DAIICHI-RANBAXY DEAL

1. Pharmaceutical industry• Global

• Study of business model• Regulatory change

• Indian• Japan

2. Company overview• Daiichi Sankyo Company Ltd• Ranbaxy Laboratories Ltd

3. Deal• Synergies available to both

AGENDA

Valued at $700 billion (2007)US: Largest market accounting to 46%Japan: Second largest ($ 70 billion)Other markets: European union, GermanyHigher growth prospect due to high aging

population in some regions of the worldBusiness models:

Innovator companies Generic Companies

PHARMACEUTICAL INDUSTRY: GLOBAL

Innovator company• Originator of the drug• Emphasis is on strengthening the R&D pipeline• Expanded through M&A, recently• Have a higher cost product

Problems in recent times• Low output with high R&D costs• Rising costs related to R&D and selling and distribution• Patents expiry• Government concern over rising health care bills• Impact of Hatch-Waxman act

PHARMACEUTICAL INDUSTRY: GLOBAL

Generic companies• Lower cost drug producers• High distribution cost compared to innovators• Will operate once patent gets expired

Seen higher growth in recent times compared to innovator

Factors favorable to this growth:

• Hatch Waxman act• High number of patents on the verge of expiry• Government interest in the generic companies growth

PHARMACEUTICAL INDUSTRY: GLOBAL

Pre-Hatch Waxman act• FDA approval through NDA process• Timing related to performing clinical trials• FDA’s process with regulatory norms discouraged

generic companies

The Hatch-Waxman Act• Cut generic approval costs• Early-Experimental-Use-Doctrine• Compensate brand name companies for time lost in

obtaining FDA approvals

PHARMACEUTICAL INDUSTRY: GLOBAL

Growth of the generic companies due to change in regulatory environment

Increased popularityIncrease in the markets other than US and

JapanDifferent strategies adopted:

Continuing innovator model by going into bio tech instead of conventional chemistry based products

Outsourcing operation Hybrid model of generics and branded products

PHARMACEUTICAL INDUSTRY: GLOBAL

COMPANY OVERVIEW: DAIICHI SANKYO

Japan-Based Global Pharma InnovatorAim: to build drug development pipeline to

develop best three product for the treatment of specific disease

Products: prescription drugs, including treatments for cardiovascular, bone and joints, and infectious diseases

2,300 overseas medical representatives in 33 locations, mainly in Europe and the United States

Main R&D activity in Japan

COMPANY OVERVIEW: DAIICHI SANKYO

COMPANY OVERVIEW: RANBAXY

Started as distributor of vitamins and tuberculosis drugsVentured into manufacturing after 1961Extended its strong position in anti infectives in the

Indian marketDevelopment a novel process for the manufacture of the

antibiotic doxycyclinImpact of Price control Act, Ranbaxy to look at export

marketsAim for $1bilion revenue and development of new

therapeutic moleculeMission: International research based companyMaximizing the entire value chain Product off ering: Infectious disease, Urology, Metabolic

disease, Infl ammatory/ Respiratory disease

COMPANY OVERVIEW: RANBAXY

Continuing the block buster model, but looking for block busters in bio tech instead of conventional chemistry-based products

Keeping faith in chemistry-based block busters, but reducing R&D costs by outsourcing or starting their own R&D in low cost countries like India or China

A hybrid model where branded products and generics coexist

OPTIONS AVAILABLE TO DAIICHI SANKYO

Significant cost reduction as R & D expense is a major component in innovator pharma companies

Represents a one time cost benefit through effi ciency of operations as compared to the high growth alternative offered by Hybrid model

R & D OUTSOURCING

Country R & D employees Percentage

Japan 2200 83.8%

China 35 1.4%

Germany 100 3.8%

UK 30 1.1%

USA 260 9.9%

Total 2625 100%

Complementary business model that can leverage on the strengths of both companies : research and development expertise of Daiichi Sankyo and low cost manufacturing and supply chain strength for Ranbaxy

Broader product base for both companies : Ranbaxy can enter into branded drug market and Daiichi Sankyo can diversify from branded products to generic products

Broader geographic base for both companies : Daiichi Sankyo receives two third of its revenue from Japan and major portion of its revenue is from mature markets which can change post acquisition and Ranbaxy can enter the Japanese generic drug markets

RATIONALE FOR HYBRID MODEL

BENEFITS TO DIS

Growth through hybrid model where the branded products and generics coexist and form a complementary business model

Ability to extend its reach and presence in emerging markets which are high growth areas

Cost saving in manufacturing, Sales, and R&D

R&D speed up into high output

BENEFITS TO RANBAXY

Cash infusion of Rs 34 billion via fresh issue of shares to DIS

Free up its debt

Transforming from generic to innovator

Smoother access to Japanese market

Gain expertise to advance its branded drugs business

COMPARABLE VALUATION

Company P/E P/Sales P/Assets

EV/Sales

EV/EBITDA

EV/Total

Assets

TEVA 18.54 3.85 1.55 3.90 15.31 1.57

Merck 5.27 2.63 1.24 2.63 16.54 1.25

Aezneimittel 24.20 1.62 0.97 1.96 10.62 1.17

BARR 44.83 2.30 1.21 2.92 12.03 1.53

Mylan 23.98 3.29 1.23 3.43 11.13 1.28

Watson 19.83 1.12 0.81 1.39 6.83 1.00

Median 21.91 2.46 1.22 2.78 11.58 1.26

Ranbaxy Share Price 344.07 440.11 292.45 423.16 238.10 230.32

Average Share Price for Ranbaxy is 328.04 (Currently at 403.93)

Acquisition provides both operational and financial synergies

IS THE PREMIUM JUSTIFIED?

Operational Synergies Financial Synergies

Strategic Advantages

1. Higher returns on new investments

2. More new investments3. More sustainable excess

returnsEconomies of scale

1. Cost Savings in current operations

1. Diversification 2. Higher Debt Capacity

Product Sales in Yen Billion Savings per share in rupees

Ofloxacin 108.7 84

Olmesartan 195.6 151

Levofloxacin 108.7 84

Pravastatin 76.5 59

Loxonin 33.6 26

Omnipaque 31.2 24

Venofer 31.1 24

Welchol 22.7 18

Total 470

COST SAVING SYNERGIES

•Savings in COGS by outsourcing : 6% of sales•Prevailing exchange rate : 1 Yen = 0.48689 rupees•Rate of capitalizing savings : 6%•Marginal Tax Rate for Japan = 40.69%

Value of Ranbaxy to Daiichi 334+470=804

POST DEAL SCENARIO

Pfizer & Ranbaxy settlement on LIPITORSettlements with Astra-Zeneca, GSK, ValtrexFDA issued warning letter to Ranbaxy regarding

control cross-contamination batch production, control records and sterile

processing operations; absence of assurance responsible individuals inaccurate written records of the cleaning and

use of major equipmentConcerns over merger of generic into Innovator

companyDoubts about consensus building and team

playing for promoter run companyOne time write down of goodwill

Thank You