Novartis' gain is consumers' $900M loss from stalled Ranbaxy generics

The inability of Ranbaxy Laboratories to get its generic of heart drug Diovan to market for 18 months has been a boon for Novartis ($NVS). Not so much for consumers.

The way Bloomberg figures it, consumers and the U.S. government have lost out on about $900 million in savings so far. That's because when an exclusive generic hits the market, it usually runs 30% to 50% off the retail price. After the 6-month exclusivity is gone and other producers jump in, prices fall like a rock, meaning patients and payers may pay as little as 10% of what the branded drug runs.

But instead of consumers getting a price break, the price has actually jumped 37% since its patent expired in September 2012. According to Bloomberg Industries and Symphony Health Solutions, Diovan now runs $244, up from $178.  

While Ranbaxy has approval to sell its generic exclusively for 6  months, it never got to the market because the FDA had problems with the Indian plant where Ranbaxy was going to make it. Mylan challenged Ranbaxy's exclusivity but a court turned it down. And there is no precedent for what should happen now. The FDA, which has since banned the plant from shipping product to the U.S., would not comment.

"All this time, Novartis, through no duplicitous intent, has been reaping this massive benefit,"Jason Rutt, head of patents for the Rouse consulting firm in London told Bloomberg. "This is working against consumers as they're paying an exaggeratedly high price because there is no generic."

Novartis has twice upped its earnings estimates because the generic has not appeared. But a spokesman told the news service it has no more idea than anyone else what to expect in terms of generic competition for the heart drug. Sales last year of both its monotherapy of the drug and an HCT version which pairs it with a diuretic, were $1.679 billion in the U.S. Ranbaxy has approval for just the HCT version. 

What does or doesn't happen has even bigger implications for U.S. consumes because Ranbaxy also has the first-to-file exclusive lock on AstraZeneca's ($AZN) blockbuster Nexium. The stomach upset drug pumped out 2013 sales in the U.S. of $2.12 billion. Its patent falls off May 27 but there is no reason to expect Ranbaxy will be able to produce it, given the handcuffs the FDA has on its plants.

There is some hope for the future. Sun Pharmaceutical April 7 agreed to buy Ranbaxy in a $3.2 billion stock deal. It has pledged to resolve Ranbaxy's regulatory problems and get its four FDA-approved but currently banned plants, producing again. But the deal is not expected to close until the end of the year. Ranbaxy executives have said they are not about to relinquish the company's rights to the exclusive launches, leaving consumers and payers to keep paying monopoly prices.

- read the Bloomberg story