Buying Ranbaxy, and the turn to “dual-track” management (2008)

The ideal of two eyes, and the reality on the ground

The concept behind this acquisition still looks coherent in hindsight. Absorb the shock of patent expiry and development risk with a separate pillar — growing emerging markets and generics: as a strategy that looked squarely at the danger of depending on a single product, the logic of dual-track management was one the market, at the time, welcomed. The cause of the stumble lay less in the merit of the concept than in a more mundane question — how far the contents of the purchased asset had been examined. That the weight of the FDA’s inspection findings only took concrete form after the deal had closed is itself a demonstration of how much due diligence matters in a large acquisition.

That said, the tuition cannot be written off as wasted. Even as the strategy of buying an outside market — emerging-market generics — with cash began to grind, Daiichi Sankyo was quietly growing antibody-drug conjugate research inside the company, and later carried it through to Enhertu, its main product. From management that buys the whole shelf from outside, to management that takes only the elements it needs, in the quantity it needs — the price paid for Ranbaxy can be read as casting its shadow over how the company came to view M&A afterwards. If an acquisition raised on an ideal ended in retreat, and the reflection on it shaped the pattern of the growth that followed, then the meaning of this decision may not be measurable from the loss on the income statement alone.