ranbaxy's consolidated revenue. In 2012, the company clocked $946 million in sales from the US, of its consolidated global sales of $2.3 billion. Its combined revenues from India and Sri Lanka stood at $405 million, just 17.6 per cent of the total sales.

"India has been one of the focus markets for Ranbaxy, but the company has failed to expand its market share here to that extent. It is still growing below the industry rate. Besides, challenges such as price regulations are hampering significant revenue growth for all companies, despite the huge volumes offered by the domestic market," said an industry expert.

Earlier, the company had highlighted its strategic focus on the hybrid model with innovator parent Daiichi Sankyo. So far, the generic drug maker has launched a number of products from Daiichi Sankyo's kitty in various markets. The two companies have also been working on a specific hybrid strategy to capture the generic market in Japan.

"The recovery of the base business will be more delayed and the company may lose further goodwill in the market…along with a stretched balance sheet," brokerage Morgan Stanley had said in a recent report on Ranbaxy.