Since a recent report by the Gleaner newspaper that suggest the possibility of a monstrous potential payment to Lasco Distributors from Pfizer as compensation for loss of income and damages, the stock has taken flight, hitting new record highs almost daily and end on Monday at $9.
The amount mention in the article, US$300 million equates to nearly 18 years of 2011 Pharmaceutical sales, an amount confirmed by the company’s chairman Lascelles Chin. Damages would not compensate for loss of sales but loss of profit up to the point that the company could restore its market share. IC Insider tried to put the pieces together.
An extract from the Gleaner reports states “Lasco Distributors Limited has claimed that it suffered US$300 million in damages when it was barred by a court order from distributing the drug Amlodipine (Norvase) which is used to treat high blood pressure. Last month LASCO put in its claim in the Supreme Court to recover the money from international pharmaceutical company Pfizer, which had obtained an injunction against LASCO. The injunction, which was granted in 2005, remained in effect until 2012 when the United Kingdom Privy Council upheld rulings by the local courts which favoured LASCO”.
In 2010, when Lasco went public the prospectus stated in connection with the case; “no provisions have been made in the Company’s accounts for the impact of the outcome of this decision and the accounts contained in this prospectus do not take it into account. It is the expectation of the Company, based on legal advice it has received, that its lost sales of the product to date (estimated to be $400 million) are likely to be recovered in the event that it succeeds in this matter but it is difficult to quantify the amount of damages that could potentially be awarded as they will continue to accrue until the matter is decided”
The 2012 audited report, said pretty much the same. “There is a claim by Pfizer Limited (Pfizer) against Lasco Distributors Limited, (“the company”), and others for damages for breach of a patent relating to a particular product. The action has been tried and judgement entered in favour of the company. The judgement has been appealed by Pfizer. The appeal has been heard and the court has reserved its judgement. The attorneys are of the opinion, that the company should be successful on this appeal and anticipate that the amount to be recovered by the company may be approximately $400M, if not, the company will be liable for cost estimated at $25M and for an accounting as to profits made by the company as damages to Pfizer for its loss of profit attributable to the sale of the product from the commencement of the company’s dealing in it to the date of the interim injunction issued on 29 March 2005”.
The big question, how did sales of $400 million plus cost and damages get to US$300 million in 5 short years? If the sales lost, as stated in the prospectus was $400 million up to late 2010, then it would appear that to be generous, sales to the end of 2012, around two additional years, should not exceed another $400 million bringing the total to probably $800 million. Lasco Distributors’ gross profit is around 20 percent and would translate to $160 million over the period plus interest. Applying interest at 15 percent per annum, translates to around J$300 million plus cost. Based on the estimates that cost that would be payable to Pfizer amounting to $25 million, the Lasco’s cost should be in that region or a bit more based on the drawn out nature of the case.
Of course there could be damages for the loss of market share as it would take some time to get back to the level of business that they would have been at had they not ceased selling the product.
Chin advised IC Insider that the amount now claimed is compiled in a comprehensive and detailed manner and takes into account the fast pace that sales were growing by amounting to 500 percent per annum as well as the size of the market but does not have interest computed as yet. Chin also indicated that the profit margin of the tablets was 70 percent and that it will not be until 2018 that they would get back to the level of sales that would have had they not been barred from selling.
The amount plus interest would work out at around 10 US cents per share before taxation of around 12.5 percent.