Ranbaxy Without Lipitor May Have to Rely on Indian Drug Sales By Adi Narayan - Nov 29, 2011

Ranbaxy Laboratories Ltd. (RBXY), counting on copies of Pfizer Inc.’s Lipitor to bolster U.S. sales, may have to rely more on India to improve growth because of delays resolving disputes with U.S. authorities.

Two Ranbaxy plants in India were placed under an export restriction in 2008 after the U.S. Food and Drug Administration found manufacturing failures. The decision banned sales of about 30 drugs in the U.S. and delayed approvals for new ones.

Ranbaxy, India's largest drugmaker, is one of two companies entitled to sell generic Lipitor for six months after its U.S. patents expire today. The company still needs final clearance from the FDA for its copy of the world’s best-selling drug, which may generate as much as $650 million for Ranbaxy during the period of exclusivity, according to the median estimate of five Mumbai-based analysts surveyed by Bloomberg.

“There’s a lot of uncertainty with Lipitor now and we don’t know when the approval will come,” Ranjit Kapadia, an analyst at Centrum Broking Ltd., said in an interview yesterday. “They need to do more to keep growing in India to balance the volatility of the U.S. market.”

Until the FDA gives approval, Ranbaxy will wait as rival Watson Pharmaceuticals Inc. (WPI) today starts selling its version of the drug that garnered $10.7 billion in global sales last year. Watson is producing a generic version authorized by New York- based Pfizer and doesn’t need regulatory approval.

“Everyone’s asking just one thing now: When is Ranbaxy going to get the approval for Lipitor?” Priti Arora, a pharmaceuticals analyst at Kotak Institutional Equities, said in an interview.
Project Viraat

Ranbaxy, 64 percent owned by Tokyo-based Daiichi Sankyo Co., boosted its sales force by 60 percent to 4,000 last year, as part of its Project Viraat initiative to gain market share in rural India. Local sales outpaced the industry in some segments for the first half of 2011, before slowing because of a drop in demand for antibiotics, Managing Director Arun Sawhney said in a conference call on Nov. 9.

Competition and government-enforced price controls help keep prices low and make India one of the cheapest countries for pharmaceuticals. Drug sales in the world’s second-most-populous nation have increased an average of 14 percent a year since 2005, stoked by rising incomes and surging rates of heart disease, diabetes and cancer.

The market, valued at $12 billion, is expected to more than quadruple in the next decade, McKinsey & Co. said in an October 2010 report.
Sales Expectations

Ranbaxy expected to increase domestic sales by 15 percent to 20 percent each quarter this year, former Managing Director Atul Sobti said in May 2010. Instead, domestic sales for the last three quarters have gained 9.2 percent over the same period last year, the company reported on Nov. 9.

Part of the reason is the company’s reliance on antibiotics, which constitute about 30 percent of its Indian sales. Demand for antibiotics has been slow for parts of this year, Kapadia said.

Ranbaxy reported sales in India of 14.3 billion rupees ($320 million) for the first nine months of 2011, or about 24 percent of the company’s total revenue.

Rivals Lupin Ltd. (LPC) and Sun Pharmaceutical Industries Ltd. have outpaced the industry average by introducing new drugs for chronic ailments like diabetes and heart disease that require lifelong care.
Little Attention

“All the time they were focusing on the U.S. business, they hadn’t paid much attention to India,” Kapadia said of Ranbaxy. “You can’t build a brand overnight. It’s going to take some time.”

Ranbaxy also will face Pfizer’s effort to protect its brand-name drug. Pfizer, the world’s largest drugmaker, has struck deals with health insurers to keep as much of the market as possible. UnitedHealth Group Inc. (UNH), the biggest U.S. health insurer by sales, said Nov. 19 it will charge a lower co-pay for Pfizer (PFE)’s pill than it does for generics for the next six months, taking advantage of a price reduction from the drugmaker.

Pharmacy benefit managers like Express Scripts Inc. and Medco Health Solutions Inc. are also in talks with Pfizer about such agreements. Pharmacy benefit managers act as middlemen for drugmakers, pharmacies and health-plan sponsors, negotiating prices and managing the use of drugs by patients.

“Pfizer is also being extremely aggressive in trying to retain market share,” Arora, based in Mumbai, said in a phone interview. “That’s going to make it all the more difficult for Ranbaxy.”

To contact the reporter on this story: Adi Narayan in Mumbai at anarayan8@bloomberg.net

To contact the editor responsible for this story: Jason Gale at j.gale@bloomberg.net
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