New Delhi: India’s largest drug maker, Ranbaxy Laboratories Ltd, has settled a lawsuit with AstraZeneca Plc. and signed an agreement, the first of its kind for an Indian company, with the UK-based firm that could generate significant revenues for it over a period of time.
The deal helps AstraZeneca stave off potential competition from Ranbaxy’s generic or off- patent offering of the drug, although the company still faces challenges from other generic drug makers.
Big settlement: Ranbaxy’s managing director Malvinder M. Singh.
The lawsuit concerns Nexium, an ulcer drug that is one of AstraZeneca’s flagship products and the deal envisages the Gurgaon-based Ranbaxy supplying ingredients used in Nexium starting May 2009, the entire drug a year later, and launching a generic or copycat version of the drug when it goes off patent in May 2014.
The contribution of these measures to Ranbaxy’s revenues starting May 2009 could not immediately be assessed. A succesful patent challenge gives generic drug manufacturers a six-month run in US with limited market competition (this is also called exclusivity). Tuesday’s settlement, however, will give Ranbaxy significantly more than that and analyts are still crunching numbers on what it could be.
However, AstraZeneca is involved in similar lawsuits with companies such as Teva Pharmaceutical Industries Ltd and Dr Reddy’s Laboratories Ltd. The status of these suits couldn’t immediately be ascertained. It also isn’t clear what happens to the AstraZeneca-Ranbaxy settlement should one of these challengers win its suit. A spokesperson for AstraZeneca declined to comment on this issue while Ranbaxy’s spokesperson said, without elaborating further, that the firm would be the first to launch a generic version of the drug.
Esomeprazole magnesium capsules, sold as Nexium, had sales of $3.4 billion (Rs13,600 crore) in the US and $5.2 billion globally in 2007—second only to Pfizer Inc.’s cholesterol drug Lipitor. According to the out-of-court settlement between the two companies, Ranbaxy will launch its version of the drug under a licence from AstraZeneca in May 2014 when the first of the Nexium patents expire. New drugs are usually protected by numerous patents, referred to as a patent estate. Those protecting Nexium have expiration dates ranging from 2014 through 2019.
While Ranbaxy will be the sole generic drug maker enjoying market exclusivity for Nexium in the US in 2014, it will also begin supplying the raw material for 50% of AstraZeneca’s US supply of the drug from May 2009 and finished drug dosages a year later. The third part of the settlement makes the Indian company AstraZeneca’s US distributor for heart drug Felodipine Capsules and 40mg tablets of another ulcer drug, Omeprazole.
The financial terms of the deal were not disclosed.
“AstraZeneca gets over the uncertainty of a generic drug launch to their largest product. The deal securing the raw material supply deal further sweetens the deal. For Ranbaxy, the overall package is far superior than what one would get through pure six-month exclusivity benefit in a patent challenge,” said a pharmaceutical sector analyst at a Mumbai-based brokerage, who did not wish to be identified. The executive described the settlement as “a very elegant solution.”
“This is the biggest and most comprehensive (patent) settlement in the global pharmaceutical industry. It will bring greater certainity and visibility on our US launches as well as revenues,” said Malvinder M. Singh, Ranbaxy’s managing director, who expects the company to earn around $1.25-1.5 billion until the end of the exclusivity period in 2014.
Ranbaxy had received tentative approval for the drug from US Food and Drug Administration in February this year.
Analysts say Ranbaxy’s revenues could increase by $500-600 million in 2014 alone on account of the deal. Its shares rose 8.62% to close at Rs481.80 each on the Bombay Stock Exchange on a day when the exchange’s benchmark Sensex rose 2.19% to close at 16,153.66.
Prashant Vaishampayan and Priti Arora, analysts with Kotak Securities Ltd, who have a “buy” rating on Ranbaxy’s stock, wrote in their latest report that the “settlement with AstraZeneca on generic Nexium serves Ranbaxy’s long- term interest the best.”
Another analyst with a global equity equity firm, who said Ranbaxy was turning its lawsuits into predictable revenue-generating assets through these settlements, called it a “breakthrough” agreement. Ranbaxy has entered into similar deals with other firms in the past few months, though none are as complex as the one with AstraZeneca. It settled disputes with GlaxoSmithKline Plc. on anti-herpes drug Valtrex last year and migraine drug Imitrex in January this year. It also entered into an agreement to drop the patent challenge on prostate drug Flomax made by Boehringer Ingelheim/Astellas Pharma.
The Indian drug maker “concedes that all six patents asserted by AstraZeneca in the patent litigation are valid and enforceable” and “accepts that four of the patents would be infringed by the unlicensed sale of Ranbaxy’s proposed generic product”, said a statement from AstraZeneca. It added that patent infrigement lawsuits will continue against Israel-based drug maker Teva Pharmaceutical Industries Ltd, its affiliate IVAX Corp., and Hyderabad-based Dr Reddy’s Laboratories Ltd.
David Brennan, chief executive of the UK firm, said that he believed this agreement to be “the right business decision” and one that gave “increased clarity and stability”.
“We continue to have confidence in the strength of our patents and will vigorously defend our intellectual property,” added Brennan in the statement.