Coming into his own: Singh's recent moves have silenced his critics

Early this year, advent international, a well-known Boston-based private equity firm, had a problem on its hand. A problem of plenty, that is. It had invited bids for its 96.7 per cent stake in Romania's largest generics (or copies of off-patent, branded drugs) company, Terapia, which it had bought in 2003, and the response was overwhelming. Queued up to buy the $80-million (Rs 376-crore) Terapia was everyone from the world's best-known generics giants to top private equity investors, recalls Rupert Hill, Managing Director, Merrill Lynch, UK, who advised Advent on the sale. Among the bidders was an Indian pharmaceuticals company, which hadn't put in the highest bid (it was the second highest), but was wooing Advent aggressively. The company's CEO and Managing Director, as it turned out, had an audacious plan: He wanted to meet with Terapia's Managing Director for Central Europe, Joanna James, to argue why the sellers should reject the top bid and accept his own instead.

Even if it seemed like a long shot, James was impressed enough with the young CEO's confidence to agree to meet him along with another Advent partner, Emma Popa-Radu. Walking in alone to the meeting, the CEO spent the next two-and-a-half hours explaining why his Indian company was the most suitable partner. Among his points: The Romanian generics market, while relatively small at $400 million or Rs 1,880 crore a year, was strategically attractive for a low-cost, high-tech pharma company, since, like India, it was a low-cost production centre and a clinical trial destination; besides, Romania was all set to join the European Union in 2007, and given its proximity to Russia and the CIS countries, could serve as a beachhead to both eastern and western Europe.

Of course, James and Popa-Radu knew the basic facts, but they hadn't quite viewed things in the context the young man had outlined, says Hill. As Advent went through the shortlist of five buyers, it became apparent that the Indian company had the best case for a buy. A week after the young CEO had made his pitch to the sellers, he was given the good news: Advent would accept his bid.

THE SINGH ESSENTIALS

Name: Malvinder Mohan Singh Born: November 27, 1972. Education: MBA, The Fuqua School of Business, Duke University, US; Bachelors Degree in Economics (Hons.), St. Stephen's College, New Delhi; Doon School, Dehradun Work experience: Started his career in 1993 with American Express Bank in India. First joined Ranbaxy in 1994 as a Management Trainee and then again as Junior Manager in 1998, and worked with the company in diverse roles of finance; global licensing; business development; sales & marketing. Spearheaded India operations as Regional Director and turned around the domestic business in 2002. Subsequently in 2004, he was appointed President (Pharmaceuticals) and Executive Director and was made responsible for the Global Commercial Operations. Assumed charge as MD and CEO in January 2006 Most likely to say: "Let's get this done" Management style: Collaborative and result-oriented Hobbies: Photography and travel Family: Married with two daughters Life's goals: To live a balanced life and build a healthier world by giving the best in healthcare

And that's how Ranbaxy Laboratories' CEO of three months (then), the 33-year-old Malvinder Mohan Singh, swung his first, and still the biggest, international M&A deal, worth a whopping $324 million. By the time he wrapped up his first eight months in the top job, Singh had pulled off a total of five global purchases, including some generics businesses of GlaxoSmithKline. "Terapia made good sense for us. I only did what seemed right to me," he says.

Singh may sound modest about his nerve-wracking fights for global businesses, but it hasn't been easy being him. Two years ago, when Ranbaxy's CEO of five years D.S. Brar abruptly resigned, there were murmurs that he had been eased out to eventually make way for Singh, elder son of Ranbaxy-builder, late Parvinder Singh. Then again, when Brar successor Brian Tempest's tenure was shortened by almost a year and the reins handed over to Singh Jr. in January this year (he was until then, President), tongues wagged. The common criticism was that the young man had been moved into the corner room just because he was a scion of the promoter family. Eight months into his job, the Fuqua MBA (Duke University) has silenced his critics. "Malvinder has worked for me in various capacities for past many years and he knows the business inside out. Just look at the work he has done in the past eight months," says Tempest, now Executive Vice Chairman and Chief Mentor. "We would not hand over the company to somebody for some flimsy reasons," adds Tejendra Khanna, Ranbaxy's Chairman since 1999.

"Malvinder has worked for me in various capacities and he knows the business inside out. Just look at the work he has done in the past eight months" Brian Tempest Executive Vice Chairman & Chief Mentor/Ranbaxy

To be sure, Singh has spent more than 12 years at Ranbaxy earning his spurs. He joined the family business in 1994 as one of the 20 management trainees hired that year. Like the other trainees, Singh was sent out to make calls on doctors and pharmacies, including those in small towns and villages of Uttar Pradesh and Bihar. In 1996, he went off to the US to do an MBA and onwards to work with Merrill Lynch's investment banking team in Singapore. When father Parvinder Singh was diagnosed with cancer in 1998, Singh rejoined Ranbaxy as a junior manager. Since then, he's steadily worked his way up through various functions (see The Singh Essentials). And when he took charge of domestic operations in 2002, he licked it into shape, cutting costs and beefing up marketing. "Malvinder's drive then is showing results now. Ranbaxy for the first time ever has emerged as the top player in India with a 5.13 per cent market share," notes Atul Sobti, President (Asia, API Sales & Purchasing & Global Consumer Healthcare), Ranbaxy. Adds Nimesh Kampani, Chairman, JM Morgan Stanley, and a director on the board of Ranbaxy: "Malvinder was not conferred the top job in Ranbaxy because he was a scion of the Singh family. He earned this position by working hard and displaying the ability and tenacity to run a challenging business."

Proving His Mettle

"Malvinder's drive four years ago is showing results now. Ranbaxy for the first time has emerged as the top player in India with a 5.13 per cent market share" Atul Sobti President (Asia and API Sales & Purchasing)/ Ranbaxy

Challenging the business is. The pharmaceuticals empire that Singh oversees spans 49 countries, 10,000 employees, and pulled in Rs 5,188 crore in revenues last year (calendar 2005), maintaining its position as one of the top 10 generics players in the world. More impressively, three-fourths of its revenues come from international sales, with the US alone accounting for almost a third. But it's not the size of the empire that makes Ranbaxy's business challenging. Rather, it's the fiercely competitive nature of the global industry that makes Singh's job no walk in the park.

The global pharma industry is estimated at $500 billion, of which generics account for only $40 billion. Big Pharma, or the top 10 global drug manufacturers, account for 50 per cent of the non-generic, or branded drugs, market, but things are getting increasingly difficult for them. On the one hand, drug discovery costs are soaring (an estimated $1 billion is required to develop and market a new drug), and there are fewer blockbusters coming off their laboratories. On the other hand, soaring healthcare costs, especially in the US, has consumers clamouring for cheaper generics.

Things aren't any easier in the generics business. While it is relatively easy to launch generics, margins are wafer thin and the window of opportunity small. A generic drug must recover its investment between one and 12 months, before competition drives prices down. And increasingly, the competition is coming from Big Pharma itself, which has begun resorting to what are called "authorised generics" to get a slice of the generics market as well.

So far, Indian companies like Ranbaxy have depended on their low-cost and superlative reverse engineering skills to fight in the generics market. But a change in India's patent regime (to product patents from process patents, starting 2005), the entry of foreign players into India, such as Teva of Israel, have made the topography far more hostile. "India has a definitive advantage in terms of cost and it also offers talent in various other components of the value chain. We are expanding operations here through two of our companies," says Lazer Bezdin, Country Manager, Teva India. Adds Kewal Handa, MD, Pfizer India: "Indian companies have thrived on their cost-advantage benefit so far. But this advantage will be gone sooner than later."

New Challenges

That the future is going to be difficult is something Singh knows. He has already been through one of the most difficult years in Ranbaxy's history. Last year, its topline fell 3 per cent against 18 per cent growth the year before and net profit dropped 69 per cent to Rs 262 crore. In reaction, the stock has yo-yoed, slipping from a 52-week high of Rs 559 in September, 2005 to a low of Rs 344 just a month later. Currently, the stock trades at Rs 404.

"This goal ($5 billion by 2012) couldn't be achieved overnight. We needed to achieve some scale...to fund the R&D required for developing proprietary drugs" Ramesh L. Adige Executive Director (Corporate Affairs)/Ranbaxy

Singh is unfazed by investor reaction and sticking to the long-term goals envisioned by the old team (which included him as well) in early 2000. To wit, turn Ranbaxy into a research-based international pharmaceutical company. The team even set revenue targets: $2 billion (Rs 9,400 crore) by end of 2007 and $5 billion (Rs 23,500 crore) by 2012. "This goal, obviously, couldn't be achieved overnight. The company needed to achieve some scale, a global width and depth and also, a sustainable revenue pipeline that could be used to fund the R&D required for developing proprietary drugs," says Ramesh L. Adige, Ranbaxy's Executive Director (Corporate Affairs).

Meeting those goals won't be easy. Analysts anticipate a shortfall of $300-400 million (Rs 1,410-1,880 crore) in the 2007 target, going by the company's guidance of 18 per cent annual growth. CFO Ram S. Ramsundar, however, says that the $2-billion target will be met by strong organic growth and by tapping appropriate inorganic opportunities. Singh does seem to have a plan in place. He has already obtained shareholder approval to raise $1.5 billion (Rs 7,050 crore) in equity and $1.2 billion (Rs 5,640 crore) in debt. "He is determined to pursue growth even at the cost of diluting his personal stake in the company and the management trusts his judgement," says JM Morgan Stanley's Kampani.

Clearly, further acquisitions will be a key part of Singh's strategy going forward. "We have bought five businesses this year and we will buy more, wherever we see a good opportunity, be it in the us, Europe or India," says Singh. (There's buzz in the market that Ranbaxy might soon announce a big-ticket buy in the US.) Singh, however, adds that he will not buy companies recklessly. "We withdrew from the Betapharm (bought by rival Dr Reddy's Laboratories early this year for $571 million or Rs 2,683 crore) deal because the price sought was irrational," he claims. All of Singh's recent acquisitions have been in Europe and that, according to experts, is a smart move. Europe has a low penetration of generics (see The Lure of Generics). "It is a challenging market because each country there is governed by a different set of regulations and hence, requires a distinct strategy. But Europe is attractive because ageing population and high health costs are forcing the governments to open the generics market," says Merrill's Hill.

Singh's plan is straightforward: Continue pushing bread-and-butter generics, and simultaneously focus on developing new chemical entities, or new drugs. Unlike 2005, when few drugs went off patent, the next few years look good for the generics market. Patents on drugs worth $70 billion (Rs 3,29,000 crore) at innovator prices are expected to expire between 2006 and 2010. And Ranbaxy has a strong pipeline of generics (there are 47 filings under Para II, III and IV) to go with a strong marketing and distribution network in the US. "Developing new drugs is not out of my sight. Beyond 2012, I want to see Ranbaxy emerge as a strong hybrid player with substantial revenue flow from proprietary drugs," says Singh. "But I am clear that as of now, our bread and butter is going to come from generics."

Global reach: A Ranbaxy plant in the US

With global generics competitors also consolidating (Teva bought #3 Ivax recently, and Novartis' generics arm, Sandoz, snapped up #2 Hexal and its stake in Eon Labs), Singh will find competition getting fiercer still. But "competition and uncertainties are a way of life in the generics space", he says. "While we will strive to grow the market share for our branded products and build a robust generics pipeline, we will not shy away from fighting patents," he adds. Ranbaxy recently won one of the two patent cases against Pfizer's cholesterol-lowering Lipitor, the largest selling drug globally, with sales of $7.5 billion (Rs 35,250 crore). It will get 180-day exclusivity in the generics market in 2010.

In future, Singh will have to increase the hit rate of such wins. In any case, he says, whatever be the cost, his endeavour will be to push Ranbaxy faster along the chosen path to success and create value for shareholders simultaneously. "These targets are not for any personal gratification. It is ultimately to make Ranbaxy grow, because the company will outlast every individual," he says. Let us not forget that, as the single largest shareholder, Singh and his family are playing the highest stakes.