![]() has said it will appeal the Canadian court's decision, despite its partial victory, as the verdict prevents the Indian firm from launching both forms of Lipitor, the world's largest selling drug with annual global sales estimated at $14 billion, until both patents expire in 2016. The verdict is only a minor setback to Ranbaxy, as Lipitor sales in Canada aren't as large as they are in the U.S. (estimated at $8 billion to $9 billion a year). But after five years of legal wrangles spread over some 17 countries, involving dozens of lawyers and millions of dollars in legal costs on both sides, one still can't be completely certain when Ranbaxy will be able to launch a generic version of Pfizer's
original medicine in any of those markets. Or whether the payoff for Ranbaxy will be as rewarding as investors expect it to be. The Lipitor opportunity is too big for Ranbaxy to pass up. A favorable verdict in the courtroom will give it exclusive rights to sell a generic version of the medicine, for a limited period, at a price that is well below Lipitor's but gives Ranbaxy a hefty margin. However, once the exclusivity period ends, competition from other generic manufacturers can set in, unleashing price wars and slashing the value of the market for that drug. Generic drugs - commodities? For scores of Indian generic companies, including Ranbaxy, Dr. Reddy's Laboratories
and Sun Pharmaceutical Industries, which depend on the North American market for a big chunk of their sales, patent challenges have become increasingly difficult over the years. For one, innovators such as Pfizer are fighting more vigorously to protect their patents. Secondly, competition within the generics space is intensifying due to the emergence of several new players, especially from within India. It isn't uncommon for a billion-dollar market for a particular drug to lose more than 90% of its value almost overnight, with several generic companies launching their respective versions of the original drug, as soon as the patents on that drug expire. That may be great news for patients undergoing treatment as well as governments and health insurance firms, which have to foot the health-care bills, but for the generic companies and their investors, it's become a nightmare. In other words, drugs are being commoditized as soon as the patents expire on the original drug.
Even so, generic drug companies around the world, as in India, continue to command high valuations, with stocks of many Indian firms currently quoting at more than 18 times their forward price-to-earnings multiples, thanks in part to the rampant consolidation among generic firms around the world. But with industry fundamentals steadily getting worse, it may be time for investors to take a second look at their valuations. 
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