More delay in supplies to AstraZeneca may hit Ranbaxy revenue

More delay in supplies to AstraZeneca may hit Ranbaxy revenue

India’s largest pharmaceutical firm Ranbaxy Laboratories Ltd’s plan to supply a key ingredient to AstraZeneca Plc for its ulcer drug Nexium, already late by close to a year, may get further delayed, with analysts estimating the revenue loss facing the firm at $100-250 million (around Rs465-1,160 crore).

Daiichi Sankyo Co. Ltd-owned Ranbaxy was to start supplying esomeprazole magnesium, the active pharmaceutical ingredient (API) in Nexium, to the UK-based AstraZeneca in May 2009. The deadline has been missed over Astra’s concerns over Ranbaxy’s plant after an inspection. The supplies were to then begin by the end of 2009 or the beginning of this year.

“The current plan is for API supplies to start in the second half of the year," Neil McCrae, AstraZeneca’s head of media relations, said by email. Nexium has annual sales of $5.5 billion, making it the world’s second largest selling drug after Pfizer Inc.’s cholesterol-lowering drug Lipitor.

Ranbaxy did not respond to questions from Mint. The company is in its silent period before it announces its fourth quarter results on 25 February, according to a spokesman.

The delay will have a knock-on effect on the supply of the formulation, or the finished product.

“I don’t think the formulation supply will start this year since the API supplies are yet to start," said a Mumbai-based analyst with a foreign brokerage firm, who did not want to be named as he is not authorized to speak with the media.

“As per the agreement between Ranbaxy and Astra, the formulation supply will start a year after the API supplies start," the analyst added.

While the main reason for the delay was Astra’s inspection of Ranbaxy’s factory, another reason could be that the UK-based firm, with revenues of $32.8 billion in 2009, wants to reduce inventory.

Ranbaxy would have earned $255 million in revenue from API and formulation sales in 2010, according to the analyst cited above. Of this, $169 million would be from API sales, with profit at $90 million.

“But since we are now looking at supplies starting later in the year, this revenue could easily halve, unless Ranbaxy and Astra increase the payment for the API," the analyst added.

Another analyst pegged the revenue loss a little lower.

“This delay is a loss of opportunity for Ranbaxy, both in terms of revenue and consequentially of profit," said Ranjit Kapadia, analyst at HDFC Securities Ltd. “We have estimated revenues of about $102 million from Nexium API supplies in 2010."

The accord between the two companies follows from a manufacturing agreement that was part of a bigger patent-infringement settlement between Ranbaxy and AstraZeneca in April 2008.

The API for Nexium is made at one of Ranbaxy’s two plants in Punjab.

Two other Ranbaxy plants, in Himachal Pradesh and Madhya Pradesh, have been under the US Food and Drug Administration’s scrutiny since September, when they were issued a warning letter and 30 products from the plants were put on an import alert.

Ranbaxy shares rose 0.67% on the Bombay Stock Exchange to close at Rs451.75 on a day when the exchange’s benchmark Sensex index fell 0.19% to end at 16,255.97 points.