The Hindu Business Line : Huge spike in earnings seen for Ranbaxy in 2011-12

Ranbaxy’s stock is expected to move up sharply on Thursday, as investors become conscious of the contours of its settlement of a prolonged legal battle with Pfizer. The settlement could result in a huge, although one-off, spike in revenue and earnings of Ranbaxy in 2011-12.

The agreement covers litigations involving four drugs, of which Lipitor is the most significant, being Pfizer’s largest selling drug. Lipitor which fights cholesterol generates revenues worth $8 billion in US alone. Globally, Lipitor had sales of $12.7 billion in 2007. Ranbaxy will launch a generic version of the blockbuster cholesterol drug from November 30, 2011 with 6–month exclusivity. This window provides an opportunity to maximise profits as the price for the generic could be expected to close to that of the brand Lipitor.

The sales from the Lipitor US launch will reflect in Ranbaxy’s earnings card for 1 month in the Oct-Dec quarter of 2011, and in the first five months of calendar year 2012.

Big market

Estimated six-month sales for the Lipitor launch in US could fetch Ranbaxy anywhere between $1-1.5 billion of revenues, which should be seen in light of Ranbaxy’s annual turnover of $1.6 billion at present.

As per the terms of the settlement, Ranbaxy will also have a license to sell generic version of Lipitor starting September-October 2011 in an additional 7 countries: Canada, Belgium, Netherlands, Germany, Sweden, Italy and Australia.

Ranbaxy and Pfizer have also resolved their disputes regarding the product in Malaysia, Brunei, Peru and Vietnam. All these launches would offer Ranbaxy incremental streams of revenue.

Why settle

While Ranbaxy could have possibly launched generic Lipitor in US either after March 2010 (basic patent expiry) or after June 2011 (second patent expiry) the settlement, which pushes back the date of launch by 5-20 months, assures Ranbaxy certainty in terms of the date of launch and also risk-free sales. Plus, Ranbaxy saves on legal costs necessary to prolong the patent fight till a decision could be made.

Deal Sweeteners

Apart from Lipitor, Ranbaxy will have a licence to sell generic version of $500-million a year Caduet (a combination of Lipitor and Norvasc) in the US from November 2011 and also launch an authorised generic version in Canada. The patents for Caduet were expiring as late as 2018.

Pfizer and Ranbaxy also resolved additional patent litigation involving the branded drug Accupril (in the U.S.) and Viagra (in Ecuador).

These settlements appear to have been offered as additional sweeteners to the deal with Ranbaxy.