Lipitor may not be a great show for Ranbaxy

Indian pharma giant, Ranbaxy, has started with the marketing of the generic version of Lipitor in the US market since Dec 1, 2011. Lipitor belongs to the Statin family, which has Atorvastatin as its active ingredient. The patent for this product belonged to the global pharma giant, Pfizer. The expiry of the patent on Nov 30, 2011 has opened the Lipitor market for Ranbaxy, which has already received US FDA approval for this drug. The shares of Ranbaxy closed 2.14% up to Rs 444.10 by the end of trade on Dec 1.

We, at DSIJ, have tried to analyse the market conditions and competition, and the impact of these on Ranbaxy.

Lipitor is one of Pfizer's blockbuster drugs. The market for this product is considered to be worth about US$ 10 billion (Rs 50,000 cr). Lipitor mainly prohibits the enzyme HMG-CoA reductase, which plays an active part in the production of cholesterol. Excessive levels of cholesterol leads to cardiovascular problems like heart attack, stroke etc. Lipitor is a clinically superior drug, the most prescribed in this class.

According to a Reuters report, Pfizer has collected about US$ 130 billion from the sales of Lipitor in the last 14 years. The patent for this drug expired in Nov 2011. Ranbaxy has received FTF approval (first-to-file) for the generic version this product, which means that it has 180 days of exclusive selling rights for the generic version. However, Ranbaxy is not the only company that will enjoy this exclusivity. US-based Watson Pharmaceuticals has also been authorised by Pfizer to sell the generic version of Lipitor in USA.

Ranbaxy will manufacture this generic through its subsidiary Ohm Laboratories in the US. It will be sold in tablet formulations of 10, 20, 40 and 80 mg strengths. With a total of 3 companies in the Lipitor market, Pfizer expects that it can hold about 40% market share. 6 months hence, i.e., after the exclusivity period ends, there would be about 10-12 more companies in the arena, which would further bring down the market shares of Pfizer and Ranbaxy. We expect that Ranbaxy would be able to hold only 8-9% of the market share. Indian companies like Dr Reddy's Labs and Lupin are also eyeing market entry.

Pfizer has responded to the competition with unique strategies. It is negotiating on the drug prices with some health insurers, which will enable patients to obtain branded Lipitor at similar or even lower prices than generics. The prices will drop sharply as more players enter the market. Pfizer is offering patients a card that will give a co-pay discount of between US$ 4-50. The company is also forcing pharmacists to recommend Lipitor instead of generics versions. We believe that with such aggressive tactics, Pfizer may be able resist the competition to some extent.

On the other hand, Ranbaxy has entered into a supply agreement with Teva Pharma, under which Ranbaxy will share profits with Teva Pharma. The company's management declined to comment when we asked them about the terms and conditions of this agreement. The company has also denied any comment on how it will face the competition now and after 6 months.

According to the articles published on First Post Business and Times of India, Ranbaxy is likely to have paid US FDA a penalty of US$ 350-400 million (about Rs 1750-2000 cr) to resolve some long pending issues. According to the same reports, the company is expected to collect US$ 650 million (Rs 3250 cr) in revenues and approximately US$ 300-400 million (Rs 1500-2000 cr) in earnings for the first 6 months of this fiscal.

It can be concluded that Ranbaxy is weighing too much on Lipitor, and has paid a hefty sum to get the approval. Beside, the supply agreement with Teva would also take away some of its profits. We believe that the two activities would bring pressure on its profits, and hence, may not translate into much of its bottomline.