The inheritors: (From left) President (Pharma) Malvinder Singh, and CEO-Designate & Joint MD Brian Tempest

For a company that's set to lose both its CEO of five years and head of research, Ranbaxy seems exceptionally rock solid. Its stock has remained more or less stable since outgoing CEO Devinder Singh Brar announced his resgination in December last year. And now that Ranbaxy's head of research, Rashmi Barbhaiya, has put in his papers, too, investors seem unruffled. Is nobody indispensable at Ranbaxy? Almost-at least for now.

One reason why Dalal Street seems not to care is Ranbaxy's impressive growth momentum. It's the largest pharma company in the country and is getting bigger still. Last year, the Delhi-headquartered company reported consolidated revenues in excess of Rs 4,530 crore, a couple of hundred crores short of the billion-dollar mark. That was a target it had set 10 years ago and it hit it almost bang on. By 2007, it wants to double revenues to $2 billion and by 2012, to $5 billion. At the moment, the stockmarket is inclined to believe in the targets, simply because Ranbaxy no longer depends on the domestic market alone, but instead has thriving markets in Europe, America, and South America.

In fact, a large part of Ranbaxy's phenomenal growth over the past decade has been driven by generics, especially those it sells in the US market, which now accounts for more than half its revenues. What it has been doing is to zero down on blockbuster drugs going off patent in the American market and launching its own copy of the drug to coincide with the expiry of the patent. A case in point, cefuroxime axetil, a drug for respiratory and skin infection. Since its launch in March 2002, it has raked in more than $200 million.

Dalal Street would be very worried if the pipeline for such generic drugs showed signs of drying up, but the outlook at least for the next 12 months seems comfortable. A range of generics (See A Busy Pipeline) is set to hit the US markets over the next several months, and could fetch Ranbaxy some $80 million in revenues. In its newer markets such as Europe, Ranbaxy has strengthened its hold. Its acquisition of RPG Aventis last year makes it the fifth-largest generics player in France, while in the UK, where it launched its first branded prescription medicine Visclair, it grew 58 per cent last year with revenues of $13 million. In fact, Ranbaxy is the only Indian pharma company to have subsidiaries in five key European markets (the UK, Germany, France, Spain and Poland).

IS BRAR TURNING A VC?

D.S. Brar: In a new avatar Ever since Ranbaxy's CEO D.S. Brar announced his resignation in December 2003 from the only company he's ever worked for, there's been intense speculation about his next move. Popular rumours have had it that he could be joining Matrix Laboratories, an up-and-coming pharma company based in Hyderabad that supplies bulk drugs to Ranbaxy. Both Matrix and Brar have denied the rumours, with Brar telling BT that he is going to do "something that is very different". And that, the grapevine has it, could be the venture capital business, with Brar investing in promising pharma companies or even incubating pharma start-ups. At any rate, the buzz is, the fund will invest in companies working on bleeding edge technologies. Brar is expected to announce his plans by end of June. But what prompted Brar to leave Ranbaxy at this critical juncture? Brar says that as early as 1994, he had made his decision to quit Ranbaxy when he turned 50 known to the board. BT learns that he may also have deferred to a detailed will (not legally enforceable) left behind by Parvinder Singh that spelt out the career roadmap for his two sons, Malvinder and Shivinder.

Future Tense?

The onus of not just sustaining the momentum but accelerating it falls on the new CEO and Managing Director, Brian Tempest (who takes over on July 5, a day after Brar leaves) and President (Pharmaceuticals) Malvinder Mohan Singh, elder son of Ranbaxy's chief visionary, late Parvinder Singh. But can they do it if key executives continue to leave Ranbaxy? (BT learns that Ranbaxy's head of bulk drugs K. Srinivasan, has put in his papers too.) It will be very difficult, if not impossible.

Take Rashmi Barbhaiya, for example. When he was roped in from Bristol Myers Squibb (BMS) in the US two years ago, he was displayed to all as a prized catch. To be sure, he was one. At bms, Barbhaiya was credited with accelerating the process of drug development through better screening of potential molecules. He also played a key role in launch of several new drugs at BMS. Not surprisingly, then, Brar said that Barbhaiya's appointment would "provide momentum to realising (Ranbaxy's) global ambitions of becoming a research-based international pharmaceutical company".

At Ranbaxy, Barbhaiya had just started giving research an international focus, and for that purpose roped in expat scientists such as Kasim Mookhtiar (who is Vice President, Novel Drug Delivery Research). His surprising exit, then, is likely to impact the company at least in the short term. Says Shahina Mukadam, analyst, HDFC Securities: "For a research-driven company like Ranbaxy, I would look at Barbhaiya's exit as a blow." What also worries some analysts is the fact that the research heads have changed twice in quick succession. J.M. Khanna, who now is the Executive Director and President (Life Sciences) at Hari S. Bhartia's Jubilant Biosys, had been with Ranbaxy for two decades before he called it a day.

Rashmi Barbhaiya had been entrusted with the task of turning Ranbaxy's research into a world-class effort Rashmi Barbhaiya/ Former Head of Research, Ranbaxy

Analysts are keeping an eye on the company's product pipeline for the number of filings it makes for new drugs. "If there is any slackening in the pipeline, then we will look at management: (re)rating," says Mukadam. Any slowing down of the pipeline will affect future growth, say, two or three years down the line. Another important thing is pipeline identification, which is done by the heads of research and marketing (usually the CEO). With Brar and Barbhaiya's exit, there is some discontinuity there. Says C. Srihari, an analyst with Khandwala Securities: "The current team will take some time to get the comfort level."

Tempest, while pretty media-savvy, is not very familiar with the investing community, besides which in his previous role as President (Pharmaceuticals), he focussed more on developing markets such as Brazil, Russia, India and China (the bric countries). "He might take some time to understand the developed markets," quips one analyst. That apart, Tempest has the added burden of grooming Malvinder, who, as an owner-manager, will one day want to step into the CEO's shoes, just like his father had done 22 years ago.

For now, though, both Tempest and Malvinder face the challenge of steadying Ranbaxy and at the least keeping up its momentum. The years ahead will be ones of their education. Let's just hope the education doesn't prove an expensive one for Ranbaxy.