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Sun Pharma In The News

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Focused Approach in US Helps Sun Shine


Sun Pharma, which bought Japanese giant Takeda's gener­ic pharma business on Mon­day, has delivered more value to shareholders by managing difficult overseas buyouts much better than industry peers, a study by the Economic Times Intelligence Group shows.
Using a conservative and focused approach, Sun has managed to turn around distressed buyouts much faster and grow them into profitablesubsidiariesatatimeof severe challenges in its core US market. Caraco and Taro Pharma, two of Sun's most important buyouts, are focused on the US, the world's largest pharma market. Sun purchased Caraco in 1997 and completed the Taro acquisition in 2010 after a dif­ficult and long-drawn out battle.
 
"Sun has been clear on its strategy, unlike other companies," says Sarabjit Kaur, vice-president, Angel Broking. They have been conservative when it comes to acquisition too, they have justified the price that they have paid for their acqui­sitions," she added. A study by ETIG shows that Caraconowhassalesof$150 million, up from a measly $0.8 million in 1997 when Sun purchased it for $7.5 million. Taro now has sales of $505 million, up from $252 million in 2010. The acquisition cost Sun $405 million. Both companies were loss making at the time of purchase. In contrast, beta-pharm, bought by Dr Reddy's in 2006, is still making losses. Wock-hardt's Negma, which it bought in 2007, is still making losses.
 
 Overseas acquisitions can turn out to be difficult, especially in the pharma space given the myriad local laws and regulations. The indus­try can also be subject to sudden and abrupt changes in government poli­cy Dr Reddy which paid €480 mil­lion for betapharm in 2006, suffered due to change in government policy Sun has had its fair share of prob-The US is lems, but has man-Sun's most aged to extricate it-important   self quickly and market. A turn  things large chunk around. A key to of the 60% its ability to do non-India that is its ap-revenue proach, focused on comes from developing compe-theUS tencies in one big market, rather than in several markets. Dilip Shanghvi, Sun's famously low-pro­file CEO, also believes in buying distressed, underpriced assets than do a big-bang multi-billion dollar acquisition. Caraco had sales of under a million dollars in 1997. Though Taro was a bigger buy, it was a good deal as the asset would have been worth a lot more with good performance.
 
"They are clear they want to be in US market. They are not spread out like other pharma majors. Their acquisition has also been in line with that strategy. Sun Pharma's all past acquisitions have been buying distressed assets, where valuation has been low. They are unlike other companies who over­pay," says Ranjit Kapadia, VP, Cen­trum Capital. The US is Sun's most important mar­ket. A large chunk of the 60 % non-In­dia revenue comes from the US. In the past 15 years, first through Caraco and later through Taro, Sun has man­aged to consolidate its position as the largest Indian pharma company with the largest product pipeline and its FY13 revenue is estimated to grow near 50 % compared with 40 % for Lu­pin and 35 % for Ranbaxy Analysts say Sun's focus on US has paid dividends. Europe, in con­trast, is dominated by government tender purchases and margins can be thin. Though not all European countries are the same and Russia, where Dr Reddy's has established an important position, is very dif­ferent.
 
"Shanghvi is extremely clear about what he wants, where he wants to go and what he wants to do," says an investment banker , with a long history of association with the Sun group.
 
The unrelenting focus also extends to products. Instead of filing Para 4 challenges and taking on multina­tionals, Shanghvi has focused on building strengths in key segments, like dermatology for instance. The market for skin care products is less competitive and is estimated to be worth $10 billion, and growing at 10%. Shanghvi is also famous for small, low-key acquisitions where the target is a distressed asset. He es­chews big-ticket, high value acquisi­tions such as betapharm or Terapia, bought by Ranbaxy, though that ap­proach may be changing now.