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Ranbaxy Laboratories
Disappointing Quarter,
Lackluster 2011 Guidance
Quick Comment: Ranbaxy reported below expectation
4Q results due to lower contribution from Aricept
exclusivity and lower base business operating margins.
We believe sequential comparison (with and without
Aricept) is the most relevant analysis. Sales were up 9%
qoq (up 2% ex Aricept) and operating profits expanded
380 bps qoq (they compressed 12 bps ex Aricept).
Together this resulted in Rs2.3bn operating profits
versus our estimate of Rs5.5bn. 70% price erosion (we
had estimated 40%) for sole exclusivity for Aricept was
the negative surprise, and the main reason for the big
earnings miss. Excluding extraordinary items/forex
charges, the company reported Rs1bn net profits versus
our and Street expectation of Rs3.5bn.
Uninspiring guidance: Ranbaxy has guided for (flat)
Rs84bn sales (US$1.87bn) guidance for 2011 (Rs85bn
in 2010), excluding Lipitor but including the remaining
4-5 months of Aricept. Excluding FTFs, we estimate
10-12% base business sales growth in 2011, one of the
lowest rates in the industry group. The company’s C12
mid-term guidance of US$3bn sales will be updated in
May 2011. We will be incorporating new information in
our model.
Other key highlights - FDA update: Management did
not disclose much except to reiterate that it is in dialogue
with FDA/DoJ and it shall update on the comprehensive
resolution once the visibility improves. It has filed 12
ANDAs in 2010 and had a successful FDA inspection
(likely at the Taonsa site). FCCB (US$440mn) is
scheduled for redemption in March 2011, for which
Ranbaxy believes it is comfortably placed (US$150mn
net debt as of December 2010). The U.S. base business
has now scaled up to US$70-80mn per quarter
(US$100mn – pre FDA issues).
Conference Call Highlights
Guidance for CY11: Ranbaxy has guided for total sales of
Rs84bn (US$1.87bn) excluding the generic Lipitor opportunity.
Mid-term guidance (CY12) under review: Management’s
mid-term (CY12) revenue guidance of US$3bn is under review
and will be updated in May 2011.
Update on FDA/ DoJ issues: Management reiterated that it is
in dialogue with the U.S. FDA and DoJ (Department of Justice).
It will communicate on the update on comprehensive resolution
once the visibility improves.
Aricept opportunity: Ranbaxy launched generic Aricept in
U.S. with 180 days exclusivity at the end of November 2010.
There is an authorized generic (AG) along with Ranbaxy in the
market. RBXY has ~30% market share. According to
management, the pricing environment is very competitive (with
~70% price erosion).
North American performance: North American formulations
posted revenues of US$131mn for C4Q10. According to
management, U.S. base business has now scaled up to
US$70-80mn per quarter.
Domestic formulations segment: This grossed revenues of
Rs17.6bn for CY10, up 8%, up 17% excluding on- time
revenues in CY09.
Project Viraat – Ranbaxy has successfully implemented project
VIraat for the domestic market. It expects benefits to accrue in
2011. To recap, initiatives under Project Viraat include
expansion of the field force, new products launches and
entering new therapy areas.
ARV tender in South Africa: Ranbaxy’s JV in South Africa
(Sonke Pharmaceuticals) won a ~US$130mn anti-retroviral
medication supply tender in December 2010. The tender is a
for a two-year period.
U.S. filings: Ranbaxy filed 12 ANDAs in CY10.
Outstanding hedges as of December 31, 2010: ~US$850mn
vs US$1.8bn as of December 31, 2009.
FCCB redemption: Ranbaxy has an outstanding FCCB of
US$440mn, which is due for redemption in March 2011.
According to management, it is sufficiently geared to repay the
FCCBs.
Net debt as of December 31, 2010: ~ US$150mn (vs
US$550mn as of December 31, 2009).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Ranbaxy Laboratories
Disappointing Quarter,
Lackluster 2011 Guidance
Quick Comment: Ranbaxy reported below expectation
4Q results due to lower contribution from Aricept
exclusivity and lower base business operating margins.
We believe sequential comparison (with and without
Aricept) is the most relevant analysis. Sales were up 9%
qoq (up 2% ex Aricept) and operating profits expanded
380 bps qoq (they compressed 12 bps ex Aricept).
Together this resulted in Rs2.3bn operating profits
versus our estimate of Rs5.5bn. 70% price erosion (we
had estimated 40%) for sole exclusivity for Aricept was
the negative surprise, and the main reason for the big
earnings miss. Excluding extraordinary items/forex
charges, the company reported Rs1bn net profits versus
our and Street expectation of Rs3.5bn.
Uninspiring guidance: Ranbaxy has guided for (flat)
Rs84bn sales (US$1.87bn) guidance for 2011 (Rs85bn
in 2010), excluding Lipitor but including the remaining
4-5 months of Aricept. Excluding FTFs, we estimate
10-12% base business sales growth in 2011, one of the
lowest rates in the industry group. The company’s C12
mid-term guidance of US$3bn sales will be updated in
May 2011. We will be incorporating new information in
our model.
Other key highlights - FDA update: Management did
not disclose much except to reiterate that it is in dialogue
with FDA/DoJ and it shall update on the comprehensive
resolution once the visibility improves. It has filed 12
ANDAs in 2010 and had a successful FDA inspection
(likely at the Taonsa site). FCCB (US$440mn) is
scheduled for redemption in March 2011, for which
Ranbaxy believes it is comfortably placed (US$150mn
net debt as of December 2010). The U.S. base business
has now scaled up to US$70-80mn per quarter
(US$100mn – pre FDA issues).
Conference Call Highlights
Guidance for CY11: Ranbaxy has guided for total sales of
Rs84bn (US$1.87bn) excluding the generic Lipitor opportunity.
Mid-term guidance (CY12) under review: Management’s
mid-term (CY12) revenue guidance of US$3bn is under review
and will be updated in May 2011.
Update on FDA/ DoJ issues: Management reiterated that it is
in dialogue with the U.S. FDA and DoJ (Department of Justice).
It will communicate on the update on comprehensive resolution
once the visibility improves.
Aricept opportunity: Ranbaxy launched generic Aricept in
U.S. with 180 days exclusivity at the end of November 2010.
There is an authorized generic (AG) along with Ranbaxy in the
market. RBXY has ~30% market share. According to
management, the pricing environment is very competitive (with
~70% price erosion).
North American performance: North American formulations
posted revenues of US$131mn for C4Q10. According to
management, U.S. base business has now scaled up to
US$70-80mn per quarter.
Domestic formulations segment: This grossed revenues of
Rs17.6bn for CY10, up 8%, up 17% excluding on- time
revenues in CY09.
Project Viraat – Ranbaxy has successfully implemented project
VIraat for the domestic market. It expects benefits to accrue in
2011. To recap, initiatives under Project Viraat include
expansion of the field force, new products launches and
entering new therapy areas.
ARV tender in South Africa: Ranbaxy’s JV in South Africa
(Sonke Pharmaceuticals) won a ~US$130mn anti-retroviral
medication supply tender in December 2010. The tender is a
for a two-year period.
U.S. filings: Ranbaxy filed 12 ANDAs in CY10.
Outstanding hedges as of December 31, 2010: ~US$850mn
vs US$1.8bn as of December 31, 2009.
FCCB redemption: Ranbaxy has an outstanding FCCB of
US$440mn, which is due for redemption in March 2011.
According to management, it is sufficiently geared to repay the
FCCBs.
Net debt as of December 31, 2010: ~ US$150mn (vs
US$550mn as of December 31, 2009).
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