Posted: 19 Dec 2005 16:28
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Ranbaxy shares tumble after Lipitor ruling
Mon Dec 19, 2005 4:38 AM ET
By M.C. Govardhana Rangan
MUMBAI (Reuters) - Shares in Ranbaxy Laboratories Ltd. fell almost 9 percent on Monday after a U.S. judge ruled that India's top drug maker could not launch a copycat version of Pfizer Inc.'s $12 billion-a-year cholesterol drug, Lipitor.
The ruling comes as Ranbaxy (RANB.BO) is already fighting sharp price erosion in the crucial U.S. market amid intense competition, a slowdown in new product launches and higher research and development and litigation costs.
A U.S. federal judge on Friday upheld the validity of two of Pfizer's (PFE.N) U.S. patents on the cholesterol drug, blocking a generic version that Ranbaxy planned to introduce.
Ranbaxy has said it will appeal against the verdict.
One analyst said the ruling would boost the confidence of firms hesitant to spend money for research and development, but would not stop generic makers from challenging patents.
"The companies which believe in a high risk, high return strategy could continue to challenge patents," said Kavita Thomas, analyst at First Global Securities, adding that Israeli generics firm Teva (TEVA.TA) was still aggressive.
Drugs worth about $25-$30 billion are estimated to come off patent in 2006-07 and generic makers will have opportunities to grab six-month exclusivity deals before they become freely accessible, analysts said.
News of Pfizer's victory in the challenge that threatened the U.S. company's largest source of revenue had lifted its shares 10 percent in New York on Friday.
"This is the best-case outcome for Pfizer and the branded industry," said one dealer in London. "It should be a positive for the whole group and for Sanofi in particular."
Sanofi-Aventis SA (SASY.PA) is not directly involved in the cholesterol market but its shares were boosted by hopes the Lipitor ruling augured well for its own court fight over top-selling bloodthinner Plavix.
In Mumbai, Ranbaxy shares dropped to as low as 355.55 rupees, before edging back up to 366 rupees by 0926 GMT, still down 6.2 percent, while the benchmark BSE index was up 1 percent.
LOST OPPORTUNITY
Sanjeev Chiniwar, analyst at Anand Rathi Securities, said a Ranbaxy victory in the patent challenge would have been "a great opportunity" as the market had not really factored in potential earnings from a version of Lipitor.
He said he maintained a buy rating on Ranbaxy as earnings could improve in the coming quarters.
At Monday's low, Ranbaxy shares had fallen 43 percent in 2005, underperforming a 41 percent jump in the BSE index.
Ranbaxy President Malvinder Singh told Reuters on Saturday the U.S. ruling would have no impact on the company's business plans.
"If you look at the top line, bottom line, we have not factored anything on atorvastatin (Lipitor) into our business plan," he said.
Ranbaxy's net profit slumped 91 percent to 184 million rupees in the September quarter as competition in the U.S. generic market ate into its profit margins, though the company forecasts a much better 2006.
It plans to launch 15 products in the United States and has said sales will rise 18 percent, compared with a forecast of low single digits for 2005. It also sees an operating margin of more than 16 percent in 2006 against 8 percent expected for 2005.
Ranbaxy had lost its challenge of the basic patent on Lipitor in the UK in October, a ruling it is appealing.
"When you're running a marathon, you don't judge yourself at the 100-meter or 400-meter point, you have to look at running the full course," Ranbaxy's Singh said, adding he expected a final judgment in the fourth quarter of 2006.