Ranbaxy & Daiichi Sankyo Co. Ltd.

- Merger An Intellectual Property and Business Perspective

Scope e-Knowledge Center Pvt. Ltd.

Temple Tower, II Floor, 672, Anna Salai, Nandanam, Chennai-600 035. India Tel: 91-44-24314201 Fax: 91-44-24314206 Email:siv@scopeknowledge.com www.scopeknowledge.com October 2008

Table of Contents
1.0 2.0 3.0 4.0 IA. IB. II. III. IV. V. VI. VII. VIII. IX. 5.0 6.0 BACKGROUND...................................................................................................................................................1 STRATEGIC RATIONALE ..................................................................................................................................2 COMPETITIVE STRENGTHS AND PAIN POINTS.............................................................................................6 R&D FOCUS AND PATENT PORTFOLIOS-A COMPARISON..........................................................................10 PATENTS SPLIT-UP ACROSS PLAYERS.........................................................................................................13 PATENTS SPLIT-UP ACROSS APPLICATION YEARS....................................................................................13 PATENTING FREQUENCY ANALYSIS..............................................................................................................14 IPC ANALYSIS....................................................................................................................................................15 IPC GAP ANALYSIS ...........................................................................................................................................17 IPC SHIFT............................................................................................................................................................19 DIRECT CITATION ANALYSIS...........................................................................................................................22 THERAPEUTIC INDICATIONS ...........................................................................................................................23 ABBREVIATED NEW DRUG APPLICATION (ANDA) .......................................................................................26 NEW DRUG APPLICATION (NDA) & BIOLOGIC LICENSE APPLICATION (BLA)..........................................28 PERSPECTIVES..................................................................................................................................................29 CONCLUSION.....................................................................................................................................................32

1.0

Background
On 11 June 2008, Daiichi Sankyo Co. Ltd., the second largest pharmaceutical company in Japan, signed an agreement to acquire the entire shareholding of the promoters (the Singh family) of Ranbaxy Laboratories Ltd, the largest pharmaceuticals company in India. The total stake amounted to 34.8% and Daiichi Sankyo expects to acquire another 9.4% through a preferential allotment. The company has the option to acquire up to 20% of Ranbaxys voting capital through a public offer. Through this offer, Daiichi Sankyo seeks to acquire sufficient number of outstanding shares to obtain a majority stake in Ranbaxy, that is, a minimum of 50.1%. If Daiichi Sankyo fails to meet with adequate shareholder response during the open offer, it has the option to exercise a preferential issue of warrants that can increase Daiichi Sankyos stake in Ranbaxy by another 4.9%.

The value of the transaction is expected to range from $3.4 billion to $4.6 billion at the rate of $17.14 per share (INR737 per share, exchange rate: 1USD=43INR), representing a premium of 53.5% to the average daily closing price of Ranbaxys shares traded on the National Stock Exchange for the three-month period ended 10 June 2008, and 31.4% premium to the last traded price (price on 10 June 2008). Both the company boards have approved the merger and subsequent to the closure, which is expected by March 2009, Ranbaxy is expected to be valued at $8.5 billion and the combined entity at roughly $30 billion.

Ranbaxy will function as Daiichi Sankyos subsidiary but will retain its independent management and continue to be led by its current CEO & Managing Director Malvinder Singh. Daiichi Sankyo expects the merger to positively impact its EPS (after goodwill amortization) in the fiscal year ending 31 March 2010 (fiscal 2010). Daiichi Sankyo will benefit from Ranbaxys low-cost manufacturing infrastructure and supply chain strengths while this deal will award Ranbaxy with access to the research and development expertise of Daiichi Sankyo to further its own growing branded drugs business. Daiichi Sankyo is already the result of the combination of Daiichi Pharmaceutical and Sankyo Company, a merger initiated in October 2005 and completed in April 2007.

The present study discusses the implications of the merger between Ranbaxy and Daiichi
Sankyo, from an intellectual property as well as a market point of view. This analysis is particularly important at this point because of a variety of reasons including the growing preference for generics, increasing dominance of emerging markets such as India, fast approaching patent expiry etc. Also, given the fact that this involves 2 players who are among the largest in their respective markets, the deal is of great significance.

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2.0

Strategic Rationale
Daiichi Sankyo: A boost for mid-term management plan Both Daiichi Sankyo and Ranbaxy expect the transaction to create substantial synergies in the long term. The companies benefit from their strikingly complementary businesses, which they believe would bring considerable cost savings in their diversification initiatives, which will be aimed at establishing a strong presence in all pharmaceutical therapeutic areas. For instance, Daiichi Sankyos strength in proprietary medicine is believed to be complemented by Ranbaxys leadership in the generics segment, thus providing the combined business with a broader product base, therapeutic focus areas and well distributed risks. Additionally, both companies have a wide global reach, which is expected to further expand after the merger. Ranbaxys addition can boost Daiichi Sankyos position from #22 to #15 by market capitalization in the global pharmaceutical market. Daiichi Sankyo sees this step as critical to the achievement of its objectives outlined in its Mid-term Management Plan. As part of the plan, Daiichi Sankyo envisages to become a major global innovator by 2015, at the back of the growth of its Olmesartan drug during the period 2007-2009. The company also plans to expand its Levoflaxin product to export markets. Realization of synergies from the complete integration of Daiichi and Sankyo (2005) is also a major goal of the management plan. Many new products including the successor of its Venofer drug is expected to propel growth.

Daiichi Sankyo has targeted $13.1 billion (JPY1.5 trillion, 1USD=114.2JPY) in sales by 2015 and to increase its operating profit margin by at least 25% and overseas sales ratio by at least 60%. Strengthening its ability to discover new drugs and bolstering its R&D pipeline also feature as objectives in Daiichi Sankyos Mid-term Management Plan. The sales target for fiscal 2010 is $7.5 billion (JPY860 billion, exchange rate: 1USD=114.2JPY) and an operating profit of $2.10 billion (JPY240 billion, exchange rate: 1USD=114.2JPY), of which 25% of its expected sales is in local currency. Daiichi Sankyo expects that its return on equity will increase from 6% to 10% in fiscal 2010 as a result of the merger.

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Ranbaxy: Debt-free and a stronger balance sheet Ranbaxy envisages a broader product portfolio for itself as a result of the merger. The company can also double up as a manufacturing base for Daiichi Sankyos branded drug portfolio. Furthermore, the company will be free of existing debt as Daiichi Sankyo will be pooling financial resources towards re-financing its entire debt. Subsequently, Ranbaxy expects to have approximately $700 million (INR3000 crores, exchange rate: 1USD=42.8INR) as cash surplus, which increases its book value per share from $1.7 to $4.7. Ranbaxy believes that a stronger balance sheet will allow the company more flexibility to pursue organic as well as inorganic growth opportunities to enhance its branded drugs business and move up the pharmaceutical value chain. As regards markets, the biggest gain for Ranbaxy is its smoother access to the Japanese market, being part of Daiichi Sankyo. This will allow Ranbaxy to circumvent other US and European players (who are currently facing difficulties with greenfield ventures due to stringent testing and safety requirements) and establish its stronghold in the Japanese drug market. Daiichi Sankyo foresees better acceptance for the generic versions of its off-patent drugs from Ranbaxy as there would be better possibilities for an innovative pharmaceutical company to successfully promote generic versions and reduced resistance from health insurers towards covering generics. Ranbaxy also sees opportunities to strengthen its API business by working with Daiichi Sankyo as a supply partner and thereby, optimize its SEZ infrastructure that it is developing. Enhancing the scale of its biosimilars business in the global market is also an important milestone for Ranbaxy from the merger. Equally important for Ranbaxy is to become the largest player in Japans generic drugs market, for which the company is eyeing organic and inorganic routes. The Daiichi Sankyo Ranbaxy Fit Daiichi Sankyo Ranbaxy

Developed countries (Current market size: large)

Low Growth rate

Daiichi Sankyos core business Features: Blockbuster model, high profitability, slowing growth rate Opportunities: Antibody drugs, personalized medicine

Ranbaxys core business Features: Low price, high growth rate Opportunities: Patent expiry of blockbusters, pharmacoeconomics, biosimilars Features: Low price, high growth rate, large volume Opportunities: Economic growth, population increase

Emerging countries (Current market size: small)

High Growth rate
Source: Daiichi Sankyo

Features: High growth rate Opportunities: Enhancement of IP protection, economic growth, population increase

Proprietary drugs

Non-Proprietary drugs

Page #3

The generics cushion for market exposure risks

Daiichi Sankyos unimpressive growth rate in developed markets due to saturation and the risk of blockbuster drugs losing patent in the future can be combated by the generic manufacturing capabilities of Ranbaxy. For example, Venofer is approaching patent expiration in the US market and Floxin Otic has already lost patent protection. Being a proprietary drugs manufacturer, Daiichi Sankyo was able to generate huge profits from blockbuster drugs before it began experiencing stagnation as the branded drugs market approached maturity. However, Ranbaxy has high growth potential in these developed markets for non-proprietary drugs in light of the impact of pharmacoeconomics. Patent expiration (drugs with about $20 billion in annual sales are expected to face patent expiry in 2008) has caused major companies like Daiichi Sankyo to evaluate the costs and benefits of their drugs and synthesize more economical manufacturing methods that can bring the same drugs to their customers at cheaper prices. Ranbaxys established generics research framework will help Daiichi Sankyo realize this task and consolidate its position in developed markets despite the threat of patent expiration. Daiichi Sankyo itself has suffered 10% price cuts in fiscal 2007 due to the National Health Insurance (NHI) plan and many of its major products in the domestic market did not achieve their sales targets. With more price cuts expected in 2008, the acquisition will also provide Daiichi Sankyo with a strong, complementary presence in the non-proprietary drug market as Ranbaxys generics business will balance its exposure to market stagnation and margin risks. For example, in Japan where Daiichi Sankyo has its largest branded pharmaceutical business, Ranbaxy is expected to further its nonproprietary drugs business. Pharmerging - emerging markets are Daiichi Sankyos future growth engines

Daiichi Sankyo also sees immense potential for growth in emerging markets, particularly Brazil, Russia, India, China (BRIC), Mexico and Turkey (M&T), which is expected to reach $330-$430 billion by 2030. Moreover, in 2008, generic drug manufacturers and biopharmaceutical companies are expected to aggressively adapt to these changes and capitalize on the new opportunities that the shift will present. Thus, the most important benefit for Daiichi Sankyo will be the access that it will gain to Ranbaxys presence in 21 emerging markets, out of the total of 40 locations where it is operating. This will expand Daiichi Sankyos global reach to 56 countries, substantially covering major emerging markets and giving Daiichi Sankyo the opportunity to improve its market share from the current 10% in the BRIC-M&T markets. The combined business will have a significant position in India, Eastern Europe and Asia and one of the largest presence in Africa.

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As regards its own proprietary drugs business, Daiichi Sankyo seeks to leverage the improved intellectual property protection available in emerging markets and launch proprietary drugs in the future. Ranbaxys emerging market reach combined with its focus on new drug areas such as anti-malaria is expected to complement Daiichi Sankyos efforts. Daiichi Sankyo also expects to leverage Ranbaxys affiliate company Zenotechs expertise in the areas of biologics, oncology and specialty injectables. Ranbaxy seeks to exploit Daiichi Sankyos innovation platform to further its nascent innovative drug development segment and gain access to Daiichi Sankyos mature markets that it does not already serve. Value chain efficiency for boosting innovative pharma

Competition in the global pharmaceutical market has led companies to rationalize their value chains and establish efficient operations. Indian companies operating in the global industry are characterized by their high quality and cost competitiveness combination. Through the merger, both Daiichi Sankyo and Ranbaxy seek to optimize their manufacturing, sales and R&D assets mainly in India and become leaner and more agile players. A balance of Ranbaxys autonomy and the cooperation between the two companies is what Daiichi Sankyo believes will optimize growth avenues of both players. To begin with, Daiichi Sankyo seeks to exploit Ranbaxys entire value chain from upstream research and development to downstream marketing and sales. The research capabilities of Ranbaxy that Daiichi Sankyo can leverage include compound synthesis, contract research, contract manufacturing (active pharmaceutical ingredients (APIs) and clinical trial drugs), and clinical trials and data management.

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3.0

Competitive Strengths and Pain Points Ranbaxy

Largest pharmaceutical company in India Localized operations in 49 countries; sales in 125 countries Sales CAGR of 16.2% in 2002-2007 based on dollar sales Balanced geographic sales distribution Strong expertise in intellectual property and global regulatory affairs

180-day marketing exclusivity for four drugs with an annual sales potential of $8 billion

First to file status for 18 drugs with annual sales potential of $27 billion 98 ANDA filings pending approval

Focus on innovative research in anti-infectives, anti-malaria, metabolic disorders, respiratory diseases and urology Strong alliances with major global proprietary drugs manufacturers (such as the ongoing drug development collaboration with GlaxoSmithKline, which was expanded in 2007; and the joint research partnership with Merck in the anti-infectives segment; the co-marketing agreement with Ferring International for its endocrine drug; marketing agreement with Natco Pharma in Yemen; alliances with Krebs and Jupiter for fermentation-based products and peptides respectively)

Affiliate Zenotechs experience in biologicals Strong marketing expertise in one of the most competitive markets viz. India Manufacturing efficiencies labor, infrastructure, quality R&D expertise scientists, strong generics business, developing innovative drugs business, expertise in process chemistry
Consolidated annual sales (CY2002 CY2007)

Figures in $ Million Growth Rate: 16.2%

Yr2002

748

Yr2003

957

Yr2004

1158

Yr2005

1179

Yr2006

1343

Yr2007

Page #6

1624

Sales by region (2007)

12% 5%

6%

28% Asia

26%

Europe 23% NorthAmerica API Otherregion CIS**

Source: Ranbaxy ***CIS: Commonwealth of Independent States (Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Ukraine, Uzbekistan)

Daiichi Sankyo
Strong presence in the Japanese prescription drugs market Growth driver potential in blockbuster Olmesartan (anti-hypertensive), Loxonin (antiinflammatory) and Levoflaxacin (anti-bacterial) drugs Research collaborations with global pharmaceutical majors, such as the collaboration with Eli Lilly for developing the high-potential Prasugrel anti-platelet agent for the treatment of acute coronary syndrome due for launch in fiscal 2008 Highly integrated supply chain network Sales force comprising 850 medical representatives

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Daiichi Sankyos R&D Strategy

Daiichi Sankyo has committed a maximum of 20% of its annual sales towards research and development. The company has hitherto conducted research only with antibody (protein-based) drugs, which have limited applicability despite their effectiveness in the targeted location. However, Daiichi Sankyo has now shifted its focus towards low molecular (chemical-based) compounds, which have wider applicability, for all its new drugs. Daiichi Sankyo is also striving to bind antibody drugs on to low molecular compounds and deliver them into the body so that the benefit of targeted effectiveness is realized for a wider range of ailments. Daiichi Sankyo plans to implement this approach in many of its therapeutic areas, including cancer. The shift towards low molecular compounds is in line with Daiichi Sankyos integration plan that has been outlined in its overall R&D strategy.

Daiichi Sankyos forthcoming activities in the cancer area include conventional low molecular drugs as well as chemotherapy drugs. In the future, Daiichi Sankyo strives to conduct research on molecular targets, mainly in biologicals and antibodies, and extend to low molecular-type molecularly targeted drugs. However, many of the targets are in the early stages of the research pipeline across therapeutic areas. This status will not allow Daiichi Sankyos cancer antibody products to hit the market before 2015, by when the market for these products is likely to saturate further. Daiichi Sankyo hopes to catch up sooner by implementing platform technology for antibody drugs and targets through collaborations and deploying external resources. Pain Points Post Merger

Despite possessing many competitive advantages, Ranbaxy faces allegations by the US FDA for repetitive fraudulent conduct. According to the FDA, Ranbaxys move to use APIs from unapproved sources has resulted in the availability of misbranded and counterfeit drugs in the market. Subsequently, the FDA questioned Ranbaxy on the potency of its drugs, which are alleged to be adulterated, and called for an internal review of the companys Indian manufacturing operations. Ranbaxy has been under FDA scrutiny for about three years now and its operations for the US market at the Paonta Sahib plant have been suspended since 2006. Although Ranbaxy claims that this is a routine investigation and there is no cause for concern, the issue has eroded its market capitalization significantly. As a culmination of this problem, Ranbaxy faced a ban in September 2008 on the import of over 30 of its drugs produced in India with regards to concerns over its manufacturing practices at a few of its facilities. Aside from this, Ranbaxy faces patent infringement lawsuits by global branded drug manufacturers AstraZeneca and Pfizer.

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Daiichi Sankyo, at the other end, has suffered a heavy increase in selling, general and administrative (SGA) expenses to the tune of 10% from fiscal 2006 levels to JPY357,330 million ($3128.9 million). During this period, the sales growth was a mere 0.4% and excluding one-time effects, was still only 1.5%. Over the five-year period to fiscal 2007, Daiichi Sankyo recorded a decline in sales by a CAGR of 0.7% while the CAGR for SGA expenses was 0.74% in the same period. There also were unused R&D expenses to the tune of JPY8 billion ($70 million) in fiscal 2008. Although the companys SGA expenses declined by about 9% in fiscal 2008, sales in the year witnessed a 5% decline due to a stagnant market and sales erosion from generic drugs.

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4.0

R&D Focus and Patent Portfolios-A Comparison

An analysis of the R&D expenditure patterns of Daiichi Sankyo and Ranbaxy provides a clear indication on the leader and the follower. R&D Focus Alignment with Business Growth

Ranbaxy
Ranbaxys research and development activities are focused towards five areas, viz., New Drug Discovery Research (NDDR), Pharmaceutical Research, Chemical & Fermentation Research, Herbal Drug Research, and Novel Drug Delivery Systems (NDDS). Ranbaxys NDDR research program focuses on four therapeutic segments viz. metabolic diseases, respiratory diseases, oncology and infectious diseases. In 2007, Ranbaxys drug discovery team filed 23 patent applications in India. Ranbaxy also forged a global alliance with GlaxoSmithKline plc, under

which two research programs in the respiratory and anti-infective therapeutic areas respectively are being conducted. Ranbaxy also announced that from 1 January 2008, its research unit would operate independently. In fiscal 2007 ended 31 March 2007, Ranbaxy filed 29 Abbreviated New Drug Applications (ANDA) with the US FDA. Ranbaxys Herbal Drug Discovery division also successfully launched two products (Chericof Herbal and Chyawan Active) in the Indian market and three products in the international market. Ranbaxys Herbal Drug Discovery division alone filed 11 patents in 2007. Ranbaxy is looking forward to making significant research developments in specialized segments such as Biosimilars, Oncology, Oral Contraceptives, Respiratory and Dermatology. Ranbaxys R&D expense and sales trends are depicted in the charts below. Ranbaxy: R&D Expenditure ($ millions, 2003-2007)

110.5

Yr2003
Source: Ranbaxy

51.1

Yr2004

73.2

Yr2005

Yr2006

85.5

Yr2007

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100.5

Ranbaxy: Sales ($ millions, 2003- 2008)

Sales of Ranbaxy

1800 1600 1400 1200 1000

Sales of Ranbaxy (US $ Mn) Growth Rate (%)

30.00%

25.00%

20.00%

15.00% 800 600 400 5.00% 200 0 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 0.00% 10.00%

Source: Ranbaxy

The major therapy areas of Ranbaxy are anti-infectives, cardiovascular, musculoskeletal, central nervous system (CNS), respiratory and dermatologicals.

Daiichi Sankyo
Daiichi Sankyo already possesses high-potential products such as Olmesartan, Levofloxacin and Pravastatin and is undertaking efforts to expand its research activity. Daiichi Sankyo is focusing on various therapeutic areas including joint/bones diseases, allergies, immunity, cancer, infectious diseases, glucose metabolic disorders and cardiovascular diseases. Olmesartan will drive growth through fiscal 2010. To enhance its R&D capabilities, Daiichi Sankyo is building R&D facilities in Europe, the US and Japan. In fact, the Daiichi Sankyo Research Institute based in the US is expected to boost its research activity in the future. Daiichi Sankyo is also focused on strengthening licensing activities as well as acquiring new technologies.

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Daiichi Sankyo: R&D expenditure ($ millions, FY2004-2008)

1459

Yr2004
Source: Daiichi Sankyo

1291

Yr2005

1340

Yr2006

1402

Yr2007

Yr2008

Daiichi Sankyo: Sales ($ million, FY2004-2008)

Sales of Daiichi Sankyo

8600 8400 8200 8000 7800 7600 7400 7200 Sales of Daiichi Sankyo (US $ Mn) 6.00% Growth Rate (%) 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% -1.00% -2.00% -3.00% -4.00% -5.00%

FY 2004
Source: Daiichi Sankyo

FY 2005

FY 2006

FY 2007

FY 2008

Page #12

1432

With R&D perhaps playing the most important role in the success of these two players, it is imperative to explore the intellectual property portfolio and the gaps that exist in greater detail.

The following sections of this report attempt to explore this facet of these companies in greater detail.

Ia.

Patents Split-up across Players

Ranbaxy 61%

Daiichi Sankyo 39%

Total Number of Patents (1998-2007):883

Ib.

Patents Split-up across application years

180 160 140 100 80
45 70

DaiichiSankyo
122 121

60 40
20 11 22 8 15

98

33

27

22

0 1998

1999

2000

2001

2002

2003

2004

21

2005

25

20

16 12

2006

62

2007

Total Number of Patents (1998-2007):883

A patenting frequency analysis across the application years of Ranbaxy and Daiichi Sankyo revealed that while Daiichi Sankyos patenting activity peaked in 2007 (94 patent families), Ranbaxys peaked in 2004 with 122 patent families respectively. Patenting activity in case of Daiichi Sankyo has been rather mixed; with 2006 posting a whopping growth by 148% in the number of patent families as compared to 2005.

Page #13

94

39

120

Ranbaxy

In contrast, Ranbaxy has witnessed a steady uptrend in its patenting activity until 2005. In 2007, the companys patenting activity plunged by almost 60% as against 2006. Across the ten-year period, Ranbaxy (with 541 patent families) accounted for nearly 61% of the total patent families of both the companies.

II.

Patenting Frequency Analysis

Presence of IPC across Players

43

38 18

TotalIPCs

TotalIPCsof Daiichisankyo

TotalIPCsof Ranbaxy

Out of 43 IPCs, Daiichi Sankyo has a presence in almost 88% of the IPCs. Ranbaxy has a share of 42% of the total IPCs segment.

An analysis on the portfolio of Ranbaxy and Daiichi Sankyo revealed that the patenting activity was spread across 43 different IPC classifications. While Daiichi Sankyo had a more diverse technology spread and had a presence in 38 IPCs, Ranbaxy had a presence in 18 IPCs.

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III.

IPC Analysis
Major IPCs for Ranbaxy Laboratories across application years
2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 0 20 40 60 80 100 120

A61K C07D A61P C07C OtherIPCs 140

IPC Code A61K C07D A61P C07C Other IPCs IPC A61K C07D A61P C07C

1998 4 4

1999 4 4

2000 6 3 3

2001 11 3 1

2002 16 17 5 6

2003 40 13 11 3 3

2004 75 28 7 7 5

2005 65 43

2006 29 55

2007 25 9 1

1 0 2 0 0

5 8

5 9 4

Definitions Preparations For Medical, Dental, Or Toilet Purposes Heterocyclic Compounds Therapeutic activity of chemical compounds or medicinal preparations Acyclic or Carbocyclic Compounds

A patenting frequency analysis for Ranbaxy Laboratories for the period 1998-2007 across IPCs revealed 4 leading IPCs. IPC A61K (Preparations for medical, dental) stamped its dominance with 275 patent families, followed by IPC C07D (Heterocyclic Compounds...) with 179 patent families. IPCs A61P (Therapeutic activity.) and C07C (Acyclic or ..) followed albeit at a distance with 28 and 27 patent families respectively. The leading 4 IPCs (with 509 patent families) shared almost 94% of the total number of patent families taken for analysis.

Page #15

Major IPCs for Daiichi Sankyo Co Ltd across application years

2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 0 20 40 60 80

A61K C07D C12N A01N OtherIPCs 100

IPC Code A61K C07D C12N A01N Other IPCs IPC A61K C07D C12N A01N

1998 8 4

1999 8 2 2

2000 5 5

2001 16 6 3

2002 7 3 1 3

2003 11 1

2004 8 7

2005 10 3 1

2006 29 15 2

2007 56 16 6 1

2 8

3 5 6 8

3 7 6 11 16

13

15

Definitions Preparations For Medical, Dental, or Toilet Purposes Heterocyclic Compounds Micro-Organisms or Enzymes; Compositions Thereof Preservation of Bodies of Humans or Animals or Plants or Parts Thereof; Biocides

Similarly, a patenting frequency analysis for Daiichi Sankyo across IPCs for the period 1998-2007 revealed 4 leading IPCs. Here again, similar to Ranbaxy, there was no change in the first two leading IPC categories. IPC A61K (Preparations for medical, dental) emerged as the leader recording a maximum of 158 patent families to its credit while C07D (Heterocyclic Compounds...) followed with 62 patent families. Other leading IPCs included C12N (Micro-Organisms or Enzymes) and A01N (Preservation of) with 15 and 12 patent families respectively. The leading 4 IPCs (with 247 patent families) held almost 72% of the total number of patent families taken for analysis.

IPCs A61P (Therapeutic activity.) and C07C (Acyclic or ..), which were among the leading IPCs of Ranbaxy Laboratories didnt figure in the leading list in case of Daiichi Sankyo Co Ltd. Similarly, IPCs C12N (Micro-Organisms or Enzymes) and A01N (Preservation of) were missing among the leading list of IPCs in case of Ranbaxy.

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IV.

IPC Gap analysis

Unique IPC owned across Players
Number of IPCs

Total number of IPCs 43

Daiichi Sankyo only 25
Daiichi Sankyo & Ranbaxy 13
Ranbaxy only 5

Out of 43 IPCs, Daiichi Sankyo has monopoly of 58% of the total IPCs. Ranbaxy has a share of 5 unique IPCs Both the players together share the remaining 13 IPCs

IPC Gap Identification

An analysis across the IPC segments for Daiichi Sankyo and Ranbaxy revealed that patent families of these companies were spread across 43 different IPCs. Daiichi Sankyo had a unique presence in 25 of these IPCs, while Ranbaxy had a unique presence in 5 IPCs. However, a

Page #17

review of the patents in these 5 IPCs indicates that these dont pertain to any new drug molecules.
Daiichi Sankyo Co. Ltd. Unique IPCs
S.No 1 2 3 4 5 6 7 8 9 10 11 12 13 IPC A01C A01G A01H A01K A01M A21D A23G A23K A23P A45D A47K A61B A61L Definition Planting; sowing; fertilizing Horticulture; cultivation of vegetables, flowers, rice, fruit, vines, hops, or seaweed; forestry; watering New plants or processes for obtaining them; plant reproduction by tissue culture techniques Animal husbandry; care of birds, fishes, insects; fishing; rearing or breeding animals, not otherwise provided for; new breeds of animals Catching, trapping or scaring of animals; apparatus for the destruction of noxious animals or noxious plants Treatment, e.g. preservation, of flour or dough for baking, e.g. by addition of materials; baking; bakery products; preservation thereof Cocoa; cocoa products, e.g. chocolate; substitutes for cocoa or cocoa products; confectionery; chewing gum; ice-cream; preparation thereof Fodder Shaping or working of foodstuffs, not fully covered by a single other subclass Hairdressing or shaving equipment; manicuring or other cosmetic treatment Sanitary equipment not otherwise provided for; toilet accessories Diagnosis; surgery; identification Methods or apparatus for sterilising materials or objects in general; disinfection, sterilisation, or deodorisation of air; chemical aspects of bandages, dressings, absorbent pads, or surgical articles; materials for bandages, dressings, absorbent pads, or surgical articles Devices for introducing media into, or onto, the body; devices for transducing body media or for taking media from the body; devices for producing or ending sleep or stupor Mixing, e.g. dissolving, emulsifying, dispersing General methods of organic chemistry; apparatus therefore Macromolecular compounds obtained by reactions only involving carbon-to-carbon unsaturated bonds Use of inorganic or non-macromolecular organic substances as compounding ingredients Compositions of macromolecular compounds Materials for applications not otherwise provided for; applications of materials not otherwise provided for Measuring or testing processes involving enzymes or micro-organisms; compositions or test papers thereof; processes of preparing such compositions; condition-responsive control in microbiological or enzymological processes Pistons; cylinders; pressure vessels in general; sealings Drying solid materials or objects by removing liquid there from Investigating or analysing materials by determining their chemical or physical properties Data processing systems or methods, specially adapted for administrative, commercial, financial, managerial, supervisory or forecasting purposes; systems or methods specially adapted for administrative, commercial, financial, managerial, supervisory or forecasting purposes, not otherwise provided for

14 15 16 17 18 19 20 21 22 23 24

A61M B01F C07B C08F C08K C08L C09K C12Q F16J F26B G01N

25

G06Q

Page #18

Ranbaxy Unique IPCs

S.No 1 IPC B07B Definition Separating solids from solids by sieving, screening, or sifting or by using gas currents; other separating by dry methods applicable to bulk material, e.g. loose articles fit to be handled like bulk material Compounds of alkali metals, i.e. lithium, sodium, potassium, rubidium, caesium, or francium Steroids Macromolecular compounds obtained otherwise than by reactions only involving carbonto-carbon unsaturated bonds Producing (pressing, extraction), refining or preserving fats, fatty substances (e.g. lanolin), fatty oils or waxes, including extraction from waste materials; essential oils; perfumes

2 3 4 5

C01D C07J C08G C11B

V.

IPC Shift
IPC Shift in Ranbaxy across application years
20032007 19982002

300 250 200 150 100 50 0 A61K

IPC Code A61K C07D A61P C07C C07H IPC A61K C07D A61P C07C C07H 1 2 Definitions 1998 4 4 1999 4 4

234 148

41

31 C07D
2000 6 3 3 2001 11 3 1

19 9 A61P
2002 16 17 5 6

20 7 C07C
2003 40 13 11 3 1 2004 75 28 7 7 1

13 2 C07H
2005 65 43 2006 29 55 2007 25 9 1 5 6 5 3 2 Total 275 179 28 27 15

Preparations For Medical, Dental, Or Toilet Purposes Heterocyclic Compounds Therapeutic activity of chemical compounds or medicinal preparations Acyclic or Carbocyclic Compounds Sugars; Derivatives Thereof; Nucleosides; Nucleotides; Nucleic Acids

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An IPC analysis for Ranbaxy Laboratories in the initial period (1998-2002) established 5 leading IPCs. The top four IPCs of this period figure among the top four IPCs in the overall period as well. The all-time leading IPC technology A61K (Preparations for Medical, Dental ) led the list with 41 patent families. The 5 leading IPCs (with 90 patent families) contributed to almost 99% of the total patent families in this period (1998-2002).

An IPC analysis for the period 2003-2007, identified 5 leading IPCs. The 5 leading technologies of this period figured among the leading technologies (in a different ranking order) in the period 1998-2002 as well. The all time leading IPC; A61K (Preparations for Medical, Dental ) retained its position in this period as well with 234 patent families. IPC A61P (Therapeutic activity), which was placed at the third slot in the overall period occupied the fourth slot in this period contributing to almost 4% of the total patent families in this period. The 5 leading IPCs (with 434 patent families) contributed to almost 96% of the patent families in this period (2003-2007).

IPC Shift in Daiichi Sankyo across application years

160 140 120 100 80 60 40 20 0 A61K
IPCs A61K C07D A01N C12N G01N C07K A23L 1 1 1 1998 8 4 2 1999 8 2 3 2 3 2 1 2 1

20032007 19982002

114

42 44 20 C07D
2000 5 5

4 8 A01N
2001 16 6

9 6 C12N
2002 7 3 3 1 1

4 4 G01N
2003 11 1 3

7 3 C07K
2004 8 7

6 3 A23L
2005 10 3 2006 29 15 2007 56 16 1 1 2 2 6 2 2 Total 158 62 12 15 8 10 9

1 2

2 2

2 2

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IPC A61K C07D C12N A23L C07C G01N A01N

Definitions Preparations For Medical, Dental, Or Toilet Purposes Heterocyclic Compounds Micro-Organisms or Enzymes; Compositions Thereof Foods, Foodstuffs, Or Non-Alcoholic Beverages Acyclic or Carbocyclic Compounds Investigating Or Analysing Materials By Determining Their Chemical Or Physical Properties Preservation Of Bodies Of Humans Or Animals Or Plants Or Parts Thereof; Biocides

An IPC analysis for Daiichi Sankyo in the initial period (1998-2002) established 5 leading IPCs. The all-time leading IPC technology A61K (Preparations for Medical, Dental ) led the list with 44 patent families. IPC G01N (Investigating or Analysing) which was absent in the overall period emerged as one of the leading IPCs in this period. The 5 leading IPCs (with 82 patent families) contributed to almost 69% of the patent families in this period (1998-2002).

During the subsequent period viz. 2003-2007, there were about 5 leading IPCs. The top three IPCs were present in the overall period (1998-2007) as well. IPC A01N (Preservation of Bodies ) which was placed among the leading categories in the overall period was absent among the top IPCs in this period (2003-2007). However, IPCs A23L (Foods, Foodstuffs), and C07K (Peptides...) which were absent among the top IPCs in the overall period has the emerged among the leaders in this period (2003-2007). The all time leading A61K (Preparations for Medical, Dental ) maintained its position in this period also with 114 patent families. The 5 leading IPCs (with 178 patent filings) contributed to almost 80% of the patent families in this period (20032007).

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VI.

Direct Citation Analysis

Ranbaxy
A direct citation analysis for Ranbaxy identified 12 leading assignees of 514 patent families spread across 42 different IPC segments. Teva Pharma holds the maximum number of 19 patent citations. Biocon Ltd and Lupin Ltd followed with 13 and 10 patent citations respectively. Other leading assignees include Lek Pharmaceuticals Inc, Orchid Chemicals & Pharm Ltd and Pfizer Inc with 9 patent citations each.

An IPC segment analysis mirrored the two leading IPCs of Daiichi. IPC A61K (Preparations for Medical) had 233 patent citations while C07D (Heterocyclic Compounds) registered about 157 patent citations. The leading 12 assignees together contributed to almost 21% of the total patent citations of Ranbaxy. The citation also includes Daiichi Sankyos two patent families (WO2001066551 & its family members- Azole compounds as therapeutic agents for fungal infections, and WO2000015198 & its family members- Orally administered controlled drug delivery system providing temporal and spatial control) which had cited Ranbaxys patent families.

Daiichi Sankyo
A direct citation analysis of Daiichi Sankyos patents/applications resulted in 840 patent families spread across 168 IPCs. The analysis identified 9 leading assignees' of which Metabasis Therapeutics Inc led the list followed by Astrazeneca AB with 11 and 10 patent citations respectively. The other assignees include Ube Industries and Novartis AG with 8 and 7 patent families respectively. The leading 9 assignees together shared almost 8% of the total patent citations of the entire dataset.

Furthermore, across the IPC segments, A61K (Preparations For Medical) and C07D (Heterocyclic Compounds) occupied the first and the second slot in terms of maximum patent citations with 253 and 72 patent families.

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VII.

Therapeutic Indications
Ranbaxy
Ranbaxy-therapeutic indication

Bone Disorder Drugs (1)

AntiRetrovirals (6) AntiAsthmatics (7) AntiHistamine (6) Anti-Cancer Drugs (9)

Blood Disorders Drugs (1)

AntiInfectives (34)

AntiDiabetics (5)
Impotency Drugs (2)

Hormones (1) AntiMalarials (1)

CNS Drugs (49)

Dermatologic al Drugs (3)

GastroIntestinal Drugs (4)

UroGenital Drugs(1)

Supplements (7)

Cardiovasc ular Drugs (16)

1 to 5

6 to 10

More than 10

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List of therapeutic indications Ranbaxy

Therapeutic Indications CNS Drugs Anti-Infectives Cardiovascular Drugs Anti-Cancer Drugs Anti-Asthmatics Supplements Anti-Retrovirals Anti-Histamine Anti-Diabetics Gastro-Intestinal Drugs Dermatological Drugs Impotency Drugs Hormones Anti-Malarials Bone Disorder Drugs Uro-Genital Drugs Blood Disorders Drugs No. of compounds 49 34 16 9 7 7 6 6 5 4 3 2 1 1 1 1 1

Ranbaxy owns a range of 153 therapeutic drugs that are being used in 17 different therapeutic indications globally. To its credit, it owns 49 therapeutic drugs focused on the treatment of central nervous system (CNS) diseases such as hypertension, seizures, psychosis, depression etc. It holds 34 active pharmaceutical ingredients for the treatment of infectious diseases. The topselling product Co-amoxyclav (amoxicillin and clavulanic acid) is an anti-infective agent that has generated over $89 million in 2007. In the same year the second best selling product, Simvastatin (Simvastatin) which has generated $86 million is among the 16 drugs for the treatment of cardiovascular diseases. Additionally, Ranbaxy has a wide range of generic drugs targeted at different segments including, anti-cancer drugs, anti-histamines, anti-retrovirals etc.

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Daiichi Sankyo

Daiichi Sankyo-therapeutic indication

AntiInfectives (5)

Anti-cancer Drugs (3)

Dermatologic al Drugs (3) Uro-genital Drugs (2)

Bone Disorder Drugs (5) Blood Disorders Drugs (5)

Secretory Drugs (1) AntiHistamine (3)

Cardiovascular Drugs (10)

GastroIntestinal Drugs (1)

Imaging & Diagnostic (7)

AntiDiabetics (4)
Hormones (3) Supplements (2)

CNS Drugs (6)

1 to 5

More than 6

List of therapeutic indications - Daiichi Sankyo

Therapeutic Indications Cardiovascular Drugs Imaging & Diagnostics CNS Drugs Bone Disorder Drugs Blood Disorders Drugs Anti-Infectives Anti-Diabetics Hormones Dermatological Drugs Anti-Histamine Anti-Cancer Drugs Uro-Genital Drugs Supplements Secretory Drugs Gastro-Intestinal Drugs No. of Generic drugs 10 7 6 5 5 5 4 3 3 3 3 2 2 1 1

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Daiichi Sankyo owns 60 therapeutic drugs that are distributed globally with different brand names. Though Daiichi Sankyo covers 15 therapeutic segments, its major focus has been in the treatment of cardiovascular diseases and imaging & diagnostics having 10 and 7 drugs, respectively. Other focus therapeutic segments include CNS drugs, bone and blood disorder drugs, anti-infectives etc. Notable product, Benicar/Olmetec (Anti-hypertensive drug) was the top seller for Daiichi Sankyo in 2007.

The analysis also indicates that Ranbaxy has a wider presence across therapeutic indications when compared to Daiichi Sankyo. Furthermore, Daiichi Sankyo does not have a presence in a few segments such as Anti-asthmatics, anti-retrovirals, impotency and anti-malarial drugs; segments that Ranbaxy has a presence in. Similarly, imaging & diagnostics and secretory drugs are unique to Daiichi Sankyos drug portfolio. The three top selling indications of Daiichi Sankyo (with 23 drugs) accounts to almost 23% of the 3 top selling indications of Ranbaxy.

VIII.

Abbreviated New Drug Application (ANDA)

Abbreviated New Drug Application (ANDA)

2008 2007 2006 2005 2004 2003 2008 2007 2006 2005 2004 2003 2008 2007 2006 2005 2004 2003 2008 2007 2006 2005 2004 2003 0

Daiichi sankyo

1 1 2 1 4 3 6 1 3 6 1 4 1 1 1 1 7 4 2 5 1 2 1 1 2 1 2 2 2 1 2 1 1 3 2 1 2 1 10 1 1 4 2 1 1 1 3 3 7 3 1 3 2 1 2 3 1 5 4 10 1 1 1

6 5 3 12 1 6 7 6

1 7 4 1 1 1 4 1 1 3 4 2 3 2 6

Barr Pharmaceuticals

Teva Pharma

1 6 1 1

2 1 1 1

A sthmatics nti-A A nti-cancer Drugs A nti-Diabetics A nti-Histamine A nti-Infectives A alarials nti-M A nti-retrovirals Blood Disorders Drugs Bone Disorder Drugs Cardiovascular Drugs CNSDrugs Dermatological Drugs G astro-Intestinal Drugs Hormones O indications ther Supplements Uro-genital Drugs

Ranbaxy

1 4 8 12 16 20 24 28

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An analysis of the Abbreviated New Drug Applications approved for Ranbaxy and Daiichi Sankyo by US FDA (as on 6th sep08) for the period of Jan03-Sep08, revealed that the drugs approved for Ranbaxy span across 8 therapeutic segments while Daiichi Sankyos spans across 3 therapeutic segments.

Both Ranbaxy and Daiichi Sankyo hold the maximum application approvals for Anti-Infectives and Central Nervous System Drugs. However, Ranbaxy leads in the case of Anti-Infectives and CNS Drugs segments with 24 and 14 approved drugs. The analysis also indicates that Ranbaxy has a presence in therapeutic segments such as Anti-Diabetics, Anti-Histamine etc, wherein Daiichi Sankyo has not filed/no drug approvals in the period (2003-2008).

A comparison of this activity with some of the peers provides interesting details. Teva Pharmaceuticals holds the maximum ANDA approvals of 144 drugs spread across 13 therapeutic indications. Of these, Anti-Infectives and CNS Drugs represent the majority share with 35 and 33 FDA approved drugs respectively. The unique therapeutic indications held by Teva pharmaceuticals as compared to Ranbaxy and Daiichi Sankyo in this period include Hormones, Gastro-Intestinal Drugs etc,

Similarly Barr Pharmaceuticals hold 54 ANDA approvals filed across 15 therapeutic segments. The hormones and CNS Drugs segments lead the list with 21 and 13 drugs respectively. Unique segments of Barr Pharmaceuticals include Hormones, Uro-Genital Drugs and Bone Disorder Drugs.

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IX.

New Drug Application (NDA) & Biologic License Application (BLA)

New Drug Application (NDA) & Biologic License Application (BLA)

CNS Drugs
1

Cardiovascular Drugs
1

Anti-Asthmatics
1 2

Anti-Infectives
2 2

Cardiovascular Drugs Anti-Histamine Anti-Diabetics

Ranbaxy

Daiichi sankyo

Teva Pharma

An analysis across the New Drug Application and Biologic License Application approvals by US FDA (as on 6th sep08) for the period of Jan03-Sep08 indicates 3 drug applications approved for Ranbaxy (Anti-Histamine: 2 approvals, Anti-Diabetics: 1 approval) and 2 for Daiichi Sankyo (Cardiovascular Drugs).

Teva Pharmaceuticals registered a maximum of 5 NDA and BLA approvals spread across 4 segments in this period. Anti-Infectives lead the list with 2 approved drugs, while Anti-Asthmatics, Cardiovascular Drugs and CNS Drugs had one drug each.

However, Barr Pharmaceuticals did not show any drug approval in the corresponding period.

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5.0

Perspectives
The Daiichi Sankyo merger a strong precedent but with its own challenges! The takeover of Daiichi Pharmaceutical by Sankyo Company in October 2005 resulted in the reverse merger of Sankyo and Daiichi. Daiichi Sankyo, as a combined entity acquired considerable strength after the merger by achieving critical mass in R&D both in the domestic Japanese as well as international markets, and also became the second largest pharmaceutical player in Japan. However, the worldwide integration of the two companies took place only in April 2007, after an 18-month long integration process. This was very much in line with what Sankyo had envisaged way back in late 2005 when it launched its first Mid-term Business Management Plan. Both companies did not envisage complete integration soon after the merger because their focus remained on first integrating their prescription businesses. The integration of the other businesses was the second priority as the main focus was on bringing to market some of its most important drugs such as the antibiotic Levofloxacin and the anti-hypertensive drug Olmesartan. The secondary objective was to expand into international markets. However, in fiscal 2007, Daiichi Sankyo was unable to generate complete sales synergies and faced significant setbacks in marketing. The company failed in its efforts to completely reorganize its medical representatives base to create what it calls an MR Crosswise structure, which was to serve as the basis for its growth in fiscal 2008. Already in the third year of its management plan, the company is operating in a difficult business environment and needs to strengthen its foundation significantly to achieve its targets for fiscal 2010. Daiichi Sankyo is already pouring investments into expanding its sales force in Europe and the US as well as strengthening its foothold in Latin America and Asia. As the Olmesartan drug is the companys growth engine through fiscal 2010, investments are centered on this product. The next challenge of Daiichi Sankyo is to develop new drugs that will boost its growth through future generic erosion periods, in the medium and long term. Also, the company has expressed its need to enhance its operating efficiency (13.7% operating margin in fiscal 2007) to be on par with industry leaders such as GlaxoSmithKline, Bayer Schering and AstraZeneca, who have recorded operating margins upwards of 20%. There is significant improvement needed in Daiichi Sankyos cost structure by concentrating on procurement enhancement, global supply chain efficiency. In light of the complete integration, Daiichi Sankyo faces a critical challenge viz. consolidating its management framework to optimize group resources and integrating the culture of Daiichi and Sankyo.

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Merger Motives: Reducing dependence on branded drugs Beginning 2008, the cost of drug treatments is expected to decline particularly in the US market across various therapeutic areas (largely due to the impending patent expiration of key drugs). This will cause generic drugs across these therapeutic areas to seize a substantial market share. Some significant generic areas include calcium channel blockers, lipid regulators, osteoporosis therapies, proton pump inhibitors and selective serotonin reuptake inhibitors. Generics are seen to pervade most pharmaceutical markets in the world, with over 65% of prescriptions written in the US expected to be generic drugs. The use of generics is also driven in various other countries through initiatives such as new government contracting in Germany and generic educational programs in Italy, Japan and Spain. Competition in biogenerics is also expected to rise.

In light of these transitions in the global pharmaceutical marketplace, large and small innovators are striving to devise strategies to align themselves better with the new opportunities realizing the generic and emerging market potential. Major pharmaceutical innovators have adopted the obvious strategy of strengthening their drug pipelines with more focused discovery and development initiatives including combination therapy and targeted drug development, as well as incorporating better product lifecycle management tactics. At the same time, these large players have sought to reduce their dependence on prescription pharmaceutical drugs for growth and have made a large number of expensive acquisitions of / or collaborations with successful or high-potential generic drug manufacturers. Thus, Daiichi Sankyos acquisition of Ranbaxy signals a move on the lines of its global counterparts Novartis (which acquired Alcon, Sandoz, Hexal AG and Eon Labs) and local competitors Astellas Pharma, Eesei and Takeda Pharmaceutical.

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Managing the intangibles

The immediate risk that both Ranbaxy and Daiichi Sankyo face is the possibility of a disparity in company cultures, which could pave the way for fallout in the future. Aside from the working cultures in the two countries, business cultures of both the companies are very different. Also, the past acquisitions of generic drug companies by innovators have resulted in both companies being operated as independent entities rather than merging the individual cultural frameworks. Hence, Daiichi Sankyos plans for operating Ranbaxy as an independent company and its noninvolvement in Ranbaxys inorganic growth initiatives will probably work well for both companies. Nevertheless, some integration will be inevitable to expand the scope of the companies research, manufacturing and marketing functions in order to realize synergies and gain a strong pan-global position. This will likely result in a future-Ranbaxy that is less Indian in its outlook but more of a first-world economy company. The new Ranbaxy will possibly be imparted with more caution and deliberation, which are characteristics of Japanese players.

The merger announcement has come immediately after Ranbaxys settlement of its patent dispute with AstraZeneca regarding the generic sales of the latters blockbuster ulcer drug Nexium in favor of the latter. Also, Ranbaxy made an out-of-court settlement with Pfizer recently over the Lipitor drug. Although the settlement with Pfizer delayed Ranbaxys launch of generic Lipitor, it has provided Ranbaxy with the status of exclusive generic representative of Pfizer and the license for early launch in some of the global markets. The settlement has also provided Ranbaxy with a lot of certainty in the timeframe for the launch of generic Lipitor and has brought down its estimate of future litigation expenses. Although Ranbaxy began negotiating with Pfizer and AstraZeneca much earlier, the recent settlements reflect Daiichi Sankyos possible influence and facilitation of well-timed moves.

The Ranbaxy-Daiichi Sankyo deal also unveils the need for the companies to consolidate their intellectual capital and acquire an edge over their foreign counterparts operating in, to begin with, the Indian market. The deal is already viewed as an indication of Japanese companies displaying confidence in Indian pharmaceutical firms with a reinforced faith in the commitment of Indian players towards intellectual property rights. With Ranbaxy under its umbrella, Daiichi Sankyo is poised to share Ranbaxys leadership in the Indian pharmaceutical market in terms of patent filings by homegrown companies. The next challenge for Ranbaxy is to take on competition from foreign rivals such as AstraZeneca, Pfizer, Novartis and Merck in filing patents in India.

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6.0

Conclusion
Daiichi Sankyos move of acquiring Ranbaxy will enable the company to gain the best of both worlds without investing heavily to the generic business. It is Daiichi Sankyos way of doubling the benefits or at least covering the shortcomings in the outcome of Sankyos acquisition of Daiichi by gaining access to an innovative platform covering biologicals and anti-cancer drugs, and a vast pool of scientists all at Indian costs. Through the deal, Ranbaxy has become part of a Japanese corporate framework, which is extremely reputed in the corporate world. As a generics player, Ranbaxy is very well placed in both India and abroad although its share performance belies its true potential. Ranbaxy is also an emerging branded drug manufacturer possessing tremendous clout in terms of strategic alliances with some of the biggest players in the industry.

The extent to which Ranbaxy and Daiichi Sankyo are complementary is rather unique in the industry. Unlike several mergers where removal of redundant assets and practices is mandatory, Ranbaxy and Daiichi Sankyo complement each other across geographies as well as product portfolios, leaving very little need for rationalization, thus minimizing post-acquisition hurdles. Furthermore, Japan is fast embracing generic drugs and in light of the growing ageing population in the country, Daiichi Sankyos propulsion of Ranbaxys generic drugs will expand its Japanese market.

Given Ranbaxys intention to become the largest generics company in Japan, the acquisition provides the company with a strong platform to consolidate its Japanese generics business, an important market of its largest geographic segment, Asia. Many of Ranbaxys counterparts, including Zydus Cadila and Lupin Ltd., have entered Japan with the same intention through acquisitions of smaller Japanese players or greenfield ventures.

However, the recent ban on the US imports of more than 30 Ranbaxy drugs manufactured in India until concerns are allayed poses a risk to Ranbaxys growth in the US and in turn, its international markets. The companys US sales are estimated to be impacted by 10%-15% as a result of the ban. While Daiichi Sankyo has stressed that it going ahead with the deal, it does raise some concerns over the impending benefits and has in fact already affected Ranbaxys share performance in September 2008.

For the present, Ranbaxy remains a company burdened by debt and litigation expenses and no incentive for innovation thanks to drug policies in the domestic market. The deal will make Ranbaxy a zero-debt company. In the long term, Ranbaxy stands to gain in its mission to become a leading global innovative pharmaceutical company, which will be propelled by the acquisition. The move represents a step towards aligning with the paradigm shift happening in the global pharmaceutical industry. The acquisition corroborates the strong possibility for similar moves in

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the future as more innovative pharmaceutical companies are displaying a zeal for entering the generic business. The deal is also said to improve the engagement between India and Japan and foster greater cooperation between the two nations in the pharma arena. The Daiichi Sankyo deal also sets the tone for more Japanese companies displaying confidence in Indian pharmaceutical firms and reinforces their faith in the commitment of Indian players towards/ and respect for intellectual property rights. Global companies are reassured that Indian patent laws are becoming robust and homegrown Indian pharmaceutical giants might now have a chance to become national leaders with the backing of foreign parent companies that respect their independence.

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Annexure Patent Analysis Methodology

The following methodology was adopted for analyzing the retrieved patent documents. All patent documents have been downloaded from the MICROPAT database for the 10-year period (Jan 1998 to Feb 2008).

Patent portfolio comparison

Analysis and comparison of patenting activity of Ranbaxy, and Daiichi Sankyo Co Ltd

Patenting activity - 10 years

Patent documents filed during the last 10 years (Jan 1998 to June 2008) by Ranbaxy and Daiichi Sankyo, along with their subsidiaries were taken for analysis. Only one member per patent family was considered for analysis. Preference for one member per family was based on the following order; US grants US applications PCT EP publications EP grants JP GB. Micropatent database was used to retrieve the patent related data and Delphion was used to retrieve the subsidiary list for each company.

Collection of Patent documents

Patent portfolio of the 2 companies retrieved for the last 10 years indicates a total of 1,796 patent documents filed by Ranbaxy and Daiichi Sankyo in various technology spaces. A drill down of these patent documents indicates that Daiichi Sankyo had 567 patent documents while Ranbaxy had 1,229 patent documents. All subsequent analysis was performed based on this initial dataset of 1,796.

One member per family

Each invention could have more than one patent, as it could be filed in more than one country. Such an evaluation inclusive of family members may distort the analysis. For instance, the IPC of a patent document with high number of family members may rank at the top of the IPC frequency list instead of the IPC which has more number of individual patent documents. Therefore, the 1,796 patent documents were reduced to one member per family using Micropatent database. This resulted in a total of 883 patent families shared by the companies as follows: Daiichi Sankyo 342 and Ranbaxy 541.

Data points such as patent number, publication year, application year, assignee and primary IPC code were also obtained from the Micropatent database for the family reduced dataset prior to performing the IPC trends analysis.

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Patent Split-up

The overall patent portfolio of the two companies was analyzed across 10 years to determine the patenting activity of the companies irrespective of technology and years. In addition, a company-wise patent split-up across years was also identified and is graphically represented.

Patenting Frequency Analysis

This analysis indicates the patenting activity of Ranbaxy and Daiichi Sankyo Co Ltd across various technology spaces with respect to the application years (1998-2007). Given, the rather huge data set that needed to be visually represented, patenting frequency in the top IPCs were projected in the graph while the other IPCs were categorized in other IPCs.

Leading IPCs

The leading IPCs for both the companies were sorted and analyzed across years. The 10 year period was split into two time periods (1998-2002, 2003-2007) to identify any possible shift in technologies for the companies; thereby indicating the focus technology space of each company in two given time periods.

R&D Expenditure

Research & Development expenditure of Ranbaxy and Daiichi Sankyo from 2002 to 2007 was retrieved from the respective annual reports of each company. The R&D expenditure of Daiichi Sankyo for the years 2002 to 2005 was a simple aggregation of the R&D expenditure of Daiichi and Sankyo.

IPC Gap Analysis

The similarities and gaps in the technology space between the two companies were identified by screening the IPCs (primary IPCs) which were common to both the companies. The analysis identified 13 IPC segments shared by both the companies while the patents filed under the remaining 30 IPC segments were owned by one of the 2 companies. An analysis of this data was used to identify the gaps in the technology.

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Patenting activity across technologies and IPC shift

Patenting activity of Ranbaxy and Daiichi Sankyo for 1998 2007 was clustered with respect to technologies. Technology wise patenting activity of the two companies across the years was analyzed using IPCs. The IPCs pertaining to each company was then sorted with respect to application years to indicate technology wise patenting activity in each year for the two companies. The major IPC shift across various time periods was also analyzed.

Citation Analysis

Direct citation frequency analysis was conducted for the patent documents (along with its family members) of both Daiichi Sankyo and Ranbaxy. The analysis was conducted to identify the assignees that have cited the source companys patent documents.

Therapeutic Indications

Therapeutic drugs possessed by Ranbaxy and Daiichi Sankyo were retrieved from the respective company websites and other available free web sources. Each therapeutic drug was clustered in a broad segment based on their application and taken for analysis. A total of 153 and 60 therapeutic drugs were obtained for Ranbaxy and Daiichi Sankyo, respectively.

Product Pipeline

Pipeline details for Ranbaxy and Daiichi Sankyo was retrieved from their company websites, annual reports, presentations, along with additional free web databases on pharmaceutical product pipeline, as available.

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PROCESS FLOW CHART

Patent activity 10 years

Collection of Patent documents

Reduction to one member per family

Patenting Frequency Analysis

Citation Analysis

IPC Analysis

R&D Expenditure

IPC Gap Analysis

IPC Shift

Patent Split-up

NDA / ANDA

Therapeutic Indications

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APPENDIX I ABOUT SCOPE e-KNOWLEDGE CENTER

Scope e-Knowledge Center is an award-winning provider of intellectual property support services. Clients include large corporate organizations (including seven FTSE 100 companies), Thomson Scientific, the European Patent Office, global law firms and several of the largest technology transfer companies in the world.

Scope helps clients to enhance their IP capabilities and achieve substantial cost savings, in region of 40 to 60%. Services include:

Patent searching: Prior art, validity, infringement, freedom to operate, etc. For example, Scope undertakes complex searches on a regular basis for corporates in various sectors including engineering, pharma, food & beverages, chemicals, etc.

Patent analysis for competitive intelligence and business development: Leveraging on its expertise in business research support, Scope enables clients to understand better their market environment and identify profitable opportunities through a variety of bespoke studies, including: white space analysis of specific technology areas; identifying potential licensing candidates; patent / CI landscape analysis; overlap analysis to determine potential out-/in-licensing & cross licensing, opportunities, etc.

Database enhancement for patent portfolio management: Scope helps clients to make the most of their internal patent and information repositories, leveraging on its world-class in database building and information architecture.

Tracking and monitoring patent applications / status on a bespoke basis. Scope keeps track of any new patent applications in specific technology areas or filed by specific companies. It also monitors the legal status of specific patent applications (ie maintenance of surveillance lists).

Scope e-Knowledge Center has been in operation for over 20 years. It is headquartered in Chennai, India and has several sales offices around the world. You can reach us at: Contact us:
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Disclaimer

This material is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should be relied upon as such. Neither SCOPE e-KNOWLEDGE CENTER PRIVATE LIMITED nor any person connected with it accepts any liability arising from the use of this document. Opinions expressed are our current opinions as of the date appearing on this material only. While we endeavor to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. No part of this material may be duplicated in any form and / or redistributed without the prior written consent of SCOPE e-KNOWLEDGE CENTER PRIVATE LIMITED

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