"RANBAXY CAN SELL LIPITOR"

Reaches Out-Of-Court Pact With Innovator Pfizer

EXACTLY a week after the promoters of Ranbaxy Laboratories sold their shareholding to Japanese drug maker Daiichi Sankyo, the Indian drug maker and US pharma giant Pfizer on Wednesday announced that they have reached an out-of-court settlement for their global litigation over the world’s largest selling drug Lipitor (Atorvastatin). According to the settlement, Ranbaxy will launch its generic version of Lipitor, the $12.7 billion cholesterol-lowering medicine — and combination drug Caduet — on November 30, 2011, in the US with an exclusive marketing rights for 180 days along with the innovator company.

Industry estimates peg Ranbaxy’s revenue upside from the settlement for Lipitor at $1.5 billion over a four-year period running up to May 2012. At present, Ranbaxy, subject to litigation, was on course to launch its generic version of Lipitor in the US in March 2010, 15 months ahead of its patent expiry in June 2011. This settlement pushes back the launch date by 20 months, even though, it eliminates all uncertainty regarding the launch date. In addition, Ranbaxy will also not receive any upfront payment from the out-of-court settlement. Says Prabhudhas Lilladher’s pharma analyst Ranjit Kapadia, “The settlement brings certainty to Ranbaxy’s launch and will cut down litigation cost for Ranbaxy from tomorrow itself. However, the drug’s launch has been pushed back by 20 months, which means that Pfizer will get additional sales of around $20 billion during the extended period.”

Ranbaxy has described the deal as a winwin situation. “This is the largest and the most comprehensive out-of-court settlement ever in the pharma industry covering a total revenue of over $13 billion. The revenues will start kicking in from this year, as we will be launching generic version of Lipitor in Canada this calendar year,” Ranbaxy Laboratories CEO and MD Malvinder Singh told ET. A senior Pfizer executive, on his part, said the agreement clearly reaffirms the value and importance of intellectual property. GENERIC VERSION OF BLOCKBUSTER DRUG TO DEBUT IN US IN NOV 2011
2003 Ranbaxy files para IV application for Lipitor. Pfizer sues Ranbaxy for patent infringement, automatic 30-month stay AUG 2006 RANBAXY invalidates Pfizer's ‘995 Lipitor US patent

DEC 2006 AUSTRALIAN Federal Court grants decision to Ranbaxy JAN 2007 CANADIAN Federal Court grants favourable decision to Ranbaxy
FEB 2007 RANBAXY launches Atorvastatin in Denmark MAR 2007 PFIZER files re-issue application for Lipitor in the US

MAR 2008 PFIZER sues Ranbaxy for additional patent infringement in US court MAY 2008 RANBAXY gets mixed verdict on Pfizer's Lipitor
JUN 2008 RANBAXY settles Lipitor litigation with Pfizer Can sell Atorvastatin in 6 more countries

While the out-of-court settlement was announced after Indian stock exchanges closed on Wednesday, Ranbaxy shares moved up by 2.9% to Rs 598 during the day. According to industry estimates, Ranbaxy will get a revenue upside of around $1.5 billion from anti-cholesterol medicine Lipitor alone in a four year period running upto May 2012. The bulk of this revenue will be backloaded and is expected to accrue when India’s largest drug maker launches its drugs in the US market in November 2011.

Lipitor generates annual sales of $8 billion in the US alone. In Canada, the drug rakes in about a $1 billion in sales every year. Caduet, a combination drug of Lipitor and hypertension drug Norvasc, has annual global sales of $400 million. In addition to the US and Canada, the Indian drug maker will also have the licence to sell Atorvastatin on varying dates in six more countries — Belgium, Netherlands, Germany, Sweden, Italy and Australia.

Ranbaxy can launch its Atorvastatin 2-4 months ahead of their patent expiry in these respective countries. Ranbaxy and Pfizer have also resolved their disputes regarding Atorvastatin in Malaysia, Brunei, Peru and Vietnam. The patent infringement litigation between Pfizer and Ranbaxy relating to Lipitor will continue in five other European countries — Finland, Spain, Portugal, Denmark and Romania. “There are certain issues that needs to be settled for patents in these countries,” Mr Singh added.

The agreement pertains solely to Ranbaxy and its affiliates and does not cover legal challenges to the Lipitor patents involving other generic manufacturers.
For the last few days, there has been speculation that Pfizer would announce a counter offer for the 65% non-promoter shareholding in Ranbaxy. While theoretically this option exists, it now appears remote. It appears unlikely that Pfizer would have negotiated an out-of-court settlement with Ranbaxy, if it had intentions of launching a hostile bid for the company.

It is learnt that the Ranbaxy promoters’ discussions with Daiichi Sankyo were going parallel with the company’s negotiations with Pfizer. Some experts tracking the pharma sector feel that given the nature of the out-of-court settlement, which will not result in any windfall payment for Ranbaxy, it is possible that the Indian company wanted to first announce the stake sale.

Pfizer president of Worldwide Pharmaceutical Operations, Ian Read said, “The agreement provides patients with access to a generic product much earlier than if Ranbaxy were unsuccessful in obtaining approval for its product and overcoming the relevant patents. It provides substantial certainty regarding the timing of the entry of a generic version of Lipitor. Finally, the agreement clearly reaffirms the value and importance of intellectual property and this country’s (US) well-balanced system of creating incentives to develop innovative medicines, while at the same time, establishing a strong generic drug business.”

Chryscapital MD and pharmaceutical expert Sanjiv Kaul said that other Indian companies should also follow similar amicable settlement routes, “Litigation for Indian pharma companies is a costly proposition. They should always look for a possible collaborative approach rather than a confrontational approach. One should use the Para IV for positioning itself as a global supplier of authorised generics to MNCs.”

An industry source added that Ranbaxy opted for the settlement route as it wanted to cut down on litigation cost, which would quadruple when the cases moves to higher courts. And also, Daiichi Sankyo, which recently bought the Ranbaxy promoter’s 35% stake, would not have been keen on taking the legal fight with Pfizer.

The settlement also resolves additional patent litigation between the companies involving the branded drugs Accupril (in the US) and Viagra (in Ecuador) and all patent litigation with Ranbaxy relating to generic formulation of Quinapril Hydrochloride in the US and Sildenafil in Ecuador.

"Anil Ambani eyes over 40% MTN pie"

Anil Ambani, whose flagship company Reliance Communications is in talks with South Africa-based MTN, is looking to buy more than 40 per cent stake in the telecom major, a media report said on Tuesday.

"Anil Ambani, chairman of India's Reliance Communications, is considering buying more than 40 per cent of MTN, Africa's biggest wireless company," the Financial Times reported in its Asia edition.

The newspaper also pointed out that the talks have been complicated by the threat of legal action by Anil Ambani's elder brother Mukesh Ambani, who is claiming a right of first refusal over any stake sale by RCom.

The report said that Ambani was looking for ways to increase his "in-effect" controlling position in the South African firm.

Quoting people familiar with the situation, the newspaper said, "... Mr Ambani was looking at how he could maximise an in-effect controlling position in MTN by seeking to persuade the South African mobile operator's shareholders to waive their right to a tender offer."

It has been thought that Ambani would limit himself to a 34.9 per cent stake in MTN, because if it went higher, then he would be required as per the South African laws to make an offer to buyout the other shareholders of the telecom major.

"... Mr Ambani was looking at the case for a "whitewash" procedure under which MTN's shareholders would vote on whether to waive their right to a tender offer. If the shareholders agree, Mr Ambani may end up owing 40-45 per cent of MTN," the report said quoting both people familiar to the situation and a person close to the talks.

Last month, RCom and MTN had entered into a 45-day exclusivity talks to explore the possibility of a merger. These talks had begun on May 26.

Even though, several transaction structures have been examined, no conclusion has been reached yet.

According to the newspaper, Ambani is seeking to engineer a de facto takeover of MTN under which he would swap most of his 66 per cent shareholding in RCom for a near-controlling stake in the merged entity.

"The talks are politically sensitive because MTN is one of South Africa's most successful post-apartheid companies. Any deal with Reliance would almost certainly be presented as a merger," the report said.

"MTN's largest shareholders are Newshelf, a company that holds 13 per cent on behalf of the group's staff, and Public Investment Corporation, a South African state-owned pension fund, which also has 13 per cent," the Financial Times said.

The next largest shareholder in the South African firm is M1, a company that holds almost 10 per cent on behalf of Lebanon's Mikati family.
Further, the newspaper said the precise size of Ambani's share in MTN would be influenced by the take up of an expected tender offer by the African firm to RCom's minority shareholders.

"BLOCK DEAL NOT POSSIBLE DUE TO PRICE BAND"

Bulk deal in Ranbaxy likely
Move To Help Promoters Save On Rs 1,000-Cr Capital Gains Tax

RANBAXY promoters are likely to use the ‘bulk deal’ route to sell their shares to Daiichi Sankyo. Through this window, they can sell their shares through the stock exchange without being bound by the price restriction of a ‘block deal’ and without having to pay long-term capital gains tax of around Rs 1,000 crore. The Ranbaxy promoters will gross Rs 9,576.3 crore by selling their 34.82% stake in the country’s biggest drug maker.

As reported first by ET in its edition dated June 14, there is a clause in the deal agreement between Ranbaxy promoters and Daiichi Sankyo, which says that the promoters holding will be sold through a stock exchange transaction. A stock exchange transaction of this kind, can be done either through a ‘block’ deal or a ‘bulk’ deal.

As per the norms, a block deal transaction has to be done at a price which is close to the existing market price.

The Sebi circular dated September 2005, said that a trade with a minimum quantity of 5 lakh shares or having a minimum value of Rs 5 crore executed through a single transaction on the stock exchange will constitute a ‘block deal’. This block deal is subject to conditions like time period of trade, delivery-based trading and more significantly a price range, which is not to exceed more than 1% from the existing market price or the closing price of the stock on the previous day.

However, in the case of Ranbaxy, the scrip is trading at a sharp discount to the negotiated price of Rs 737 per share. Therefore, Ranbaxy promoters can sell their shares to Daiichi Sankyo through a block deal, only if the share price shoots up by 26.7% against the closing price of Rs 581.45 at BSE on Tuesday. Bulk deals a way out
THE bulk deal route offers a way out. As per a circular dated January 2004, which brought disclosure norms for large stock deals, all transactions in a scrip, where the total quantity of shares bought or sold is more than 0.5% of the number of equity shares of the company listed on the exchange, are bulk deals.

This is applicable even when the deal is struck through multiple transactions as long as the cumulative shares under consideration exceeds the 0.5% threshold. Incase of Ranbaxy, the transaction would necessarily come under the scope of bulk deal as the total stake being sold is more than 34%. The bulk deal circular of 2004 does not impose any price range condition.

A stock exchange transaction will save the promoters capital gains tax of around Rs 1,000 crore, which they would have to pay if this was an offmarket transaction. Unlike an off-market transaction which attracts a 10% long-term capital gains tax in addition to 1% surcharge and an additional 3% tax on the surcharge, stock exchange transactions do not attract capital gains tax. A bulk deal through the stock market will mean that Ranbaxy promoters will have to pay a nominal securities transactions tax of 0.125% in addition to broker’ fee and 12.5% service tax (on the broker’s fee), which could run into few crore.