The Hindu Business Line : Ranbaxy: Nexium deal gives certainty

Ranbaxy’s deal with AstraZeneca (AZN) for the generic version of Nexium — world’s second largest selling prescription drug ($5.2 billion a year) — removes uncertainty surrounding the litigation and assures revenue visibility on the launch to Ranbaxy. The stock gained 8.6 per cent after the news. According to the agreement, Ranbaxy will begin selling a generic version of Nexium (Esomeprazole) under a licence from May 27, 2014, which will kick off the 180-day exclusivity period, assuming a minimum price erosion for the drug during that period. Ranbaxy expects revenue between $1 billion and $1.50 billion to accrue from the deals signed with AZN as part of the settlement agreement.

Ranbaxy, the first-to-file generic applicant for the ulcer drug, has been in patent litigation since 2005 over its intention to market the generic. Ranbaxy would have been free to start selling generic Nexium in this year itself. But this agreement would hold back the launch until 2014, six months before the main patent on Nexium expires.

POSITIVE DEAL

The development allows Ranbaxy to monetise this opportunity, as upside (in terms of profits from an exclusive launch ‘at-risk’) would have been capped, if it had lost the trial against AZN. In such a scenario, Ranbaxy along with Teva and Dr Reddy’s (the other generic companies still fighting the case) would, at the best, enjoy shared exclusivity. Ranbaxy had earlier reached agreements with GlaxoSmithKline on Valtrex and Imitrex and has not made any at-risk launch in the US — some factors which perhaps worked in its favour. Ranbaxy would also be able to profit from separate manufacturing agreements signed with AZN.

PRICE FOR DELAY

Ranbaxy will formulate a ‘significant’ portion of AZN’s US supply of Nexium from May 2010. There is also a provision where it will make a key ingredient of Nexium from May 2009. Ranbaxy also has cushion from two other agreements wherein it will become the US distributor for yet-to-be launched authorised generic versions of two other AZN drugs — Plendil (felodipine) capsules and 40mg Prilosec tablets (predecessor of Nexium). These deals could be seen as profit-sharing agreements that may have been stitched up to compensate Ranbaxy for the agreed delay in the launch of generic Nexium.