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Ranbaxy Laboratories
1Q Beat, But Stock Price is
Levered to FDA Action - OW
Quick Comment: Ranbaxy’s 1Q earnings were ahead
of our expectations (due to higher Aricept and interest
income – both of which will not recur), though base
business recovery remains slow. Sequential comparison
should be more relevant given high base last year due to
Valtrex. Sales were up 3.7% QoQ (down 7% ex Aricept)
and operating margins expanded 760 bps to 18.5%
(expanded 210 bps excluding Aricept). This, together
with higher interest income (Rs897 mn), led to a 137%
QoQ rise in net profit to Rs3.04 bn (MSe – Rs1.55 bn).
Aricept contributed roughly $80 mn in sales (MSe - $50
mn). Its pricing continues to be down 70%.
Commentary on FDA/DoJ issues – Management did
not share specific details on timelines and penalty.
However, it indicated the following:
1) It is negotiating a joint settlement with FDA and DoJ;
2) DoJ has demanded certain charges, to which
Ranbaxy has given a counter offer that is conditional;
3) Management believes that $1bn settlement charge
published in certain media (Forbes) is speculative;
4) The company does not have any capacity constraint
to cater to US generic Lipitor demand.
Other highlights: Ranbaxy appeared tentative on the
timelines (end 2011) for Nexium dosage form supply to
AZN, though API supplies had commenced in 4Q10. Its
large Mohali SEZ will likely commence meaningful
commercial supplies in 2012. It expects exports
incentives (such as DEPB) by the government to
continue in one form or the another.
We remain Overweight on Ranbaxy in view of strong
FTF pipeline (Lipitor, Caduet, Diovan, Actos, Provigil)
over next 18 months, subject to FDA action. We have
assumed $250 mn FDA/DoJ penalty.
Conference Call Highlights
• Update on USFDA and DoJ issues: Management
refrained from providing any specific timelines and
possible settlement amount, though it highlighted that
it is in dialogue with both USFDA and DoJ for a
composite resolution including a joint settlement.
• Generic Lipitor opportunity: Management remains
confident of monetizing generic Lipitor opportunity.
Furthermore, according to management, it does not
have any capacity constraint to cater to demand for
generic Lipitor in US.
• Export incentives: As per management, the
government is expected to maintain export incentives
(in one form or another) in order to sustain the existing
advantage to exports.
• Nexium formulations supply to AstraZeneca:
Ranbaxy appeared tentative on the timelines (end
2011) for Nexium dosage form supply to AstraZeneca,
depending on the regulatory approval.
• Domestic market performance: Domestic market
clocked revenue of Rs4.4 bn for 1Q, up 14% YoY.
According to management, the benefits under Project
Viraat have started to accrue. Its market share in the
domestic business stood at 4.78%, up from 4.63% in
1Q10. According to management, Ranbaxy has been
the fastest growing company (in terms of secondary
sales) among the top companies. It now has a field
force of about 4,300 medical representatives.
• US business performance: US segment clocked
revenue of US$155 mn for C1Q11, mainly driven by
Aricept exclusivity. YoY comparison is not relevant
since C1Q10 had a higher contribution from generic
Valtrex and Oxycodone exclusivity. According to the
company, US base business has stabilized at
~US$75 mn per quarter.
• Emerging market performance: Emerging markets
(including India) clocked revenue of US$237 mn for
1Q11, up 12% YoY. The company continues to focus
on key emerging markets including India, Russia,
Ukraine, South Africa, Malaysia and Brazil.
• Base business performance: According to
management, growth in the base business sales and
profits (excluding one-offs) has been at a strong
double-digit levels.
• Outsourcing to increase: To optimize productivity,
management plans to increase its manufacturing
outsourcing activity where products are
undifferentiated and highly commoditized.
• Mohali SEZ facility: The company is currently taking
batches for regulatory filings. Management expects
revenue contribution from this facility to be meaningful
in 2012.
• Regulatory update: During the quarter, various
regulatory authorities including WHO, AU and GCC
audited and approved the company’s manufacturing
facilities.
• Regulatory filings: The company filed 54
formulations filings and received 29 approvals during
the quarter.
• Update on synergies with Daiichi Sankyo:
Ranbaxy launched 4 products from Daiichi Sankyo’s
portfolio in Singapore. According to management, it
continues to evaluate other opportunities under the
synergy project, including launching Ranbaxy’s
products in markets where Daiichi Sankyo has a
presence and other cost reduction projects.
• Outstanding derivative position as of
March 31, 2011, stood at US$799 mn.
• Net debt as of March 31, 2011, stood at US$270 mn.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Ranbaxy Laboratories
1Q Beat, But Stock Price is
Levered to FDA Action - OW
Quick Comment: Ranbaxy’s 1Q earnings were ahead
of our expectations (due to higher Aricept and interest
income – both of which will not recur), though base
business recovery remains slow. Sequential comparison
should be more relevant given high base last year due to
Valtrex. Sales were up 3.7% QoQ (down 7% ex Aricept)
and operating margins expanded 760 bps to 18.5%
(expanded 210 bps excluding Aricept). This, together
with higher interest income (Rs897 mn), led to a 137%
QoQ rise in net profit to Rs3.04 bn (MSe – Rs1.55 bn).
Aricept contributed roughly $80 mn in sales (MSe - $50
mn). Its pricing continues to be down 70%.
Commentary on FDA/DoJ issues – Management did
not share specific details on timelines and penalty.
However, it indicated the following:
1) It is negotiating a joint settlement with FDA and DoJ;
2) DoJ has demanded certain charges, to which
Ranbaxy has given a counter offer that is conditional;
3) Management believes that $1bn settlement charge
published in certain media (Forbes) is speculative;
4) The company does not have any capacity constraint
to cater to US generic Lipitor demand.
Other highlights: Ranbaxy appeared tentative on the
timelines (end 2011) for Nexium dosage form supply to
AZN, though API supplies had commenced in 4Q10. Its
large Mohali SEZ will likely commence meaningful
commercial supplies in 2012. It expects exports
incentives (such as DEPB) by the government to
continue in one form or the another.
We remain Overweight on Ranbaxy in view of strong
FTF pipeline (Lipitor, Caduet, Diovan, Actos, Provigil)
over next 18 months, subject to FDA action. We have
assumed $250 mn FDA/DoJ penalty.
Conference Call Highlights
• Update on USFDA and DoJ issues: Management
refrained from providing any specific timelines and
possible settlement amount, though it highlighted that
it is in dialogue with both USFDA and DoJ for a
composite resolution including a joint settlement.
• Generic Lipitor opportunity: Management remains
confident of monetizing generic Lipitor opportunity.
Furthermore, according to management, it does not
have any capacity constraint to cater to demand for
generic Lipitor in US.
• Export incentives: As per management, the
government is expected to maintain export incentives
(in one form or another) in order to sustain the existing
advantage to exports.
• Nexium formulations supply to AstraZeneca:
Ranbaxy appeared tentative on the timelines (end
2011) for Nexium dosage form supply to AstraZeneca,
depending on the regulatory approval.
• Domestic market performance: Domestic market
clocked revenue of Rs4.4 bn for 1Q, up 14% YoY.
According to management, the benefits under Project
Viraat have started to accrue. Its market share in the
domestic business stood at 4.78%, up from 4.63% in
1Q10. According to management, Ranbaxy has been
the fastest growing company (in terms of secondary
sales) among the top companies. It now has a field
force of about 4,300 medical representatives.
• US business performance: US segment clocked
revenue of US$155 mn for C1Q11, mainly driven by
Aricept exclusivity. YoY comparison is not relevant
since C1Q10 had a higher contribution from generic
Valtrex and Oxycodone exclusivity. According to the
company, US base business has stabilized at
~US$75 mn per quarter.
• Emerging market performance: Emerging markets
(including India) clocked revenue of US$237 mn for
1Q11, up 12% YoY. The company continues to focus
on key emerging markets including India, Russia,
Ukraine, South Africa, Malaysia and Brazil.
• Base business performance: According to
management, growth in the base business sales and
profits (excluding one-offs) has been at a strong
double-digit levels.
• Outsourcing to increase: To optimize productivity,
management plans to increase its manufacturing
outsourcing activity where products are
undifferentiated and highly commoditized.
• Mohali SEZ facility: The company is currently taking
batches for regulatory filings. Management expects
revenue contribution from this facility to be meaningful
in 2012.
• Regulatory update: During the quarter, various
regulatory authorities including WHO, AU and GCC
audited and approved the company’s manufacturing
facilities.
• Regulatory filings: The company filed 54
formulations filings and received 29 approvals during
the quarter.
• Update on synergies with Daiichi Sankyo:
Ranbaxy launched 4 products from Daiichi Sankyo’s
portfolio in Singapore. According to management, it
continues to evaluate other opportunities under the
synergy project, including launching Ranbaxy’s
products in markets where Daiichi Sankyo has a
presence and other cost reduction projects.
• Outstanding derivative position as of
March 31, 2011, stood at US$799 mn.
• Net debt as of March 31, 2011, stood at US$270 mn.
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