Ranbaxy and Daiichi ruing missed opportunities


After so much rumour and speculation, Ranbaxy Laboratories managed to gain FDA approval for generic Lipitor and launch its version onto the US market in the nick of time. Yet what should have been the Indian company’s crowning glory has become something of a damp squib – after an initial 10% share price rise this morning, gains were pared to just 2% by market close at Rs444.

Many factors contribute to a largely unsatisfactory outcome for the Indian generics firm: Pfizer’s aggressive pricing and deals with distributors and retailers to retain branded Lipitor, the launch of Watson Pharmaceuticals’ authorised generic version, Ranbaxy’s mysterious deal with Teva and uncertainty around the size of a legal settlement with the FDA and US Department of Justice. Following the failure to capitalise fully from the exclusive launch of generic Aricept last year, history appears to be repeating; not exactly what Daiichi Sankyo would have had in mind when it paid $4bn for a controlling stake in Ranbaxy three years ago.

Uncertainty lingers

The FDA approved Ranbaxy’s generic version which the regulator states will be manufactured by Ohm Laboratories in New Jersey, one of the Indian company's US manufacturing facilities.

Simple enough, except that Ranbaxy also announced a deal with Teva, whereby the Israeli giant will receive an undisclosed share in the profits from generic Lipitor during Ranbaxy’s 180-day, first-to-file exclusivity period.

The unknown amount of profit that will have to be shared and the lack of any explanation as to the rationale for striking a deal is of obvious concern to analysts and investors. Most commentators are speculating that Teva is supplying some of the ingredients to Ranbaxy which is then assembling the drug in its New Jersey facility.

Aside from reducing the amount of profit from generic Lipitor, UBS analysts are now concerned about what the Teva deal might mean for Ranbaxy’s chances of gaining FDA approval and capitalising next year on its first-to-file status for a generic version of Actos.

The other major issue yet to be resolved is the assumed penalty to be imposed by the FDA and US DoJ following investigations which started in 2008 into alleged fraud and serious manufacturing malpractice by Ranbaxy.

Although press reports earlier this year suggested the fine could be as much as $1bn, analysts have pegged the penalty in the range of $300m to $500m. Either way the potential hefty punishment will put a significant dent in the profits from generic Lipitor and remain an issue overhanging Ranbaxy, and its share price, until resolution.

Missing out

Daiichi’s move on Ranbaxy in June 2008 was seen as both a surprise and overpriced. However, with Ranbaxy lining up an impressive number of first-to-file generic approvals for a range of blockbuster products, the potential profits could have answered many critics.

In Ranbaxy and Daiichi’s sights were exclusive generic launches for Imitrex and Valtrex in 2009, Aricept in 2010, Lipitor in 2011, Diovan and Actos in 2012 and Nexium in 2014.

The FDA’s investigations later in 2008 and withdrawal of certification for a number of Ranbaxy’s Indian manufacturing facilities was a devastating blow and continues to undermine the company's ability to maximise the huge opportunities it looked set to exploit.

With Pfizer talking confidently of being able to retain a 40% share of the volume of drug on the US market during the exclusivity period, and having previously competed pretty effectively with Ranbaxy over generic Aricept, Ranbaxy and its parent Daiichi must be wondering what might have been.

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