Ranbaxy: Positive news flow

Ranbaxy has emerged a second time winner in terms of the anti-infective drug, ‘Cefuroxime Axetil’. Glaxo has obtained an injunction from a Chicago court against Apotex, the generic competitor of Ranbaxy to sell generic version of Ceftin in the US market. Now this comes as a big opportunity in disguise for Ranbaxy.

The injunction obtained by Glaxo would mean that Apotex would not be able to launch the drug in US, unless it can vacate the injunction. However, the next hearing on the case is expected only in Dec’ 02 and hence in the meantime Ranbaxy can continue with its ‘technical’ monopoly status on the drug.

To put things in perspective, it may be recalled that Ranbaxy received FDA approval for marketing Cefuroxime Axetil tablets in the US markets after a prolonged legal battle with Glaxo, the original patent holder on the US$ 400 m drug, Ceftin (generic Cefuroxime). The approval didn’t ensure any marketing exclusivity for Ranbaxy. However, due to lack of any other player in the market with necessary approvals, Ranbaxy enjoys ‘technical’ monopoly (in generic version) for marketing the drug. The company received approval for Cefuroxime in Feb'02 and has already enjoyed almost 5 months of exclusivity on the drug. Apotex is the only generic competitor for Ranbaxy and was expected to launch the drug, late this month. However, with Glaxo obtaining injunction against Apotex, Ranbaxy would continue with its monopoly status.

Now let’s analyze the worst and best case scenario for Ranbaxy. Apart from the injunction, Apotex also has to clear a patent infringement case filed by GSK. Glaxo claims that the company infringes certain patents (on the amorphous form), which expire in July’03. To Ranbaxy’s advantage if Apotex doesn’t win the case, it could enjoy monopoly status till July’03 (i.e. 18 months!). Even in the worst case, it seems that the company would continue with its monopoly status till Dec’ 02.

Earlier we had expected entry of Apotex by July’02. Based on that we had targeted a revenue potential of US$ 48 m for Ranbaxy from this. However, in this new scenario the revenues from this generic in the current year (FY03-Dec’02) could well touch US$ 90 m. The contribution to the bottom line from this incremental sales is expected to be huge considering the margins of the company here are anywhere in the range of 70-80%. Consequently, we would be revising our earnings estimates soon.