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Lipitor represents an event risk for Ranbaxy and we analyse the
options Ranbaxy has to monetise its exclusivity. The best case for
Ranbaxy is approval by 30 Nov 2011, which is our base case and
we value it at Rs60/share.
● The next option depends on how much delay Ranbaxy expects in
its approval beyond 30 Nov 2011. If a significant delay is
expected, then Ranbaxy may relinquish exclusivity, strike a deal
with Teva and Mylan – allowing them to launch six months earlier.
● However, if the delay expected is not significant, then Ranbaxy
should launch on its own as it can push other products with
Lipitor. Though upside may be reduced significantly as Watson
would launch on 30 Nov 2011, irrespective of Ranbaxy’s approval.
● We see a low probability of Ranbaxy licensing its exclusivity to
another generic player as it requires Ranbaxy to first launch its
generic version and then transfer its exclusivity.
● Ranbaxy/FDA has not disclosed the current status of Lipitor
ANDA. Thus it is difficult to assign probabilities to the above
scenarios. In the worst case, Ranbaxy’s ANDA may not clear AIP.
Can Ranbaxy license out its Lipitor exclusivity?
We analyse in this note the options Ranbaxy has to monetise its 180-
days exclusivity on Lipitor. The best case for Ranbaxy is clearance of
its Lipitor ANDA from AIP (Application Integration Policy) and getting
approval to launch its generic version by 30 Nov 2011. This is our
base case and we value it at Rs60/share.
The other options (sub-optimal for Ranbaxy) are 1) delayed approval
post 30 Nov 2011, 2) Ranbaxy licences its exclusivity to a subsequent
generic, 3) Ranbaxy relinquishes its exclusivity and 4) FDA rejects
Ranbaxy’s application under AIP.
1) Delayed approval post 30-Nov-2011
Ranbaxy’s ANDA for Lipitor is pre-MMA and hence Ranbaxy would
retain its exclusivity even if its approval is delayed beyond Nov 2011.
However, Watson is an authorised generic and would launch its
generic Lipitor irrespective of Ranbaxy’s approval and therefore Lipitor
upside for Ranbaxy could be significantly reduced if its approval is
delayed. If Watson launches before Ranbaxy, then price erosion on
Lipitor could be higher than our base assumption of 40%, as Ranbaxy
tries to get market share from Watson.
2) Ranbaxy licences its exclusivity to a subsequent generic
The US FDA allows the first filer to waive its 180-days exclusivity in
favour of another specific generic applicant but only once the
exclusivity is triggered. The two conditions that can trigger an
exclusivity are 1) commercial marketing – first generic applicant
launches its product and 2) a favourable court decision. In Ranbaxy’s
case, we see a low probability of subsequent ANDA filers proving
invalidity or non-infringement of ‘156 patent and additionally Pfizer has
opted for settlement with the subsequent filers so far. Therefore,
commercial marketing is necessary for Ranbaxy to selectively waive
its exclusivity, which in turn requires an approval. We believe Ranbaxy
may opt for this option only when it clears AIP but is unable to do site
transfer to Ohm’s lab. We see a low probability of that happening and
do not believe Ranbaxy would select this option.
3) Ranbaxy relinquishes its exclusivity
The last hope Ranbaxy has is to relinquish its exclusivity altogether in
the hope that it would be able to monetise it by striking a deal with
Teva and Mylan as they get to launch their generic versions earlier by
six months. We believe Ranbaxy would attempt this option when its
approval is significantly delayed beyond 30 Nov 2011. In the past,
Ranbaxy used this option to monetise Flomax exclusivity.
4) FDA rejects Ranbaxy’s ANDA as it could not clear AIP
Ranbaxy could not only lose out on Rs60/share upside on Lipitor but
also lose out a chance to push through its base products together with
Lipitor.
Mylan’s case against US FDA should not impact Ranbaxy’s
approval process
Our reading of the Mylan’s case suggest that it is more of an attempt
to get more information from FDA about the status of Ranbaxy’s
Lipitor ANDA and should not impact Ranbaxy’s ANDA approval
process. Mylan’s request for an expedited hearing was granted on 25
Mar 2011 and the hearing on the motions will be scheduled post 15
Apr 2011.
Maintain UNDERPERFORM; target price Rs450
Mylan’s case represent the state of the external world about the status
of Ranbaxy’s Lipitor ANDA. Therefore, in the absence of further
information, it is difficult to assign probabilities to the above scenarios.
We maintain our UNDERPERFORM rating as our target price already
factors in the best case scenario for Ranbaxy.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Lipitor represents an event risk for Ranbaxy and we analyse the
options Ranbaxy has to monetise its exclusivity. The best case for
Ranbaxy is approval by 30 Nov 2011, which is our base case and
we value it at Rs60/share.
● The next option depends on how much delay Ranbaxy expects in
its approval beyond 30 Nov 2011. If a significant delay is
expected, then Ranbaxy may relinquish exclusivity, strike a deal
with Teva and Mylan – allowing them to launch six months earlier.
● However, if the delay expected is not significant, then Ranbaxy
should launch on its own as it can push other products with
Lipitor. Though upside may be reduced significantly as Watson
would launch on 30 Nov 2011, irrespective of Ranbaxy’s approval.
● We see a low probability of Ranbaxy licensing its exclusivity to
another generic player as it requires Ranbaxy to first launch its
generic version and then transfer its exclusivity.
● Ranbaxy/FDA has not disclosed the current status of Lipitor
ANDA. Thus it is difficult to assign probabilities to the above
scenarios. In the worst case, Ranbaxy’s ANDA may not clear AIP.
Can Ranbaxy license out its Lipitor exclusivity?
We analyse in this note the options Ranbaxy has to monetise its 180-
days exclusivity on Lipitor. The best case for Ranbaxy is clearance of
its Lipitor ANDA from AIP (Application Integration Policy) and getting
approval to launch its generic version by 30 Nov 2011. This is our
base case and we value it at Rs60/share.
The other options (sub-optimal for Ranbaxy) are 1) delayed approval
post 30 Nov 2011, 2) Ranbaxy licences its exclusivity to a subsequent
generic, 3) Ranbaxy relinquishes its exclusivity and 4) FDA rejects
Ranbaxy’s application under AIP.
1) Delayed approval post 30-Nov-2011
Ranbaxy’s ANDA for Lipitor is pre-MMA and hence Ranbaxy would
retain its exclusivity even if its approval is delayed beyond Nov 2011.
However, Watson is an authorised generic and would launch its
generic Lipitor irrespective of Ranbaxy’s approval and therefore Lipitor
upside for Ranbaxy could be significantly reduced if its approval is
delayed. If Watson launches before Ranbaxy, then price erosion on
Lipitor could be higher than our base assumption of 40%, as Ranbaxy
tries to get market share from Watson.
2) Ranbaxy licences its exclusivity to a subsequent generic
The US FDA allows the first filer to waive its 180-days exclusivity in
favour of another specific generic applicant but only once the
exclusivity is triggered. The two conditions that can trigger an
exclusivity are 1) commercial marketing – first generic applicant
launches its product and 2) a favourable court decision. In Ranbaxy’s
case, we see a low probability of subsequent ANDA filers proving
invalidity or non-infringement of ‘156 patent and additionally Pfizer has
opted for settlement with the subsequent filers so far. Therefore,
commercial marketing is necessary for Ranbaxy to selectively waive
its exclusivity, which in turn requires an approval. We believe Ranbaxy
may opt for this option only when it clears AIP but is unable to do site
transfer to Ohm’s lab. We see a low probability of that happening and
do not believe Ranbaxy would select this option.
3) Ranbaxy relinquishes its exclusivity
The last hope Ranbaxy has is to relinquish its exclusivity altogether in
the hope that it would be able to monetise it by striking a deal with
Teva and Mylan as they get to launch their generic versions earlier by
six months. We believe Ranbaxy would attempt this option when its
approval is significantly delayed beyond 30 Nov 2011. In the past,
Ranbaxy used this option to monetise Flomax exclusivity.
4) FDA rejects Ranbaxy’s ANDA as it could not clear AIP
Ranbaxy could not only lose out on Rs60/share upside on Lipitor but
also lose out a chance to push through its base products together with
Lipitor.
Mylan’s case against US FDA should not impact Ranbaxy’s
approval process
Our reading of the Mylan’s case suggest that it is more of an attempt
to get more information from FDA about the status of Ranbaxy’s
Lipitor ANDA and should not impact Ranbaxy’s ANDA approval
process. Mylan’s request for an expedited hearing was granted on 25
Mar 2011 and the hearing on the motions will be scheduled post 15
Apr 2011.
Maintain UNDERPERFORM; target price Rs450
Mylan’s case represent the state of the external world about the status
of Ranbaxy’s Lipitor ANDA. Therefore, in the absence of further
information, it is difficult to assign probabilities to the above scenarios.
We maintain our UNDERPERFORM rating as our target price already
factors in the best case scenario for Ranbaxy.
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