Win some, lose some

Ranbaxy Laboratories’ third quarter net profit surged nearly seven times, but its share price declined after the results were announced.

The launch in June ’06 of cholesterol-lowering drug Simvastatin (80 mg) in the US, with a 180-day marketing exclusivity period, was the highlight of the quarter. Strong performance in the BRICs markets helped, too.

Revenues from BRICs markets were up 38% at Rs 630 crore, compared to last year’s corresponding quarter. Consolidated net profit was up 651% at Rs 140 crore in the quarter ended September ’06, from Rs 19 crore in the corresponding quarter last year.

However, a steep fall in the price of Simvastatin kept net profit below market expectations. The drug prices were believed to have declined by about 70% in the US market. Ranbaxy was allowed to sell Simvastatin tablets after it successfully challenged Merck’s patent. But Merck later licensed Dr Reddy’s Labs to sell its generic copy of Zocor in the US, forcing Ranbaxy to cut prices in response.

Ranbaxy’s generic version of Merck’s cholesterol drug, Zocor, continued to enjoy a 50% prescription share in the generic segment in the US. The company’s sales in the US increased 26% Y-o-Y to Rs 435 crore in the September ’06 quarter.

While Ranbaxy’s third quarter results show a smart recovery, it also underlines the fact that, going forward, the 180-day exclusivity period window in the US may not pay off as well as anticipated.

That will have a sobering effect on estimated profits from similar ventures in future.