Sunday, December 11, 2011

>RANBAXY: Launches Caduet AG; Teva deal meant to secure Lipitor monetization Ranbaxy launches

RBXY announced the launch of AG Caduet. We believe FTF RBXY may have forfeited exclusivity as it failed to obtain approval within 30 months of filing. On Lipitor, mgmt indicated the Teva deal was done to secure monetization of the opportunity. We believe RBXY may clock profits of US$250-350mn during Lipitor exclusivity. We estimate annualized revenues of US$188mn post exclusivity in CY12F. While Lipitor approval and Caduet launch have eased downside risk, investor focus should now shift to comprehensive resolution. We remain cautious as revival in base business is in the price, in our view.

Ranbaxy launches authorized generic for Caduet (US$340mn)
Ranbaxy today announced the launch of Caduet (US$340mn) authorized generic in the US. As per the company, the launch follows an agreement with Pfizer. We believe that Ranbaxy is FTF on Caduet and might have forfeited its 180-day exclusivity as it could not obtain approval within 30 months of filing the ANDA. We note that the ANDA was a post-MMA filing and was filed in December 2008; the 30-month stay lapsed in June 2011.

We expect Ranbaxy to share a portion of its profits/sales with Pfizer in lieu of the license for launching the authorized version. Assuming a 60% price discount and 40% market share, Ranbaxy could clock revenues of US$54mn on an annualized basis. This would imply a net profit of ~US$11mn, based on our calculations.

We note that Mylan launched the generic version on Thursday, 1 December 2011. We believe that Caduet could be a limited competition opportunity in the near future with Sandoz being the only other Para IV filer that we are aware of. We believe Sandoz’s 30-month stay expires in April 2012.

Management indicates that deal with Teva was to secure monetization of Lipitor (US$7.4bn)
Ranbaxy’s CEO in an address to Ranbaxy’s employees regarding launch of generic Lipitor in the US stated that a partnership with Teva was to secure monetization of the Lipitor opportunity. We believe that Ranbaxy could share 25-30% of its profits from Lipitor generic during 180-day exclusivity with Teva. Please refer to our note “Lipitor approval eases downside risk” dated 1st December 2011 for further details.
Mr. Sawhney also said that Ranbaxy has enough capability to supply Lipitor through the 180-day exclusivity and beyond. He also expects Ranbaxy to remain the largest generic player in the atorvastatin market even post the 180-day exclusivity.

Management commentary comforting, but does not change our view on the stock
We note that the commentary is comforting as far as the monetization of the Lipitor opportunity beyond exclusivity is concerned. We estimate annualized revenues of US$188mn from generic Lipitor post exclusivity in CY12F for Ranbaxy. However, this event does not change our view on the stock. We expect a comprehensive settlement of outstanding FDA manufacturing and DOJ issues to be settled in due course. We have factored in US$350mn as penalty towards resolution. The timeline for resolution and quantum of penalty should be an important catalyst for the stock, in our view. We believe the market is factoring in settlement in the near term and expects a penalty of US$200-500mn towards resolution.

We believe the approval for Lipitor and launch of authorized generic of Caduet have reduced downside risk to some extent. However, given the valuation and expectation of revival in the base business post FDA resolution, the stock is not yet in the buying zone in our assessment. Excluding potential one-off exclusivity upside, the stock is trading at 25.6x CY11F EV/EBITDA and 48.9x P/E (pricing as of 1 December 2011), indicating strong expectation of base business revival.

To read the full report: RANBAXY