The war over the largest blockbuster drug Lipitor began on Thursday in the US drug market where Ranbaxy Labs, after circumventing numerous hurdles, finally managed to successfully launch its generic version of the $7.8-billion cholesterol drug. This was after it got a necessary approval from the US Food and Drug Administration (FDA).
However, the confidential model that it has followed by shifting the manufacturing of the drug from its Indian facility to its Ohm facility in the US and tying up with generic drugmaker Teva, so that it is now bound to share part of its Lipitor related earnings with its Israeli rival clearly suggests that Ranbaxy had to settle for the second best option, its Plan B after its Plan A fell through.
This also means at least for now, Ranbaxy could not thrash out a settlement with FDA to clear its tainted Indian facilities, from where it originally meant to manufacture the drug. Plan A could have given Ranbaxy a clear edge in terms of cost advantages that manufacturing in India offers over US.
Analysts guess that the undisclosed model could be one wherein Teva could be supplying the raw materials (API) and Ranbaxy would manufacture the formulation at its US facility in New Jersey. Margins for manufacturing in India are around 60% compared to about 40% from the US, according to analysts? estimate. Analysts are also busy reworking their previous calculations given the new dynamics that have surfaced. Earlier, analysts expected Ranbaxy to rake in $500-600 million during its 180 days of exclusivity on account of a timely launch of generic Lipitor in US.
?We have to revise the upside for Ranbaxy on two accounts. First, the profits from Lipitor will be tempered as it is no more exclusively for Ranbaxy, it will have to shared with Teva and secondly, it loses out on the cost competitiveness of Indian manufacturing by having to roll out the drugs from its New Jersey facility. While the estimated topline on account of Lipitor will not change, the bottomline would be significantly eroded on these accounts,? said Ranjit Kapadia, SVP, Centrum Broking. A few analysts guessed that Ranbaxy may be sharing around 25-30% of its profits with Teva. While just after the news broke, the scrip of Ranbaxy zoomed 10% at the Bombay Stock Exchange on Thursday morning, the gains were neutralised by evening and it ended at R444, up 2.14% since the previous close.
Also, Pfizer has taken unprecedented steps to safeguard its Lipitor market share in the US. Another US generic giant Watson has started shipping the generic cholesterol drug, authorised by Pfizer, starting Wednesday, which now opens up the Lipitor market to get split between three players.
Although price differential usually ensures that the market share of innovator drug firm drops to around 20%, once generic version gets launched in the market, Lipitor may create history here as well.
Pfizer?s tie up with top pharmacies and assurance to patients that it will sell at a price equivalent to below the generic price point during the six month exclusivity period may allow it to retain a 40% market share, according to projections. This leaves out 60%, which may be split into half between Ranbaxy and Watson, giving both players around 30% market share. Much of this, however, will play out depending on marketing and distribution strategies unveiled by the three players.
Once the 180 days of exclusive period is exhausted, other players such as US generic major Mylan, domestic drugmaker Dr Reddy?s may jump into the fray by launching their generic version.