Fortune magazine’s story hinting at a high value settlement between Ranbaxy Laboratories Ltd and the US regulatory authorities has brought the issue more firmly into the spotlight.
Investors want this issue to end, and at a price that does not break the bank. That it will be sizeable is not in doubt, but a very large payout could end up straining the company’s finances.
Ranbaxy’s generic launch of Pfizer Inc.’s blockbuster cholesterol-lowering drug Lipitor is due in November. This is perhaps the second biggest trigger for the firm in 2011.
If the settlement happens before that, it clears virtually all obstacles in the way of the launch. If it does not, speculation will mount if Ranbaxy will be able to still sell the product by making it elsewhere. It has done this for some of its recent launches.
Though the company’s official stand on the issue is unchanged, the notes to its March quarter financial statements include a small addition this time.
“In response to the demand received from the DOJ (department of justice) of USA, the company is negotiating on the matter and in this context has given a settlement offer towards resolution of all outstanding matters,” it said. This indicates progress and an end to this issue may be in sight; though in the past, such optimism has been proved wrong.
Ranbaxy’s financial performance will give it the backing to fund the payout. In the March quarter, reported sales were flat compared with the year-ago period. Domestic sales were good, rising at about 14% and Ranbaxy expects this growth to continue.
But the company’s North American business saw a 36% drop in sales to $170 million, which was expected. Revenue from Donepezil, used in the treatment of Alzheimer’s disease, in the US market, on which it has a 180-day exclusivity, did add to its base business. But the year-ago quarter benefited from higher sales from first-to-file products such as anti-herpes drug Valacyclovir and the authorized generic of pain reliever Oxycodone ER.
In other key markets such as Europe, sales rose by 10%, 17% in Africa, and 10% in the Commonwealth of Independent States. Ranbaxy’s other operating income in the March 2010 quarter was higher, due to income from settlements. The result was a drop in its operating profit margin by nearly eight percentage points to 18.5%. The absolute level of margins is still healthy.
Ranbaxy’s net profit fell by 68%, partly due to a 37% drop in operating profits, and due to variations in other income, foreign exchange fluctuations and derivatives-related losses and gains. It was still a good performance as its profit came in at nearly twice consensus estimates. Results over, the attention will revert to news flow on the regulatory front.
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