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Thursday, May 6, 2010

Orchid to bloom with US deal

Orchid Chemicals and Pharmaceuticals Ltd’s alliance with a US generic company is another example of an Indian generic firm sharing both development and litigation costs. Earlier this week, Glenmark Pharmaceuticals Ltd had tied up with Par Pharmaceutical Companies Ltd for marketing the generic version of an anti-cholesterol blockbuster drug Zetia. Par will not only pay an upfront amount, but also support Glenmark’s litigation process for a patent challenge. If the patent is successfully challenged, Par will launch the drug and share the profits with Glenmark.

Orchid’s deal is similar in some respects. The company has tied up with Alvogen Inc., a US generic drug company, for eight oral non-antibiotic formulations in an out-licensing and distribution deal. Orchid will be responsible for developing and producing these products. Alvogen will distribute them in the US market, where the branded version of these products retail for around $8 billion (around Rs36,000 crore). Orchid will get dossier filing fees depending on its ability to develop and get regulatory approvals. Alvogen will also share the litigation costs and research studies that are necessary for a generic to get approval for the US market.

Of these eight products, Orchid has already filed abbreviated new drug applications, or Anda, for three of them, and has got tentative approval for two. The remaining products are under development. The earliest launch for these products are expected in calendar 2011. Alvogen said in a statement that they are complex generics with multiple development, manufacturing and intellectual property challenges. The last point refers to the filing of patent challenges by generic companies, to invalidate the patent of the innovator company and get a six-month exclusivity period to sell its generic version.

Like the Glenmark deal, the real benefits of this transaction, too, will depend on the rate of success in patent challenges and the ability to go to get final marketing approvals. But the immediate benefits will be in the form of milestone-based payments to Orchid and sharing of high US litigation costs. The potential market is large and even one or two successful patent challenges can provide a windfall.

The Orchid share barely reacted to the development, partly because of the uncertainties associated with litigation and regulatory approval. Investors will also be concerned with the gap in revenue left after the sale of its sterile injectables business. Orchid will use the sale proceeds to lower its debt burden, strengthening its balance sheet, but investors would also want to see the profit recover soon.

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