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Ranbaxy
Downgrade to N: RBXY plays Teva card to end gLipitor
woes
Ranbaxy announces launch of gLipitor (atorvastatin) in the
US from NJ facility – this is the largest US generic launch
Timely launch positive, though tie-up with Teva dents upside
potential, possible c30-33% profit sharing arrangement
Downgrade to N from OW, given near-term catalyst played
out; Mohali facility FDA approval and India ramp-up to aid in
slow base recovery; cut TP to INR500 from INR565
Finally positive verdict on Lipitor: Ranbaxy announced the launch of generic Lipitor
(atorvastatin calcium) in the US, in all strengths, from Ohms Laboratories, a facility in
New Jersey. This is in line with our expectation of a timely launch and should bring
significant gains in next six months. Watson has also an authorised generic and has
launched the product as well.
Focus shifts to market share gain and pricing: Watson has indicated that it has launched
with a 50% discount to the branded drug’s retail price. Pfizer has been working on a strategy to
extend the life of the branded drug by offering to sell branded Lipitor directly to payors
(pharmacies and insurance companies) at lower prices. While such strategies are not new to
innovator companies, given Pfizer’s aggressiveness to protect brand share, we are cautious on
Ranbaxy’s market share gains. Our current valuation assumes a c40% share for Ranbaxy, with
c65% price erosion.
Partnership with Teva – an unknown: Ranbaxy’s tie-up with Teva, while not a major
surprise, is a setback to sentiment. We believe Ranbaxy would have kept Teva as a back-up
plan in case manufacturing issues prevented the approval of the product. Although terms of the
agreement are not disclosed, based on an incremental USD0.10 EPS impact as per Teva from
an unknown drug in 4Q11, we assume Ranbaxy will share cUSD90-100m in profits (c30%
share of the total profit from the opportunity).
Downgrade to N from OW as an important catalyst played out: With the Lipitor catalyst
playing out, we believe there are few near-term catalysts. The next important launches are
expected to be gProvigil in April 2012 and gActos in August 2012. We are cutting our
estimates, factoring in a lower profit contribution post-Teva. We value RBXY at 20x
September 2013e EPS of INR22.2 and add a reduced para-IV value of INR53, down from
earlier INR70, on account of the profit sharing agreement with Teva for generic Lipitor.
Upside risks include the clearance of facilities and the resolution of AIP, though we believe
this could further test investor’s patience. Downside risks are the difficulty in gaining market
share and a higher-than-assumed price erosion in gLipitor during period of exclusivity (180
days) and in the period beyond May 2012.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Ranbaxy
Downgrade to N: RBXY plays Teva card to end gLipitor
woes
Ranbaxy announces launch of gLipitor (atorvastatin) in the
US from NJ facility – this is the largest US generic launch
Timely launch positive, though tie-up with Teva dents upside
potential, possible c30-33% profit sharing arrangement
Downgrade to N from OW, given near-term catalyst played
out; Mohali facility FDA approval and India ramp-up to aid in
slow base recovery; cut TP to INR500 from INR565
Finally positive verdict on Lipitor: Ranbaxy announced the launch of generic Lipitor
(atorvastatin calcium) in the US, in all strengths, from Ohms Laboratories, a facility in
New Jersey. This is in line with our expectation of a timely launch and should bring
significant gains in next six months. Watson has also an authorised generic and has
launched the product as well.
Focus shifts to market share gain and pricing: Watson has indicated that it has launched
with a 50% discount to the branded drug’s retail price. Pfizer has been working on a strategy to
extend the life of the branded drug by offering to sell branded Lipitor directly to payors
(pharmacies and insurance companies) at lower prices. While such strategies are not new to
innovator companies, given Pfizer’s aggressiveness to protect brand share, we are cautious on
Ranbaxy’s market share gains. Our current valuation assumes a c40% share for Ranbaxy, with
c65% price erosion.
Partnership with Teva – an unknown: Ranbaxy’s tie-up with Teva, while not a major
surprise, is a setback to sentiment. We believe Ranbaxy would have kept Teva as a back-up
plan in case manufacturing issues prevented the approval of the product. Although terms of the
agreement are not disclosed, based on an incremental USD0.10 EPS impact as per Teva from
an unknown drug in 4Q11, we assume Ranbaxy will share cUSD90-100m in profits (c30%
share of the total profit from the opportunity).
Downgrade to N from OW as an important catalyst played out: With the Lipitor catalyst
playing out, we believe there are few near-term catalysts. The next important launches are
expected to be gProvigil in April 2012 and gActos in August 2012. We are cutting our
estimates, factoring in a lower profit contribution post-Teva. We value RBXY at 20x
September 2013e EPS of INR22.2 and add a reduced para-IV value of INR53, down from
earlier INR70, on account of the profit sharing agreement with Teva for generic Lipitor.
Upside risks include the clearance of facilities and the resolution of AIP, though we believe
this could further test investor’s patience. Downside risks are the difficulty in gaining market
share and a higher-than-assumed price erosion in gLipitor during period of exclusivity (180
days) and in the period beyond May 2012.
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