Sun Pharma Enters Major Pharmaceuticals Market with $12 Billion US Acquisition

Sun Pharmaceutical Industries Ltd. Embarks on Largest Global Takeover with $12 Billion Organon Acquisition

Indian billionaire Dilip Shanghvi's Sun Pharmaceutical Industries Ltd. has announced a massive deal that could be the biggest test yet in the company's long-brewing bid to transform into an international giant. The company has agreed to acquire New Jersey-based Organon & Co. in an all-cash deal worth $12 billion, marking one of India's largest global takeovers.

This acquisition marks a significant shift in Sun Pharma's strategy, as the company seeks to expand its global footprint, including in the lucrative Chinese market, and acquire more complex assets. The Organon deal checks all of Sun's boxes, providing a pipeline of innovative drugs, entering the biosimilars segment, and expanding into China, the world's second-largest pharma market.

Sun Pharma's Managing Director, Kirti Ganorkar, stated that the key question in the company's mind was how to become a global company. The acquisition of Organon, with its women's health portfolio spanning breast cancer, contraception, osteoporosis, and menopause treatments, is a crucial step in achieving this goal.

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The deal renews questions over whether India Inc. can truly go global, following a handful of wins, including Tata Group's Jaguar Land Rover deal, and costly stumbles, such as Bharti Airtel Ltd.'s bet in Africa. Indian drugmakers are known for copying drugs and distributing them globally at low cost, but Sun Pharma has been shifting towards high-margin specialty therapies since 2014.

Sun Pharma's deal-making strategy has been instrumental in its growth, with the company acquiring dozens of small players and larger deals like the $3.4 billion acquisition of Ranbaxy Laboratories Ltd. in 2014. This has transformed the company, founded more than four decades ago with a two-person marketing team in a small town in Gujarat, into a company generating $6.2 billion in annual revenue.

The enlarged company will also need to navigate a broader spectrum of businesses spanning generics, innovative treatments, and biosimilars. Analysts, including HDFC Securities Ltd.'s Mehul Sheth and Divyaxa Agnihotri, are worried that Organon's slow growth will drag Sun's growth from 10%-12% annually to about mid-single-digits.

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Despite concerns, investors have welcomed the deal, with Sun Pharma shares jumping 7% on April 27 after the announcement and climbing to end the week nearly 12% higher. The company's immediate priority is to set up an integration management office to evaluate supply chains and align operations over the next six to nine months before taking any major strategic steps.

Combining the two businesses' staff and work culture will be the biggest challenge, according to Ganorkar. "It takes time and you have to continuously show to the other side that they are a part of this organization and can also contribute to growth," he said.