Ranbaxy Laboratories Ltd had given a revenue guidance of 6% for 2010, when it announced results for 2009 last week. That seemed conservative to some but factored in the uncertainty of its ability to launch some key drugs in the US market. The launch of a generic version of blockbuster drug Flomax was a key trigger in 2010. But after the US Food and Drug Administration (FDA) gave permission to Impax Laboratories, Inc., but not to Ranbaxy, that event fizzled out. Its stock price fell by nearly 6% intraday, but recovered to close down by around 1.3%, as some of this uncertainty is already factored in. Its share would have most certainly gained had it got the approval.
Ranbaxy entered into a settlement with Astellas/Boehringer Mannheim in November 2007, under which it could launch the generic version of Flomax on 2 March 2010, eight weeks before the expiry of the pediatric exclusivity. Ranbaxy had said it would be the only player, as it had a first-to-file status. Impax cited Flomax sales at $2 billion, or around Rs9,180 crore today. With monthly sales of around $170 million, assuming 10% price erosion and a 15% market share, revenue could be around $45 million for eight weeks. It could vary, too, depending on actual market conditions. Whatever the quantum, it would have provided a significant earnings kicker for Ranbaxy in the first half of 2010.
The larger issue here is Ranbaxy’s image taking a beating in the eyes of FDA. While Flomax is one setback, investors were pinning hopes on the company capitalizing on its first-to-file opportunities. If these are plagued by denials and delays, it will be a negative development. Another known major generic launch expected from Ranbaxy is that of Pfizer Inc.’s Lipitor, whose launch is due in late 2011. That gives enough time for a resolution to be worked out with FDA.
Graphic: Yogesh Kumar/Mint
The regulatory issues at two of its Indian units have still not been resolved, despite the company making efforts to address FDA’s concerns. In addition, in its most recent action, FDA found fault at a US manufacturing facility run by Ranbaxy’s subsidiary OHM Laboratories Inc. The regulator issued a warning letter, saying the violations were similar to those noticed in its other plants in earlier years. It said Ranbaxy’s attempts to make global corrections after past regulatory actions were still inadequate. The company needs to get a foolproof grip over its operations to ensure they are compliant in every respect. The new warning letter concerns a plant that accounts for barely 1% of its US market supplies, but has done disproportionate harm to it.
With big US generic opportunities now becoming more uncertain, it is back to basics for Ranbaxy. The company and its parent, the Daiichi-Sankyo Group, have been collaborating in different markets, leveraging Ranbaxy’s distribution and generic strengths. These are expected to reflect in its second-half performance, the management said in a conference call. India operations, too, are expected to contribute increasingly to growth. But these alone may be difficult to justify its price-earnings multiple of around 30 times based on 2010 consensus estimates. It would be hoping for luck to side with it in the rest of 2010, in the US market.
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