Cipla: Omeprazole disappointment - Views on News from Equitymaster

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Cipla: Omeprazole disappointment

Oct 14, 2002

In a big disappointment for Cipla, Andrx the US partner of the company has lost its patent challenge for generic Omeprazole (Prilosec). The US district court has ruled that Andrx infringes the original patent of AstraZeneca. Since Cipla was expected to supply a major part of Andrx’s raw material requirement for Omeprazole, market participants were expecting major revenues from this bulk exports. The court has concluded that two other companies, Merck and Dr Reddy's also infringe these patents. The ruling means that Andrx would not be able to launch generic Prilosec (Omeprazole) in the US market in near future.

It may be recalled that Dr. Reddy’s lost on its 180-day marketing exclusivity claim for Omeprazole in Nov’01. Consequently, Andrx gained from the withdrawal of tentative approval of Dr. Reddy’s. Cipla has a tie-up with Andrx to supply bulk Omeprazole. Omeprazole (an anti-ulcerant product) is the largest selling pharma product in the world with US sales in excess of US$ 4 bn. However, Andrx could not launch the product immediately, as the issue was caught in a legal tangle. Astra Zeneca, the original patent holder claims that the makers of the generic version are violating patents that have not yet expired.

Cipla had already started supplying sample quantities on account of stocking exercise carried out by Andrx and other huge consignments where expected to follow. Given the situation now, it would be safe to assume that there would be no more supply of Omeprazole to Andrx. However, the impact of quantities already supplied cannot be judged currently.

Our EPS estimates for Cipla factors in Rs 850 m revenues (almost 5% of total revenues FY03E) in the current year from Omeprazole exports. We would be soon downgrading our EPS estimates for Cipla for the current year on the back of this development. On the other hand, we maintain our profitability estimates for Dr. Reddy’s (Rs 61 - EPS for FY03) as we had not included any revenues from Omeprazole on account of prevailing uncertainty.

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