Ranbaxy’s Diovan Launch Still Uncertain

Diovan, the blockbuster drug of Novartis AG, has attracted a lot of competition in the last 6 months. Recently, Indian companies Lupin and Aurobindo have launched their generic versions of Diovan HCT, a combination of Valsartan and hydrochlorothiazide, in the US markets. Last year, pharma giant Mylan had launched a generic of Diovan HCT after losing a legal fight with USFDA to launch Diovan, for which Ranbaxy already had 180 days’ exclusivity.

In 2011, Ranbaxy managed to launch the generic of Lipitor with 180 days’ exclusivity in USA. This earned the company over half a billion dollars in revenues. Ranbaxy has rights to exclusively sell the generic version of drug for 180 days in USA but it has not been able to secure the approval for the same. This is exactly what annoyed Mylan last year and it ultimately went to the court.

There has already been a lot of speculation on whether the Indian company will be able to launch the Diovan in the US market or not. Due to compliance irregularities in Ranbaxy’s manufacturing facilities and a consent decree with the US drug regulator, the uncertainty surrounding Diovan’s exclusivity has touched a peak. Launching the generic of Diovan would be a good revenue opportunity for the company, which is currently seeing revenue erosion due to huge competition in the Atorvastatin market (brand Lipitor, innovator Pfizer) in USA.

We believe that the Diovan market remains strong despite the Diovan HCT market getting diluted, and therefore the former still presents an attractive opportunity. In September 2012, during the launch of the authorised generic of Diovan HCT, Novartis’ generic arm Sandoz had said that the market size of Diovan and Diovan HCT together is USD 2.3 billion. As per the latest BSE filings made by Lupin and Aurobindo on Friday (March 22, 2013), the market size of the drug is worth USD 1.7 billion. This means that after the entry of Mylan, the market size has shrunk 26%. The size of the Diovan and Diovan HCT markets separately is not yet known, and hence, it is difficult to gauge the revenue impact if Ranbaxy launches the drug in the US with exclusivity.

Within the next few days, it will be clear whether Ranbaxy will launch the Diovan generic with exclusivity. The markets seem to have already sensed this positively, as the stock is up 15% so far in March 2013. The company’s management, though, has remained tight-lipped on this.

We believe that the launch of Diovan would have added about Rs 3 to Ranbaxy’s EPS and about Rs 50 to the share price (90% price erosion and 40% market share). Considering that the share price has already moved up, the addition of this product may not add further to the share price. However, if any new information about the product becomes available, some gains could be seen. We would advise investors to stay away from the counter at the moment.