Supplies delay: Ranbaxy may take $50 mn hit

Supplies delay: Ranbaxy may take $50 mn hit
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First Published: Mon, May 25 2009. 11 59 PM IST

Taking charge: Ranbaxy’s new chief executive Atul Sobti. Bloomberg
Taking charge: Ranbaxy’s new chief executive Atul Sobti. Bloomberg
Updated: Mon, May 25 2009. 11 59 PM IST
New Delhi: The country’s largest drug maker by revenue, Ranbaxy Laboratories Ltd, faces a potential revenue hit of as much as $50 million (Rs236 crore) because of a delay in supplying a key ingredient to the UK-based AstraZeneca Plc. for the manufacture of its anti-ulcer drug Nexium.
Taking charge: Ranbaxy’s new chief executive Atul Sobti. Bloomberg
The delay follows questions raised by the UK drug maker and an inspection by it of Ranbaxy’s plants, newly appointed chief executive officer (CEO) of the Indian firm Atul Sobti said in a conference call with analysts on Monday, a day after Japanese drug maker Daiichi Sankyo Co. Ltd moved to tighten its hold on the company it acquired last year.
Sobti, who replaced Malvinder Mohan Singh as CEO and managing director on Sunday, was asked in the call whether the delay was in anyway connected with issues faced by Ranbaxy with the US Food and Drug Administration (FDA), which has banned some of its products for alleged falsification of data.
“AstraZeneca had questioned (us) and they had inspected the plants. So, that led to a delay by a few months,” Sobti replied.
Nexium has annual sales of $5.5 billion and is the world’s second largest selling drug after Pfizer Inc.’s cholesterol-lowering drug Lipitor.
Ranbaxy was to begin supplying esomeprazole magnesium, the active pharmaceutical ingredient (API) in Nexium, from this month.
Instead, Sobti told Mint on Sunday, the supply will probably begin later in the year. The delay, analysts estimate, would hit the company’s revenue to the tune of $40-50 million.
Ranbaxy is also slated to start formulating a significant portion of AstraZeneca’s US supply of Nexium from May 2010.
This follows from a manufacturing agreement that was part of a bigger patent-infringement settlement between Ranbaxy and AstraZeneca in April 2008.
Ranbaxy, which conceded that AstraZeneca’s Nexium patent was valid and enforceable, was allowed by the company to commence exclusive sales of a generic version of Nexium under licence from 27 May 2014.
“There are some delays in the supply, and the supply is likely to start by the end of this year. The delay is from our side as well as from their (AstraZeneca’s) side,” Sobti said on Sunday.
In a conference call last month, his predecessor Singh said that he did not “think there are any major hurdles” in the supply to AstraZeneca.
“At best I think there was a month or month-and-a-half of postponement,” he said, adding that the supply should start latest by the fourth quarter.
Starting May, according to analysts, Ranbaxy had been expected to add $40-50 million to its revenue from API supply to AstraZeneca. This is expected to double next year when it starts supplying the formulations as well.
“It is unlikely that the delay could be due to the destocking or decrease in demand because Nexium prescriptions are relatively steady and still going strong,” said Hemant Bakhru, research analyst at CLSA Securities.
API for Nexium is made at a Ranbaxy plant in Punjab. Two of Ranbaxy’s plants, not those located in Punjab, have been under FDA lens since September, when they were issued a warning letter and 30 products from the plants were put on an import alert.
Earlier this year, one plant (Paonta Sahib in Himachal Pradesh) was issued FDA’s application integration policy on charges of data falsification, halting approval of all existing and pending generic drug applications, or abbreviated new drug applications.
One analyst, who didn’t want to be identified, said the supply to AstraZeneca may have been delayed, but the deal is unlikely to be scrapped. “But we have to see what happens to the formulation manufacture that starts next year,” said the analyst, who had estimated revenue for Ranbaxy from API at about $65 million.
Another analyst, who also did not want to be identified, said that the delay in the supply to AstraZeneca may not have anything to do with the FDA issue. The analyst spoke before the conference call.
“I had estimated a topline earning of $31 million for Ranbaxy from API supply and don’t see this delay as a huge impact on the overall deal with Astra since the deal itself is spread over a period of five years. The major earnings for Ranbaxy will be when it launches its own generic version in 2014,” he said.
A September report by Citi Investment Research, soon after the warning letters were issued by FDA, noted that Ranbaxy would commence supplies of API in May 2009, adding that no problems were foreseen.
“The supply of formulations starts only in May 2010, which gives sufficient time for Ranbaxy to execute a change of site, if required”, the report added.
Ranbaxy stock rose 20.73% to close at Rs266.70 on BSE, on a day when the benchmark index rose 0.2%, following the departure of Singh from the company.
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First Published: Mon, May 25 2009. 11 59 PM IST