Bloomberg News

Teva May Get ‘Free Money’ From Ranbaxy’s Lipitor Copy Sales

December 09, 2011

(Updates with comments from company spokesman in seventh paragraph and closing shares in eighth.)

Dec. 2 (Bloomberg) -- Teva Pharmaceutical Industries Ltd., the world’s biggest maker of generic drugs, may profit on sales of versions of Pfizer Inc.’s Lipitor without being involved in the medicine’s production or marketing.

Teva will share profit from the first six months of sales under an agreement with Ranbaxy Laboratories Ltd. India’s biggest drugmaker didn’t disclose terms of the agreement when announcing U.S. clearance to sell generic Lipitor yesterday.

The approval means Ranbaxy convinced the Food and Drug Administration that its copies were equivalent to Pfizer’s original and shouldn’t be stopped by a dispute about plant violations in India. Teva isn’t supplying ingredients for the copies, which will be made by Ranbaxy, said Denise Bradley, a spokeswoman for Petach Tikva, Israel-based Teva. That’s prompted some analysts to speculate on the reason for the deal.

“It appears that the Teva deal was like an insurance policy for Ranbaxy in case the approval didn’t come,” said Priti Arora, a health-care analyst at Kotak Institutional Securities, in an interview. “Now that Ranbaxy got the clearance, it’s possibly free money for Teva.”

Lipitor copies may add as much as $650 million to Ranbaxy’s revenue over the next six months, according to the median estimate of five analysts surveyed by Bloomberg.

The FDA gave the Indian drugmaker, 64 percent-owned by Daiichi Sankyo Co., exclusive rights to sell its copies for 180 days, competing with the brand-named product and a Pfizer- authorized version marketed by Watson Pharmaceuticals Inc.

“The agreement could include many services or many areas of operation and I don’t understand how you can call it free money,” said Yossi Koren, a spokesman for Teva. He declined to specify details of the agreement between the two companies.

Stock Decline

Ranbaxy fell 0.2 percent to 442.3 rupees at the 3:30 p.m. close in Mumbai, while the BSE India Sensitive Index rose 2.2 percent. The shares have fallen more than 26 percent this year, making Ranbaxy the year’s third-worst performer in the BSE India Healthcare Index.

The active ingredient in Ranbaxy’s Lipitor copies is approved to be produced at two sites, one of which is a Ranbaxy plant in Toansa in northern India, Sandy Walsh, a spokeswoman for the FDA, said in an e-mail late yesterday. The other is undisclosed, she said. Ranbaxy will complete manufacturing of the drug, known as atorvastatin, at a unit in New Brunswick, New Jersey, the agency said.

Teva could earn as much as 10 cents per share if it manages to introduce an “important undisclosed product” in the fourth quarter, the company said on Nov. 2. That would enable it to meet its earnings target of $5.02 a share.

‘Mystery Product’

Teva hasn’t said that the undisclosed product is generic Lipitor. The Ranbaxy agreement “reasonably accounts” for Teva’s mystery project, Sanford C. Bernstein said in a note yesterday.

“Generic Lipitor is the ‘mystery product,’” Credit Suisse Group AG said in a report yesterday. The bank had estimated the product could generate about $100 million in pretax profit in a best-case scenario where Teva manufactures the product.

With Ranbaxy getting the approval and manufacturing it in- house, Teva’s share of profit in the fourth quarter will possibly be “some amount less than the top end of the range,” Michael Faerm and Judah C. Frommer, health-care analysts with Credit Suisse in New York, said in the report. “We expect the stock to trade up on this news.”

Teva shares rose 1.1 percent to 150.60 shekels yesterday, paring the drop so far this year to 19 percent.

--With assistance from Susan Decker and Anna Edney in Washington. Editors: Arijit Ghosh, Jason Gale

To contact the reporter on this story: Adi Narayan in Mumbai at anarayan8@bloomberg.net

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


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