Mumbai/London: Drugmaker Ranbaxy Laboratories Ltd is in talks with at least two companies on sourcing ingredients for a generic version of AstraZeneca Plc’s heartburn drug Nexium, a source said, to ensure the pills can be sold in the United States.

Washington in January prohibited Ranbaxy, India’s top drugmaker by revenue, from selling drugs in the United States using ingredients from one of its plants in northern India due to poor manufacturing practices.

This effectively barred it from selling drugs made in its India plants in the United States and has forced Ranbaxy to look elsewhere for supplies. Ranbaxy’s Ohm Laboratories plant in New Jersey is now its only facility making generics for the United States.

Any delay in the launch of generic Nexium, AstraZeneca’s second-biggest seller, will have a big impact on the British company’s profit. Nexium had global sales last year of $3.87 billion and US sales of $2.12 billion.

Retaining exclusivity on Nexium in the all-important United States beyond the end of May would not only limit a forecast decline in AstraZeneca’s 2014 earnings but could also protect bonuses for top management at the British company.

Ranbaxy’s talks with ingredient makers are part of a scramble to ensure it can still be the first to sell a cheaper copy of Nexium in the United States after the drug’s patent term ends on 27 May, despite the regulatory sanctions.

The source, who has direct knowledge of the matter, declined to give details and refused to be named due to the sensitivity of the issue.

A Ranbaxy spokesman said the company has no comment for now.

Ranbaxy was the first to seek approval from the US Food and Drug Administration (FDA) for a generic version of Nexium, gaining exclusive rights to sell it for six months after patent expiry — potentially a huge opportunity.

“It’s one of the biggest generic opportunities ever. If I was Ranbaxy, I would be looking very hard to find a commercial solution," said London-based analyst Savvas Neophytou at Panmure Gordon.

Doubts about Ranbaxy’s ability to launch the drug grew after the FDA in January prohibited it from shipping to the United States any pharmaceutical ingredient made at its Toansa plant in northern India.

Ranbaxy’s failure to launch generic Nexium soon after the patent expiry at the end of May could benefit AstraZeneca’s earnings per share (EPS) by 10 cents a month, Barclays wrote in a report. In the fourth quarter, EPS fell 28% to $1.23.

AstraZeneca CEO Pascal Soriot and his team are required to ensure that the company’s dividend cover ratio does not fall below 1.5 times “core" earnings, which excludes certain items, implying an EPS target for 2014 of $4.20.

Hitting that figure is uncertain. AstraZeneca’s current outlook for the year predicts that earnings will fall in the “teens", translating into a worst-case figure of $4.09 a share, assuming a 19% decline from 2013’s level of $5.05.

The current outlook is based on the assumption that generic Nexium is launched from 27 May — but whether that actually happens is a huge swing factor for the company, with even a few months of sales without generics yielding a big profit windfall.

High cost

For Ranbaxy, any deal to buy in ingredients will push up costs and reduce profits. It could also delay the launch of a Nexium generic as Ranbaxy would need to get regulatory approval for the new raw material supply, some analysts said.

“They would have to file a separate new ANDA based on the material which they are procuring from the third party, along with a stability study data and all that," said Ranjit Kapadia, an analyst at Mumbai-based Centrum Broking.

ANDA refers to Abbreviated New Drug Application, which generic drugmakers file with the FDA to seek approval for the launch of a copycat version of a branded drug.

Ranbaxy, majority owned by Japan’s Daiichi Sankyo Co Ltd, is not expected to give up without a fight. Another tactic might be to sell its exclusivity for launching generic Nexium to another company, several analysts said.

The launch of new drugs by Ranbaxy has been in focus since its run-ins with the FDA began in 2008. US import bans on two plants that year clouded launch of a generic version of Pfizer Inc’s cholesterol-lowering drug Lipitor in 2011.

In the event, it did manage to launch generic Lipitor, after partnering with Israel’s Teva Pharmaceutical Industries Ltd, and the drug was estimated to have generated sales of nearly $600 million for Ranbaxy in the first six months.

“They have had to pay a high cost for some of these FDA opportunities, but they have not missed any," a top executive at a rival Indian generic drugmaker said, declining to be named due to the sensitivity of the issue. REUTERS