Ranbaxy's silence on Teva profit-sharing draws questions

One mystery about Ranbaxy Laboratories' profit-sharing deal with Teva Pharmaceutical Industries ($TEVA) is solved. Teva is not supplying any ingredients for Ranbaxy's copycat version of Lipitor, as some analysts had suggested. The active ingredient is approved for production at two sites, the FDA tells Bloomberg, one in India and the other in an undisclosed location.

But that leaves the central mystery intact: Just what is Teva doing to get a share of Ranbaxy's profits on the Lipitor generic?

Perhaps nothing but a pledge for backup, one analyst speculates. "It appears that the Teva deal was like an insurance policy for Ranbaxy in case the approval didn't come," Kotak Institutional Securities analyst Priti Arora told Bloomberg. "Now that Ranbaxy got the clearance, it's possibly free money for Teva."

Teva takes issue with that characterization: "The agreement could include many services or many areas of operation and I don't understand how you can call it free money," spokesman Yossi Koren told the news service. But he declined to offer any details about the two companies' profit-sharing agreement.

Meanwhile, UBS downgraded Ranbaxy's stock and lowered its price target, citing the lack of an explanation for payments to Teva. "The company didn't comment on whether they entered into a tie-up with Teva as a fall back option or there were some other potential pressures facing the company," UBS wrote in a note to investors. UBS slashed its Lipitor-related EPS estimate in half as well, putting its expectations for earnings upside at 15 rupees over the 6-month exclusivity period.

- see the Bloomberg coverage
- read the Economic Times article

ALSO: The FDA has granted tentative approval to Teva's generic version of Lipitor, which the company plans to launch in May. Report

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