Indian pharmas leverage authorised generics

Not too long ago, authorised generics were used by the big US-based pharmaceutical companies to thwart competition from makers of generic drugs. When the patent on a drug approached its end, and the time came for the successful challenger to obtain the exclusive marketing rights for six months, the patent holder would start making the drug through a subsidiary or a partner to keep out others.

Of late""first with Dr Reddy's and then Ranbaxy entering partnerships for authorised generics""a new revenue stream has opened up for the Indian pharmaceutical companies. So much so that analysts expect their next quarter earnings to receive a boost from this stream.

Citing the performance of leading companies in the first quarter of this financial year (April-June 2007), analysts point out that Dr Reddy's, the only Indian company so far to enjoy the benefits of authorised generics, was severely affected by the lack of revenue from this stream in the first quarter. As a result, its revenue fell 14 per cent to Rs 1,200 crore.

"Dr Reddy's had Ondasetrone (generic of GlaxoSmithKline's Zofran) in the US market on an exclusive basis during the first quarter of this year, and got Rs 66 million. However, this performance was not as expected due to shelf stock adjustments and price erosion, which was up to 98 per cent after the expiry of the exclusivity in June," said Amit Hiramat, analyst with IDBI Capital.

According to Dr Reddy's executives, revenues in the first quarter of 2006-07, at Rs 1,400 crore against Rs 560 crore in the previous corresponding quarter, were shored up mainly by acquisitions and the authorised generics opportunity "" with the launch of Simvastatin and Finastride as authorised generic versions of Merck's Zocor and Proscar.

Of the North American generics finished dosage business of Rs 430.4 crore during the last year's first quarter, the contribution of authorised generics was to the tune of Rs 336.4 crore (Rs 30.7 crore in the corresponding period in 2005-06). Compared to this, Dr Reddy's Rs 180 crore business in branded generic formulations from North America (which is 42 per cent of its overall branded generic formulations business) in the first quarter of FY08, was down by 58 per cent against Rs 430 crore in the corresponding period last year.

In the case of Ranbaxy, the US revenues were about $95 million in Q2 2007-08, with a growth of just 7 per cent. During the period, Ranbaxy launched Pravastain 80 mg tablets with a 180-day marketing exclusivity in June 2007. Compared to this, Ranbaxy's Q2 sales in 2006 was more or less similar in the US, at about $89 million, mainly powered by the six-month exclusivity for Simvastatin 80 mg tablets.

Ranbaxy commercialised its first authorised generic product, Isoptin SR (Verapamil SR) in the US market two days ago. It hopes to garner a good share of the $122.2-million US market for the drug, with limited competition from the two other players.