Bloomberg News

Ranbaxy’s Lipitor Copy in U.S. Stores Threatens Pfizer Sales

December 01, 2011

(Updates with analyst’s comment in 19th paragraph.)

Dec. 1 (Bloomberg) -- Ranbaxy Laboratories Ltd.’s copy of the $10.7 billion Lipitor cholesterol pill was released in the U.S., sending its share up the most in six months and threatening sales for Pfizer Inc.

Ranbaxy, India’s biggest drugmaker, won approval to sell generic versions of the world’s top-selling medicine by the Food and Drug Administration yesterday. The company, based near New Delhi, will share profit on the first six months’ sales with Israel’s Teva Pharmaceutical Industries Ltd., Ranbaxy said today, adding that terms of the agreement won’t be disclosed.

Ranbaxy sought to persuade the FDA that its copies are equivalent to the original and that approval shouldn’t be thwarted by an ongoing dispute about plant violations in India. The FDA approval was for products made at a plant in New Jersey which may have been contingent on a deal with Teva, said Bino Pathiparampil, a health-care analyst at IIFL Ltd. in Mumbai.

“It could well be that the Lipitor ingredients could come from Teva,” Pathiparampil said in an interview. In that scenario, “Ranbaxy will assemble the drug at their factory in New Jersey.”

Spokesmen at Ranbaxy and Teva declined to elaborate on today’s statement.

The Indian drugmaker, 64 percent-owned by Daiichi Sankyo Co., surged as much as 11 percent in Mumbai trading. The shares traded 4.7 percent higher at 454.85 rupees, the most since May 30, at 11:22 a.m. local time, while the BSE India Sensitive Index gained 2.8 percent.

Daiichi Sankyo increased 2.1 percent to 1,402 yen in Tokyo trading at 2:53 p.m. local time. A spokesman for the Tokyo-based company declined to comment on the agreement between Teva and Rabaxy, as well as on the impact on earnings of sales of generic Lipitor sales.

‘Simply Relieved’

“The market is simply relieved to hear that the drug is approved,” said Yasuhiro Nakazawa, a health-care analyst at SMBC Nikko Securities Inc. in Tokyo.

Copycat Lipitor may generate as much as $650 million for Ranbaxy in its first 180 days of sale, according to the median estimate of five Mumbai-based analysts surveyed by Bloomberg.

“This medication is widely used by people who must manage their high cholesterol over time, so it is important to have affordable treatment options,” Janet Woodcock, director of the FDA’s Center for Drug Evaluation and Research, said in a statement released late yesterday in Washington.

Ranbaxy may have sought a marketing deal with Petach Tikva, Israel-based Teva in case it didn’t win timely approval, said Priti Arora, an analyst at Kotak Institutional Securities in Mumbai.

‘Backup Measure’

“There is something more in this deal than meets the eye,” Arora said in a telephone interview. “My feeling is that they allied with Teva as a backup measure in case approval was held back due to its manufacturing issues.”

Teva said on Nov. 2 that if it manages to introduce an “important undisclosed product” in the fourth quarter, it would meet the upper range of its forecast of earnings excluding some costs of $4.92 to $5.02 a share this year. Sanford C. Bernstein & Co. analysts speculated in a report last month that the new product “is ostensibly Lipitor.”

Pfizer’s medicine lost patent protection in the U.S. yesterday. Watson Pharmaceuticals Inc. began selling a copy of Lipitor in the U.S. yesterday under an agreement with New York- based Pfizer, the world’s largest drugmaker. Watson’s version didn’t require FDA clearance because Pfizer is providing the drug to sell without the brand label in return for a share of the revenue.

Limited Competition

As the first generic to challenge Pfizer’s patent, Ranbaxy is allowed six months before other generic versions can come on the market under a 1984 law.

Mylan Inc. of Canonsburg, Pennsylvania; Teva; and Dr. Reddy’s Laboratories Ltd. of Hyderabad, India, are among generic-drug makers seeking FDA approval to sell Lipitor copies after Ranbaxy’s six-month exclusivity expires, according to U.S. court filings.

The U.S. enforcement actions against Ranbaxy, India’s biggest drugmaker, began in 2008 when the FDA cited manufacturing defects at two of the company’s plants in India and subsequently barred the company from importing about 30 different drugs. The following year, the agency said one of those plants, in Paonta Sahib, India, falsified data used in drug applications.

No Settlement

U.S. prosecutors had been negotiating a dispute settlement that may cost Ranbaxy more than $1 billion, Fortune Magazine reported in May, without saying where it go the information. There was no mention of a settlement in the FDA’s statement yesterday.

Making generic Lipitor in the U.S. instead of India will reduce the amount of profit Ranbaxy makes on each dollar of sales, Kotak’s Arora said.

“Margins for manufacturing in the India are around 60 percent compared to about 40 percent from the U.S.,” she said. The brokerage had estimated Ranbaxy would generate $560 million in generic-Lipitor sales during the six months of exclusivity.

“We will have to revise our estimates because of this and the Teva deal,” Arora said.

Pfizer Deals

Pfizer has struck deals with companies including Catalyst Health Solutions Inc. and Coventry Health Care Inc. to prevent generic Lipitor from reaching some patients until the end of May 2012, according to documents obtained by Bloomberg.

Such deals may help Pfizer retain as much as 40 percent of the Lipitor market during the six-month period in which Ranbaxy and Watson will be the only providers of generic versions, Paul Bisaro, Watson’s chief executive officer, said Nov. 9 in a speech at a Credit Suisse health-care conference.

Pfizer also has reached agreements with health insurers to keep as much of the market as possible. UnitedHealth Group Inc., the biggest U.S. health insurer by sales, said Nov. 19 it will charge a lower co-pay for Pfizer’s pill than it does for generics for the next six months, taking advantage of a price reduction from the drugmaker.

That will limit the benefit of Ranbaxy’s exclusivity, said SMBC Nikko’s Nakazawa. Ranbaxy’s copy may generate $300 million for the Indian drugmaker next year, adding 10 billion yen ($129 million) to Daiichi Sankyo’s operating profit for the year ending March 2013, he said.

--With assistance from Kanoko Matsuyama in Tokyo, Jason Gale in Singapore and Molly Peterson in Washington. Editors: Jason Gale, Andrew Pollack

To contact the reporters on this story: Anna Edney in Washington at aedney@bloomberg.net; Adi Narayan in Mumbai at anarayan8@bloomberg.net

To contact the editors responsible for this story: Jason Gale at j.gale@bloomberg.net


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