Thursday, December 1, 2011

Post Approval - The Lipitor Equation for Ranbaxy

The stock price reaction today did not move Ranbaxy as much as it should have, since everybody is wondering how much share would Teva take away.. But Recall that Teva has already announced they are expecting to add around $100m to their bottom line by virtue of Lipitor launch in their last call  - Has Ranbaxy sold its exclusivity to Teva?????  . If we back calculate, putting in the following assumption, Ranbaxy shoud record upto $260m in profits from Atorvastatin in the first six months. Here goes the math

Lipitor Annual Sales   - $ 5.6 b

Impact of therapeutic substitution (TS)  on sales volume - 20%

Six month sales (include impact of TS) - $3.25B

Ranbaxy Share of the sales - 30% ( If Teva is copromoting it could go as high as 40%)

Price discount - 40%

Ranbaxy Sales for 1H-2011 = $600m

Profit for Ranbaxy - 60%

Net Income - $360m

Normally the entire 6 month sales is booked in the first month, As teva pointed out, they will be getting $100m, hence Ranbaxy should retain $260m.. Over and above, even after expiry of six month exclusivity, atorvastatin generics will remain a low competition window, hence Ranbaxy will continue to command a decent share at a decent margin.