|Ranbaxy's RX: Seven years ago, Ranbaxy
acquired Ohm Labs for a manufacturing beachhead in the US
the middle of October, as Davinder Singh Brar winged his way to
New Jersey for the company's first-ever board meeting in the US,
he must have had plenty of time to look back and laugh at his detractors.
As recently as last year, Dalal Street was punishing the pharma
giant for investing too much in the US, with little to show in return.
Investors were also upset that Ranbaxy's early 90s annual growth
rate of 35 per cent in the domestic market had slowed to miserable
single digits. (Also, Ranbaxy had diverted funds to the stock markets
via its subsidiary Vidyut Investments, but made huge losses.) Not
surprisingly, the stock, which was at Rs 450-plus in September 2000,
had sunk to sub-300 the following July, before recovering, but not
quite, to around Rs 400 in September 2001.
This year, however, has been a different story.
The 50-year-old Managing Director not just has Dalal Street's attention,
but a virtual fan club. Reason: Ranbaxy's booming US operations,
another proof of which Brar produced while announcing the third-quarter
results. The US subsidiaries raked in $207 million (about Rs 1,014.30
crore) for the first nine months, compared to just $70 million (Rs
343 crore at current exchange rates) in the same period last year.
In that time, the company also filed 12 ANDAS (abbreviated new drug
application) with the US FDA and, remarkably, got approvals for
eight of them. That takes the approved ANDAS tally to 55, with 27
more pending. In a statement, Brar sounded upbeat. "Our sales
in the US is now reaching the desired critical mass (needed) for
the next (level) of growth," he declared.
|The years of investing in its own marketing
distribution network and generic brands in the US are finally
paying Ranbaxy rich dividends
A Shot In The Arm
To reach that critical mass has taken Ranbaxy
nine long years, when the company's then Managing Director and dream-setter,
the late Parvinder Singh, reckoned that to survive in the pharma
industry his company would need to go global. Although Singh died
ahead of his time and dream in July 1999, Brar has pushed with unrelenting
zeal-often at the cost of internal opposition and investor disapproval.
But the years of investing in its own marketing distribution network
and generic brands are now paying dividends.
Cefuroxime Axetil, Ranbaxy's turnaround generic
drug in the US used for treatment of respiratory and skin infections,
was launched only in March this year. But cumulative sales, despite
price erosion, have already crossed $75 million (Rs 367.50 crore),
and-according to US research firm IMS-the drug boasts a market share
of 87 per cent. By the end of its life cycle in another five years
or so, the drug could rake in another $60 million.
There are two reasons why Ranbaxy will continue
to focus more on the US. For one, its sales in the domestic market,
where prices are anyway controlled, unlike the US, aren't growing
fast enough. For instance, its nine-month revenues at Rs 783.20
crore represent a bare 3 per cent growth over the same period last
year. The recent promotion of Parvinder Singh's elder son Malvinder
Singh as head of India region (he was incharge of global licensing
earlier) will be keenly watched for obvious reasons.
For another, the US is the world's single-biggest
market for pharmaceuticals, with a more than 50 per cent share.
While generics account for less than 10 per cent of the market,
their demand is increasing because of pressure from health maintenance
organisations (HMOs), or health insurance industry, to reduce medical
costs. Therefore, as soon as a cheaper generic copy is launched,
consumers shift to it (that explains Cif Axetil's 87 per cent marketshare).
For Ranbaxy, already the ninth-largest generic
company in the US, there's a virtual killing to be made. According
to analysts, some 45 of the 100 most popular prescription drugs
are set to go off patent over the next five years. Their cumulative
annual sales exceed $40 billion. Sure, prices will fall, but still
there will be plenty of money to be made. Quips Ashit Kothari, Senior
VP (Research), ask Raymond James: "Ranbaxy has a lot going
for itself in the US."
Thanks to its aggressive filing of ANDAS, Ranbaxy
has a series of lucrative generics in the pipeline. One such is
Isotretinoin, used for treating acne. Although the original patent
holder (Hoffmann-La Roche) has been able to delay its competitor's
launch in the US, most analysts expect the FDA approval to come
through. When that happens, Ranbaxy-despite other generic rivals
in Mylan Laboratories and Geneva Pharma-is expected to generate
more than $20 million in revenues in the first year in a segment
Loratidine (anti-allergies) and Augmentin (for
treating respiratory infection) are two other generics from Ranbaxy
that investors are looking forward to. In the case of Augmentin,
there are only two ANDA applicants, besides Ranbaxy.
|CEFUROXIME AXETIL: With
cumulative sales of over Rs 367.5 crore, this generic drug has
turned Ranbaxy's fortunes around in the US
While, once again, the patent holder Glaxo has
challenged patent invalidation in the US courts, a decision in favour
of Ranbaxy and the other patent challengers (including Teva Pharmaceutical
Industries-a generics giant) will pry open the market for them.
If that happens, Augmentin alone could fetch Ranbaxy more than $130
million in revenues by 2007 and $60 million (Rs 294 crore) in profits.
Loratidine could also be worth $120 million in sales with profits
of $70 million (Rs 343 crore) or so. Says Shahina Mukadam, pharma
analyst, Motilal Oswal Securities: "Ranbaxy is very well positioned
to capture the generics market in the US, thanks to the time and
effort it has invested in the country over the years."
Not only is Ranbaxy the only Indian pharma
company to have its own distribution network in the US, but also
the only one to be moving into speciality generics, where margins
are much higher. (Nearly three-fourths of Ranbaxy's exports are
formulations; Cipla's is about a third and Dr Reddy's, two-thirds.)
A key driver of Ranbaxy's foray into speciality generics is its
novel drug delivery system (NDDS), which is pharma industry's equivalent
of value addition.
Currently, the company is working on making
such value additions to its existing drugs like Cifran OD and Coriem
OD. Ranbaxy's subsidiary in the Netherlands also has a tie-up with
Vectura of the UK for patent-protected, NDDS-based drugs. Simultaneously,
Ranbaxy has licensed a once-a-day sustained release form of Ciprofloxacin
(500gm and 1gm) to Bayer, which completed clinical trials in March.
The German pharma major has since applied for an FDA approval, which
is expected in the first quarter of next year.
According to the agreement, Ranbaxy will get
between 6 and 9 per cent of the annual sales of the drug as royalty.
If the drug is launched next year, Ranbaxy will get an upfront royalty
of $25 million, besides another $15 million, which could be the
royalty on Bayer's projected first-year sales of $350 million. According
to industry estimates, the drug delivery segment in the US will
be worth $24 billion in 2003. Says Jesal Shah, pharma analyst at
SG Asia Pacific Securities: "At Ranbaxy, everything is getting
overshadowed by the US promise."
Brazil is emerging as another important market
for the company. The nine-month sales in the country was up 128
per cent at $21 million. What helps is the fact that Brazil favours
generics, and Ranbaxy has swamped the local government with applications
for approvals. Its Isotretinoin generic, launched recently in Brazil,
has stolen a third of the market from Roche.
Analysts like Shah of SG Asia Pacific Equities
expect Ranbaxy to tot up $75 million in sales by 2005 in Brazil
alone. Add to that some other markets like the UK and Germany (where
the progress has been slow), Japan (which it recently entered through
alliances), South Africa (where it has a subsidiary plus a new joint
venture), and China (it has manufacturing JV here), and you are
talking about a fairly big global market. In fact, by 2004, more
than 60 per cent of its revenues could come from markets overseas.
Its continued success, however, will hinge
on the US and its ability to continuously develop, and win approvals
for, ANDAS. Also, there are legal and regulatory hurdles that Ranbaxy
will need to negotiate, and these can prove not just time-consuming
but prohibitively expensive. For example, in the case of Isotretinoin,
there are court cases pending relating to side-effects of the drug
(Roche sells it under the Accutane brand). The drug is alleged to
cause depression and, in fact, one of the lawsuits pertains to the
pilot of a private plane that flew into a building in Tampa, Florida.
Apparently, the pilot was using Accutane.
To realise its ambitions of being a research-driven
company, Ranbaxy will have to play high stakes and launch its own
drugs through basic research. But that will involve hundreds of
millions of dollars in investment-a game it cannot play at this
stage. And although Ranbaxy has a clutch of molecules in the pipeline-besides
plans of hiring 1,000 more scientists for its research labs-many
analysts believe that rivals like Dr Reddy's have better basic research
competencies than Ranbaxy.
Also, there is grumbling among analysts over
losses in subsidiaries-a reason why despite impressive third-quarter
results, Ranbaxy's stock slid post announcement. Despite the blips,
though, Brar for now seems fully in control. Be it New Delhi or