Dr Reddy gains from Merck’s Zocor loss

HYDERABAD: It might be a bit early to uncork the bubbly, but a US lower court’s ruling in the patent battle over Merck & Co’s Zocor anti-cholesterol drug may actually benefit the Indian partner of the side that lost - Dr Reddy’s Laboratories.

In an order dated April 30, a Washington district judge overturned the US Food & Drug Administration’s (FDA’s) denial of six-month marketing exclusivity to Israeli generics major Teva and Ranbaxy on the generic version (simvastatin) of Merck’s Zocor that goes off-patent in June this year.

Though the two main combatants may well have reasons to celebrate, in reality it is Dr Reddy’s that may have greater cause for jubilation.

Dr Reddy’s has an agreement with Merck to sell an “authorised” generic version of Zocor where the profits will be shared. In fact, Dr Reddy’s is hoping the US drug regulator will take a long-term view and not contest the district judge’s ruling.

“It is certainly a positive development though we are telling people it is too early to be talking numbers”, VS Vasudevan, president and chief financial officer of Dr Reddy’s, told DNA. The stockmarket, though, is already counting the chickens. In Tuesday’s trading, Dr Reddy’s shares rose 17% to Rs 1,682 on the Bombay Stock Exchange. Ranbaxy also rose 10% to Rs 522.

Dr Reddy’s agreement with Merck provides it with conditional access to the estimated $4.38 billion market in case anyone else is granted the 180-day marketing exclusivity. In other words, if Ranbaxy and Teva win, Dr Reddy’s wins, too.

Ranbaxy Laboratories, for its part, reacted cautiously to the US development. In a statement, the company said it was pleased with the ruling on its ‘first to file status’ for Simvastatin 80mg tablets.

Simvastatin is the key ingredient for Zocor. “Upon final US FDA approval, we will launch the product,” a Ranbaxy spokesperson said. Like Dr Reddy’s, he declined to comment further on the market potential for generic versions of Zocor.

While technically there will be three new companies battling for a share of Merck’s market through unbranded generics, in reality only Dr Reddy’s and Teva will be present in all the dosage strengths from 5mg to 40mg. Ranbaxy will have exclusive marketing only on the 80mg dosage of the drug.

According to market estimates, the 80mg tablet had sales of $400 million in 2005, which pales before the estimated $2.2 billion opportunity before both Teva and Dr Reddy’s, assuming a 40-50% erosion in the market that one can normally expect with the entry of generic players.

This will also be the first time an Indian company will be venturing into authorised generics. Apart from Zocor, Dr Reddy’s also has an agreement with Merck to distribute and sell the generic version of the latter’s prostrate cancer drug Proscar upon the expiry of the patent and provided some generic challenger obtains 180-day marketing exclusivity.

According to Vasudevan, Merck will provide the generic drug to Dr Reddy’s to market while the two companies will share the costs and profits as per an agreed percentage. “However, we are not discussing the exact extent of the sharing between us right now”, he replied when asked how much it would be.

“More than the numbers, what is more important for us is the fact that Dr Reddy’s will now be accepted in the market as a major player and it will be taken seriously,” he said.

Zocor sales are likely to kick off beginning the end of June. Proscar, too, is set to happen as per schedule in June.

According to analysts’ estimates, if Proscar sales begin in June this year, the generic drug would add revenues of $17 million and net profits of $5 million in 2006-07 for Dr Reddy’s, translating into additional earnings of Rs 3 per share.

Dr Reddy’s is likely to have a marketshare of 20% during the year for Proscar, the generic revenues for which are projected at $166 million.