Ranbaxy Laboratories Ltd’s stock should have soared, as it set to rest doubts that it may be unable to launch the generic version of cholesterol-lowering drug Lipitor. The stock had fallen in the past few days on these fears. But it rose by just 2.1% on Thursday, giving up its gains at the start of trade, barely matching the 2.2% increase in the broader market. Teva Pharmaceutical Industries Ltd’s surprise claim over Ranbaxy’s profit seems to have upset investors’ initial reaction to the development.
Ranbaxy’s minority shareholders and its parent company, Daiichi Sankyo Co. Ltd, still have a reason to be pleased. When Daiichi acquired a majority stake in Ranbaxy, its first-to-file status on Lipitor would have been one of the contributing factors in its valuation. Getting an approval is certainly a positive development, but it does leave a few questions unanswered.
Ranbaxy said it will share the profit from generic Lipitor with Teva, without stating the reasons or the quantum. The drug is going to be manufactured at Ranbaxy’s subsidiary Ohm Laboratories Inc.’s facility in New Jersey.
Will Teva be supplying the raw materials for the drug, or is it a marketing-related arrangement, is a question that investors may have.
Investors are ultimately interested in knowing how much money Ranbaxy will make from selling generic Lipitor in the exclusivity period. In this six-month period, it will compete only with Pfizer Inc. and Watson Pharmaceuticals Inc. Lipitor’s sales for the 12 months ended September amounted to $7.9 billion (around Rs 41,000 crore today). Watson has been authorized by Pfizer to sell a generic version, a tactic used to make life difficult for a generic challenger; Ranbaxy in this case. After six months, more players will enter the market. Pfizer has been unusually aggressive in cutting prices, and striking deals for Lipitor post-patent expiry. This will limit the extent to which Ranbaxy benefits. Still, Ranbaxy’s profits in the March and June quarters can see a sizeable jump. In the December quarter, one month of sales will be reflected, giving investors a glimpse of the actual impact on profit.
Analysts expect Lipitor to contribute about Rs 25-30 to Ranbaxy’s earnings per share. But that estimate is at risk from the share of profits that will go to Teva. That uncertainty seems to have upset investors, and will be perhaps resolved when Ranbaxy declares its December quarter results.
Another unanswered question is the settlement of Ranbaxy’s regulatory issues in the US. If the penalty payable by the company turns out to be higher than anticipated, it may negate the windfall from the Lipitor sale.
The earlier expectation was that the settlement and the Lipitor launch would coincide, ending uncertainty on both fronts. Now, investors will have to wait for the settlement to know how deep a cut it will inflict.
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