In the world of pharmaceuticals, one company's loss is another company's gain. In the most recent example, the loser is Ranbaxy Laboratories of India, which Sun Pharmaceuticals is in the process of buying from owner Daiichi Sankyo of Japan. The gainer is London-headquartered AstraZeneca. The patent on Nexium, AstraZeneca's drug for the treatment of gastro--oesophageal reflux disease and stomach ulcers, ran out in the United States, the world's largest pharmaceuticals market, in May. Ranbaxy had the rights to launch a generic version of the drug with a 180-day marketing exclusivity. But since its factories in India are barred from selling in the United States by the Food & Drug Administration on account of improper manufacturing practices, it has been unable to reap the windfall.
Some analysts had expected Nexium to fetch Ranbaxy as much as $180 million in sales in the United States in six months. Every day's delay is helping AstraZeneca extract more and more profits out of Nexium. The company is expected to announce its profits tomorrow. Only then will it be known how much it has benefited from the delay.
Nexium is not a small opportunity. It recorded sales of $2.2 billion in 2013. In the first six months of this year, it has already done $1.9 billion in sales. American law allows the first company to file for the rights to launch a generic version of a medicine that goes off patent exclusive selling rights for the first six months.
During this period, it faces competition from no other generic medicine. This is when generic companies from the world hope to reap huge profits. In fact, the worth of a generics company is known by the number of such exclusive deals in its kitty. Ranbaxy too has made substantial profits from two such generics: Pfizer's Lipitor, a blood thinning agent, and Novartis' Diovan which is used to treat high blood pressure.
In fact, generic Diovan was the reason why Ranbaxy reported a profit for the quarter ended September 30, after six straight quarters of losses. "With average US generic sales of $120 million per quarter, we believe that Ranbaxy's US sales of $223 million in Q2FY15 were inclusive of $100 million from Diovan. Excluding Diovan, Ranbaxy's US sales decreased 9 per cent year-on-year in Q2FY15. With benefits of price rise and higher volume, Ranbaxy achieved 17 per cent year-on-year growth in domestic ethical formulations in Q2FY15," said a report by brokerage house Prabhudas Liladher titled Diovan is the only star, rest remains same.
How did Ranbaxy manage to produce and sell generic Diovan when its Indian factories are not allowed to sell in the United States?
Ranbaxy owns a factory in New Jersey which it had acquired in1995. That facility was used to make generic Diovan. But it wasn't a smooth transition. While the patent on Diovan expired in September 2012, Ranbaxy was able to roll out its generic version of the drug only in July this year-21 months after the drug came off patent. To be sure, Ranbaxy has the option to make Nexium at the New Jersey facility. In fact, the company has sought the permission of the Food & Drug Administration to do so but it is yet to get the regulator's nod. Ranbaxy did not comment on the matter.
* Nexium went off patent in May this year
* Ranbaxy has 180-day exclusivity to sell the generic version of the drug in the US
* It has not launched the drug yet as its plants in India are barred from selling in the US
* It is awaiting approval from the Food & Drug Administration to produce Nexium at its US plant
* Each month's delay in launching the drug is benefiting AstraZeneca, the patent holder for Nexium until May
* Nexium recorded sales worth $2.2 billion in 2013
* $1.9 billion is the sales figure in the first six months this year
The waiting game
In the long term, the company needs to fix the problems at its Indian factories. This should be the top priority for Sun Pharmaceuticals founder and Managing Director Dilip Shanghvi, who is considered by many the finest brain in the Indian pharmaceutical industry today. Otherwise, the basic business model of the company will not work. It had rightly spotted the opportunity in the generic space in the United States, which would be fed by its inexpensive manufacturing units in India. If these factories cannot sell in that country, the whole model breaks down. It may take long but this is a job that the new owners of the company have to complete.
Getting its manufacturing plants back in order will also help Ranbaxy improve its brand equity, which has seen serious erosion in the last few years. Ranbaxy pleaded guilty to felony charges related to drug safety in the United States and agreed to pay $500 million in civil and criminal fines to the department of justice. The matter dated back to 2008 when the Food & Drug Administration barred the company from selling 30 generic drugs made at the company's production units at Dewas (Madhya Pradesh) and Paonta Sahib (Himachal Pradesh) on grounds of manufacturing deficiencies.
A year later, the regulator accused Ranbaxy of falsifying data and test results in drug applications. The row was settled with the huge payout. The company recently also agreed to settle a case regarding its participation in Texas Medicaid, the United States federal-state healthcare programme focused on people with low incomes. The settlement deal was worth about $40 million.
The $500 million payout was followed by a public spat between Daiichi Sankyo, the current owner of the company, and brothers Malvinder and Shivinder Singh, its earlier promoters. The incident forced Daiichi Sankyo to say that important information was withheld at the time of sale and it was pursuing "available legal remedies". The Singh family denied any wrongdoing and said all the trouble with the Food and Drug Administration was in the public domain when the stake was sold. It also said that Daiichi Sankyo initiated talks for the acquisition in 2007 and closed the deal only in mid-2008; it therefore had enough time to go through all the details with a toothcomb. This eroded a lot of value in the company. Daiichi Sankyo had bought the Singh family's 34.8 per cent stake in Ranbaxy Laboratories for $2.4 billion in mid-2008, thereby putting its value at $6.9 billion. Its acquisition by Sun Pharmaceutical Industries for $3.2 billion in stocks means the company has shed more than half its value in less than six years.
TRAIL OF TROUBLE
- US FDA issues warning letter to Ranbaxy's Paonta Sahib facility in Himachal Pradesh
- A whistle-blower lawsuit alleges the firm defrauded federal programmes
- Daiichi Sankyo acquires majority stake in Ranbaxy
- US FDA imposes import alert on Ranbaxy's Paonta Sahib & Dewas factories; bans 30 drugs
- Criminal charges filed against Ranbaxy in the US. Company agrees to pay a fine of $500 million
- US bans imports from Ranbaxy's factory in Mohali
- US FDA bans imports from Ranbaxy's main active pharmaceutical ingredient factory in Toansa
- Sun Pharmaceutical announces it will acquire Ranbaxy in $3.2-billion deal
- US administrative subpoena issued to Ranbaxy's Toansa factory
- Ranbaxy agrees to pay $40 million in a case related to Texas Medicaid, the US government's healthcare programme for the poor