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Ranbaxy Laboratories (RANB.BO) Rs453.75
Negative News Equity Research
Potential US$1bn to settle FDA charges relating to Lipitor
News
In an article discussing the prospects for Ranbaxy (RBX) producing a
generic version of Pfizer's (PFE) Lipitor, Fortune (May 4) reported that US
federal prosecutors are negotiating a settlement with Ranbaxy that could
result in fines and payments exceeding US$1bn for fraudulent conduct
alleged by the FDA. Fortune also reported that Ranbaxy's negotiations with
prosecutors are ongoing as the FDA insists on a "meaningful" settlement
and Ranbaxy seeks to retain its generic Lipitor rights. Fortune further
reported it learned that in March, Ranbaxy scheduled – and later
postponed – a meeting with prosecutors to resolve the case.
Analysis
We believe the settlement amount of US$1bn (as quoted in the article) is
disproportionate to the profitability of RBX’s ANDA pipeline over the next 3
years (in our report, "Deep dive into patent cliff - US$3bn opportunity for Top
6 cos," dated February 18, 2011, we estimate RBX’s pipeline to be US$1.5bn).
However, if correct, this could materially impact RBX’s profitability. In
addition, RBX has Rs13bn (US$280mn) of net debt on its balance sheet as of
Dec 31, 2010 and a US$1bn settlement amount could negatively impact its
financials. In our report on possible scenarios on generic Lipitor, we
assumed our base case to have a Nov 30 launch of generic Lipitor, with a 6-
month EPS contribution of Rs28.90, or 31% of our 2011E and 43% of 2012E
EPS; a US$1bn settlement amount would significantly alter our assumptions
(see our report, ”Generic Lipitor – launch looming, dynamics far from clear
with global stock implications,” dated March 18, 2011).
Implications
RBX's 2010 US sales were US$600mn, including the one-off launches of
generic Valtrex and Aricept. In our view, a US$1bn settlement to facilitate
the launch of generic Lipitor and other FTFs (with US$1.5bn revenue
potential), may not be beneficial for Ranbaxy. We expect to hear updates
on this subject during the May 10 earnings conference call. We maintain
our Neutral rating and price target on the stock.
INVESTMENT LIST MEMBERSHIP
Neutral
Coverage View: Neutral
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Ranbaxy Laboratories (RANB.BO) Rs453.75
Negative News Equity Research
Potential US$1bn to settle FDA charges relating to Lipitor
News
In an article discussing the prospects for Ranbaxy (RBX) producing a
generic version of Pfizer's (PFE) Lipitor, Fortune (May 4) reported that US
federal prosecutors are negotiating a settlement with Ranbaxy that could
result in fines and payments exceeding US$1bn for fraudulent conduct
alleged by the FDA. Fortune also reported that Ranbaxy's negotiations with
prosecutors are ongoing as the FDA insists on a "meaningful" settlement
and Ranbaxy seeks to retain its generic Lipitor rights. Fortune further
reported it learned that in March, Ranbaxy scheduled – and later
postponed – a meeting with prosecutors to resolve the case.
Analysis
We believe the settlement amount of US$1bn (as quoted in the article) is
disproportionate to the profitability of RBX’s ANDA pipeline over the next 3
years (in our report, "Deep dive into patent cliff - US$3bn opportunity for Top
6 cos," dated February 18, 2011, we estimate RBX’s pipeline to be US$1.5bn).
However, if correct, this could materially impact RBX’s profitability. In
addition, RBX has Rs13bn (US$280mn) of net debt on its balance sheet as of
Dec 31, 2010 and a US$1bn settlement amount could negatively impact its
financials. In our report on possible scenarios on generic Lipitor, we
assumed our base case to have a Nov 30 launch of generic Lipitor, with a 6-
month EPS contribution of Rs28.90, or 31% of our 2011E and 43% of 2012E
EPS; a US$1bn settlement amount would significantly alter our assumptions
(see our report, ”Generic Lipitor – launch looming, dynamics far from clear
with global stock implications,” dated March 18, 2011).
Implications
RBX's 2010 US sales were US$600mn, including the one-off launches of
generic Valtrex and Aricept. In our view, a US$1bn settlement to facilitate
the launch of generic Lipitor and other FTFs (with US$1.5bn revenue
potential), may not be beneficial for Ranbaxy. We expect to hear updates
on this subject during the May 10 earnings conference call. We maintain
our Neutral rating and price target on the stock.
INVESTMENT LIST MEMBERSHIP
Neutral
Coverage View: Neutral
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