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Ranbaxy Laboratories
Quick Comment:
Backtracking on FDA Issues,
Otherwise Okay
Ranbaxy reported 3Q results, in line with
expectations Importantly, given the absence of FTF
product sales, this quarter is a good indicator of the base
business earnings potential. Sales were up 9.7% yoy
(down 10% qoq on a high comps), operating margins
were 7.2% (10% adjusted for $11 mln one off
provisioning). Company reported Rs1.38 bln EBITDA
(Rs1.88 bln adj for one offs), versus our estimate of
Rs1.76 bln. Reported net profits were Rs3.07 bln
(roughly Rs1.4 excl forex/one offs - MSe).
On the key FDA/DoJ issue, management gave a
guardedly optimistic commentary. Though unable to
indicate timelines for resolution, management believes
there are positive trends (no push backs) in their
dialogue with the FDA/DoJ. Importantly, contrary to 2Q
call disclosures, RANB does not now expect one
comprehensive meeting to resolve the FDA/DoJ issues.
Rather, there could be multiple meetings over a period
to resolve them. However, management remains
optimistic about the prospects of monetizing its FTF
pipeline including Lipitor. It did not confirm whether
Lipitor site switch has been applied for.
What was good in the quarter 1) Management
appeared very confident of monetizing Aricept ($2 bln) in
the next couple of weeks (25th Nov). 2) Commercial
supplies for Nexium API to AZN have commenced
(4Q10) and formulations should start in next few months.
3) Ranb has filed 7 ANDAs from its NJ facilities. These
are carefully selected niche products with low
competition. 4) US base business ($105 mln) has now
almost recovered to those pre Import Alert (FDA issues,
Sep’08), largely due to continuing high market share
(36%) in Valtrex. 5) Project Viraat seems to be delivering
with high India sales (Rs4.9 bln – best ever).
And not so good Aside from a contrastingly (versus
2q) sedate commentary on FDA resolution, disclosure of
Mar’13 Valcyte launch date was disappointing (2 yrs
behind our expectation)
Conference call highlights:-
Update on FDA and DoJ issues: Ranbaxy (along with its
council) is in continuous discussion with the FDA and DoJ
(Department of Justice). Though management was unable
to indicate timelines for resolution, they believe that there
are positive trends (no push backs) in dialogue with
FDA/DoJ. Management remains optimistic about
monetization prospects of its FTF (First to File) pipeline
including Lipitor.
Aricept opportunity: Management is confident of
monetizing generic Aricept opportunity. To recap, Aricept
compound patent expires on Nov 25, 2010 and FDA has
determined that Ranbaxy is the sole 180 day exclusivity
holder for Aricept. Ranbaxy currently has a tentative
approval.
Valcyte settlement with Roche: As per the settlement
terms with Roche for generic Valcyte, Ranbaxy is
expected to launch the product in March 2013.
Nexium supply to Astrazeneca: The company has
commenced commercial supplies of Nexium API to
Astrazeneca and expects formulations supply to begin in
the next few months.
Regulatory fillings: In C3Q10, Ranbaxy made 37 fillings
and received 47 approvals for dosage forms. Importantly
the company filed 7 ANDAs during the quarter.
Performance of various markets
• North America: North America segment clocked
revenues of US$105 mln, up 70% yoy. Strong growth
was mainly driven by continued strong performances
from generic Valtrex post the exclusivity period (~36%
market share) and OTC segment. Ranbaxy filed 7
ANDAs from Ohm Lab facility during the quarter.
According to the management, the ANDAs filed in
C3Q10 are niche product opportunities.
• India: India segment clocked revenues of Rs4.93 bln,
up 18% yoy, in-line with market growth. Strong growth
in India was driven by benefits accruing from launch of
project ‘Viraat’. Project ‘Viraat’ involves expansion of
both product portfolio and geographical reach.
Management expects full impact of project ‘Viraat’
from C1Q11.
• Europe: Europe (including Romania) reported
revenues of US$60 mln, down 10% yoy. De-growth in
Europe was mainly driven by loss on one major
wholesale customer in one geography. .
• Asia Pacific: Asia Pacific segment (excluding India)
recorded revenues of US$27 mln, down 18% yoy.
De-growth in C3Q10 was mainly due to divestments
in China and Vietnam.
• Africa: Africa segment clocked revenues of US$35
mln for C3Q10, down 6%yoy, and US$113 mln for
C9M10, up 8% yoy. The company has commenced
operations (started validation batches) at it’s new
manufacturing facility in South Africa to cater to this
region.
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