Fresenius Kabi Oncology Ltd’s (FKOL) share price rose by 4% on Monday on reports of a legal settlement with European pharmaceutical firm Sanofi-Aventis SA. Though financial terms remained secret, key positives in this development are the likelihood of an upfront payment, which may be sizeable given the drug’s blockbuster status, and a relatively short window of absence from the market.
In 2009, Eloxatin earned €957 million (Rs5,770 crore) in global revenues, down by 29% over the previous year. According to FKOL, the drug’s revenue from the US market alone was 993 million (around Rs4,500 crore).
In early 2007, generic drug companies such as FKOL and APP Pharmaceuticals Llc, another Fresenius Kabi subsidiary, had applied to the US Food and Drug Administration for selling generic Eloxatin. Sanofi filed a patent infringement suit.
In June, the generic companies got a favourable judgement on one patent. Sanofi successfully appealed against this judgement but the generic companies launched the product “at risk”, facing penalties if they lost the case. Sanofi could not get an injunction preventing the launch and the court asked the parties to settle the matter.
This development appears to be an outcome of those talks.
Teva Pharmaceuticals USA Inc. and Sandoz, too, are party to the current settlement. They will stop selling generic Eloxatin from 30 June and re-enter the market with a licence from Sanofi in August 2012.
Some of Sanofi’s patents on these products extend up to 2017. Sanofi will gain as lower generic competition will stem the erosion in market value. In the first half of 2009, it earned €697 million from Eloxatin, which slumped to €260 million in the second half, when generic competitors entered the US market.
FKOL’s performance in fiscal 2010 has improved significantly, benefiting from new product launches and expansion into new markets. In the nine months ended December, its revenue grew by 65% to Rs300 crore and its net profit was Rs62 crore, compared with a loss of Rs69 crore, partly due to one-off expenses, in the year-ago period.
FKOL’s performance may thus see slower sales growth after June, though profits will be higher from possible upfront payments. In fiscal 2011, it will be known whether upfront payments were enough to compensate from the loss of withdrawing from the market.
Even if sales growth moderates from fiscal 2010 levels, its existing product portfolio, new launches and gains from this settlement should drive growth in fiscal 2011 too.
FKOL’s share price is up by 13% over a month ago, and trades at nearly 27 times its annualized fiscal 2010 earnings per share.
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