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Ranbaxy--------------------------------------------------------------------- Maintain UNDERPERFORM
Low margin of safety: best case already priced in
● We assume coverage of Ranbaxy with an UNDERPERFORM
rating, but increase our target price to Rs450 (from Rs275).
● We agree CY11 does not represent normalised margins for
Ranbaxy and thus we value the company at CY12. However, the
margin of safety is still low with the stock, as it is factoring in all
FTF clearances, no penalty on resolution of the US FDA and DoJ
cases, and perfect execution under project Viraat in India.
● On Lipitor, we see a low probability of subsequent ANDA filers
triggering Ranbaxy’s exclusivity before Nov-11, as Pfizer is likely
to settle with them. However, if Ranbaxy misses the Nov-11
launch, upside will be limited, as Watson would launch as
authorised generic, even if the Ranbaxy launch is delayed.
● We value Ranbaxy at 20x CY11E or 18x CY12E, and value the
base business at Rs330/share. Additionally, the value of its FTF
pipeline is Rs120/share in our target price of Rs450. We increase
CY10-12 estimates by 29%/82%/44%, as we incorporate Aricept
and Actos FTFs, assume resolution of the Dewas facility in CY11
and factor in a pick-up in sales and margins in the US and India.
Lipitor: reduced upside, if Nov-11 timeline is missed
Under the settlement agreement with Pfizer, Ranbaxy is entitled to
launch generic tablets of Lipitor in the US from 30 November 2011.
However, Ranbaxy first needs to clear the data validation test at
Poanta Sahib. Once the ANDA clears the validation test, Ranbaxy
needs to ensure that it launches its generic product by 30 November
2011, else Watson would enter the market irrespective of whether
Ranbaxy can launch or not, and would imply reduced opportunity for
Ranbaxy. Other ANDA filers will remain blocked by Ranbaxy’s 180
days exclusivity (even if Ranbaxy’s launch is delayed) unless one of
the subsequent ANDA filers proves non-infringement or invalidity of
the remaining Lipitor patents. In the latter case, Ranbaxy’s 180 days
exclusivity would be triggered, even if Ranbaxy does not launch its
generic version.
Low probability of early trigger of Ranbaxy’s exclusivity
Our assessment of the Lipitor litigation is that Mylan, Actavis, Dr.
Reddy’s, Kremers and Apotex are currently litigated on the crystalline
patent (‘156), which expires in 2017. Proving invalidity of ‘156 patent
is difficult, as the patent has already been reexamined by the USPTO
office and emerged valid. Thus, the only way for subsequent filers to
trigger Ranbaxy’s exclusivity early is to prove non-infringement of ‘156
patent. Pfizer’s drug is a crystalline form whereas almost all generic
players have an amorphous form. Thus, non-infringement is possible,
but is further blocked by two additional patents that Pfizer has
obtained (‘511 and ‘740 patents) on making amorphous atorvastatin
calcium, which expires on 16 July 2016.
We believe Ranbaxy settled with Pfizer despite invalidating ‘995
patent essentially due to the two amorphous patents on which
Ranbaxy was not sued by Pfizer. Thus, the probability of an early
trigger of Ranbaxy’s exclusivity is low and Pfizer is most likely to settle
with the subsequent ANDA filers (Pfizer settled with Mylan in Jan-11,
though the launch details are not yet disclosed). Upside for Ranbaxy
from Lipitor depends on how the settlements are done and would be
the least in the scenario, when all the remaining players enter together
after Ranbaxy’s exclusivity (by that time the 30-month stay ends for all
subsequent ANDA filers). We value the Lipitor opportunity at
Rs60/share.
Maintain UNDERPERFORM; target price of Rs450
We are positive on the turnaround story on the base business. However,
there are several known unknowns, which are difficult to predict.
● Whether there will be a one-time penalty for the resolution at the
Paonta and Dewas facilities, and if yes, what would be the
quantum?
● Whether Ranbaxy’s Lipitor ANDA would be cleared in time and
whether Ranbaxy would be able to do the site transfer and launch
its generic version on 30 November 2011. Otherwise, the
opportunity gets reduced materially, as Watson will launch its
generic version in November 2011 irrespective of Ranbaxy’s
launch timeline.
● How the subsequent competition for Lipitor pans out – all the
generic versions of Lipitor are in the amorphous form, where
Pfizer has two patents, which expire in 2016. Thus, if Pfizer settles
with subsequent generic players and their launch is staggered, our
target price has upside. Pfizer settled with Mylan, but the launch
date has not been disclosed.
We use CY12 to value the base business, as we expect margins to
normalise in CY12. We value Ranbaxy at a discount to the sector
average at 20x CY11 or 18x CY12 and value the base business at
Rs330/share. Additionally, the value of its FTF pipeline is Rs120/share
(Lipitor at Rs60/share) in our target price of Rs450/share.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� �
Ranbaxy--------------------------------------------------------------------- Maintain UNDERPERFORM
Low margin of safety: best case already priced in
● We assume coverage of Ranbaxy with an UNDERPERFORM
rating, but increase our target price to Rs450 (from Rs275).
● We agree CY11 does not represent normalised margins for
Ranbaxy and thus we value the company at CY12. However, the
margin of safety is still low with the stock, as it is factoring in all
FTF clearances, no penalty on resolution of the US FDA and DoJ
cases, and perfect execution under project Viraat in India.
● On Lipitor, we see a low probability of subsequent ANDA filers
triggering Ranbaxy’s exclusivity before Nov-11, as Pfizer is likely
to settle with them. However, if Ranbaxy misses the Nov-11
launch, upside will be limited, as Watson would launch as
authorised generic, even if the Ranbaxy launch is delayed.
● We value Ranbaxy at 20x CY11E or 18x CY12E, and value the
base business at Rs330/share. Additionally, the value of its FTF
pipeline is Rs120/share in our target price of Rs450. We increase
CY10-12 estimates by 29%/82%/44%, as we incorporate Aricept
and Actos FTFs, assume resolution of the Dewas facility in CY11
and factor in a pick-up in sales and margins in the US and India.
Lipitor: reduced upside, if Nov-11 timeline is missed
Under the settlement agreement with Pfizer, Ranbaxy is entitled to
launch generic tablets of Lipitor in the US from 30 November 2011.
However, Ranbaxy first needs to clear the data validation test at
Poanta Sahib. Once the ANDA clears the validation test, Ranbaxy
needs to ensure that it launches its generic product by 30 November
2011, else Watson would enter the market irrespective of whether
Ranbaxy can launch or not, and would imply reduced opportunity for
Ranbaxy. Other ANDA filers will remain blocked by Ranbaxy’s 180
days exclusivity (even if Ranbaxy’s launch is delayed) unless one of
the subsequent ANDA filers proves non-infringement or invalidity of
the remaining Lipitor patents. In the latter case, Ranbaxy’s 180 days
exclusivity would be triggered, even if Ranbaxy does not launch its
generic version.
Low probability of early trigger of Ranbaxy’s exclusivity
Our assessment of the Lipitor litigation is that Mylan, Actavis, Dr.
Reddy’s, Kremers and Apotex are currently litigated on the crystalline
patent (‘156), which expires in 2017. Proving invalidity of ‘156 patent
is difficult, as the patent has already been reexamined by the USPTO
office and emerged valid. Thus, the only way for subsequent filers to
trigger Ranbaxy’s exclusivity early is to prove non-infringement of ‘156
patent. Pfizer’s drug is a crystalline form whereas almost all generic
players have an amorphous form. Thus, non-infringement is possible,
but is further blocked by two additional patents that Pfizer has
obtained (‘511 and ‘740 patents) on making amorphous atorvastatin
calcium, which expires on 16 July 2016.
We believe Ranbaxy settled with Pfizer despite invalidating ‘995
patent essentially due to the two amorphous patents on which
Ranbaxy was not sued by Pfizer. Thus, the probability of an early
trigger of Ranbaxy’s exclusivity is low and Pfizer is most likely to settle
with the subsequent ANDA filers (Pfizer settled with Mylan in Jan-11,
though the launch details are not yet disclosed). Upside for Ranbaxy
from Lipitor depends on how the settlements are done and would be
the least in the scenario, when all the remaining players enter together
after Ranbaxy’s exclusivity (by that time the 30-month stay ends for all
subsequent ANDA filers). We value the Lipitor opportunity at
Rs60/share.
Maintain UNDERPERFORM; target price of Rs450
We are positive on the turnaround story on the base business. However,
there are several known unknowns, which are difficult to predict.
● Whether there will be a one-time penalty for the resolution at the
Paonta and Dewas facilities, and if yes, what would be the
quantum?
● Whether Ranbaxy’s Lipitor ANDA would be cleared in time and
whether Ranbaxy would be able to do the site transfer and launch
its generic version on 30 November 2011. Otherwise, the
opportunity gets reduced materially, as Watson will launch its
generic version in November 2011 irrespective of Ranbaxy’s
launch timeline.
● How the subsequent competition for Lipitor pans out – all the
generic versions of Lipitor are in the amorphous form, where
Pfizer has two patents, which expire in 2016. Thus, if Pfizer settles
with subsequent generic players and their launch is staggered, our
target price has upside. Pfizer settled with Mylan, but the launch
date has not been disclosed.
We use CY12 to value the base business, as we expect margins to
normalise in CY12. We value Ranbaxy at a discount to the sector
average at 20x CY11 or 18x CY12 and value the base business at
Rs330/share. Additionally, the value of its FTF pipeline is Rs120/share
(Lipitor at Rs60/share) in our target price of Rs450/share.
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