Pfizer And Ranbaxy Reach Deal Over Lipitor Patent

Jeff Kindler may have just bought himself some badly needed time, and another $12 billion in revenue by settling global patent litigation. The deal means Ranbaxy won't sell generic versions of the best-selling cholesterol pill until November 2011, significantly later than the March 2010 date by which Wall Street was expecting copycats to become available.

Pfizer, you may recall, was battling Ranbaxy in hopes of delaying competition until 2016 in a desperate bid to maintain revenue while grappling with its thinning pipeline, a thorny mess that has depressed Pfizer stock and prompted Wall Street to grow impatient with Kindler. The deal, however, may add an unexpected $10 billion to $12 billion in revenue - about what Lipitor generates each year - to the top line.

Interestingly, the settlement comes after speculation grew that Pfizer would try to outbid Saiichi Dankyo for Ranbaxy, after the Japanese drugmaker last week offered $4.6 billion. Ranbaxy ceo Malvinder Singh dismissed the chit-chat.

Under the deal, Ranbaxy will be able to enter the market at specified dates in seven other countries - Sweden, Italy, Canada, Belgium, Australia, Germany and the Netherlands - in late 2011. Ranbaxy will continue to sell generic Lipitor in Malaysia, Brunei, Peru and Vietnam, but litigation continues in Finland, Spain, Portugal, Denmark and Romania. The deal also dismisses Caduet lawsuits in several countries, settles a lawsuit over Viagra in Ecuador, and one over Accupril in New Jersey.

UPDATE: In an investor note this morning, Deutsche Bank analyst Barbara Ryan writes: "This is very important to Pfizer's dividend coverage, since there are some who argue (wrongly, in our view) that the company would not generate enough cash to cover the dividend."

"The delay in generic availability adds about $5 billion in revenues in both 2010E and 2011E or roughly $4 billion in free cash flow each year. The current annual dividend payment is about $9 billion and Pfizer's free cash flow with this settlement should remain at about $18 billion per year through 2011, clearly more than adequate to cover the dividend. Te current dividend yield of 7.2 percent implies the dividend is at risk, which we believe is clearly not supported by the facts and hence should go down."

Here is the Pfizer statement and the Ranbaxy statement. For background, here is a Bloomberg News story and a Reuters piece.