* Ranbaxy faces delays, high costs due to in-house problems
* Talking to at least two companies about supplies - source
* Indian firm's pain may be AstraZeneca's gain
* Generic delay could shield AstraZeneca executive bonuses
By Sumeet Chatterjee and Ben Hirschler
MUMBAI/LONDON, March 11 Indian drugmaker Ranbaxy
Laboratories Ltd is in talks with at least two
companies on sourcing ingredients for a generic version of
AstraZeneca Plc's heartburn drug Nexium, a source said,
to ensure the pills can be sold in the United States.
Washington in January prohibited Ranbaxy, India's top
drugmaker by revenue, from selling drugs in the United States
using ingredients from one of its plants in northern India due
to poor manufacturing practices.
This effectively barred it from selling drugs made in its
India plants in the United States and has forced Ranbaxy to look
elsewhere for supplies. Ranbaxy's Ohm Laboratories plant in New
Jersey is now its only facility making generics for the United
Any delay in the launch of generic Nexium, AstraZeneca's
second-biggest seller, will have a big impact on the British
company's profit. Nexium had global sales last year of $3.87
billion and U.S. sales of $2.12 billion.
Retaining exclusivity on Nexium in the all-important United
States beyond the end of May would not only limit a forecast
decline in AstraZeneca's 2014 earnings but could also protect
bonuses for top management at the British company.
Ranbaxy's talks with ingredient makers are part of a
scramble to ensure it can still be the first to sell a cheaper
copy of Nexium in the United States after the drug's patent term
ends on May 27, despite the regulatory sanctions.
The source, who has direct knowledge of the matter, declined
to give details and refused to be named due to the sensitivity
of the issue.
A Ranbaxy spokesman said the company has no comment for now.
Ranbaxy was the first to seek approval from the U.S. Food
and Drug Administration (FDA) for a generic version of Nexium,
gaining exclusive rights to sell it for six months after patent
expiry - potentially a huge opportunity.
"It's one of the biggest generic opportunities ever. If I
was Ranbaxy, I would be looking very hard to find a commercial
solution," said London-based analyst Savvas Neophytou at Panmure
Doubts about Ranbaxy's ability to launch the drug grew after
the FDA in January prohibited it from shipping to the United
States any pharmaceutical ingredient made at its Toansa plant in
Ranbaxy's failure to launch generic Nexium soon after the
patent expiry at the end of May could benefit AstraZeneca's
earnings per share (EPS) by 10 cents a month, Barclays wrote in
a report. In the fourth quarter, EPS fell 28 percent to $1.23.
AstraZeneca CEO Pascal Soriot and his team are required to
ensure that the company's dividend cover ratio does not fall
below 1.5 times "core" earnings, which excludes certain items,
implying an EPS target for 2014 of $4.20.
Hitting that figure is uncertain. AstraZeneca's current
outlook for the year predicts that earnings will fall in the
"teens", translating into a worst-case figure of $4.09 a share,
assuming a 19 percent decline from 2013's level of $5.05.
The current outlook is based on the assumption that generic
Nexium is launched from May 27 - but whether that actually
happens is a huge swing factor for the company, with even a few
months of sales without generics yielding a big profit windfall.
For Ranbaxy, any deal to buy in ingredients will push up
costs and reduce profits. It could also delay the launch of a
Nexium generic as Ranbaxy would need to get regulatory approval
for the new raw material supply, some analysts said.
"They would have to file a separate new ANDA based on the
material which they are procuring from the third party, along
with a stability study data and all that," said Ranjit Kapadia,
an analyst at Mumbai-based Centrum Broking.
ANDA refers to Abbreviated New Drug Application, which
generic drugmakers file with the FDA to seek approval for the
launch of a copycat version of a branded drug.
Ranbaxy, majority owned by Japan's Daiichi Sankyo Co Ltd
, is not expected to give up without a fight. Another
tactic might be to sell its exclusivity for launching generic
Nexium to another company, several analysts said.
The launch of new drugs by Ranbaxy has been in focus since
its run-ins with the FDA began in 2008. U.S. import bans on two
plants that year clouded launch of a generic version of Pfizer
Inc's cholesterol-lowering drug Lipitor in 2011.
In the event, it did manage to launch generic Lipitor, after
partnering with Israel's Teva Pharmaceutical Industries Ltd
, and the drug was estimated to have generated sales of
nearly $600 million for Ranbaxy in the first six months.
"They have had to pay a high cost for some of these FDA
opportunities, but they have not missed any," a top executive at
a rival Indian generic drugmaker said, declining to be named due
to the sensitivity of the issue.