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Ranbaxy (RBXY IN)
Downgrade to UW: Consent decree under strict terms
US Department of Justice files consent decree of permanent
injunction against Ranbaxy enforcing cGMP compliance at
all sites – Paonta Sahib, Dewas and Gloversville
Product approvals delay aside, decree puts strict terms on
maintaining FTFs – forfeits 3 exclusivities, risking additional
filings and adding liquidation damages
Contrary to street expectations, base business recovery is
not in vicinity. Downgrade to UW from Neutral with target of
INR400 (earlier INR454) – 18x Sep-13 EPS with para IV INR40
Consent decree seeks permanent injunction: US has filed consent decree of permanent
injunction requesting court to a) permanently restrain and enjoin Ranbaxy under the Act,
21 USC from manufacturing, processing-distribution and related activities at all three sites
including Paonta Sahib, Dewas and Gloversville; b) order that FDA be authorized to
withhold review of any applications from any of these affected sites c) award damages
and other equitable relief as deemed fit. As known, Paonta and Dewas have been under
import alert since 2008 and Gloversville liquid formulation facility was closed in Oct-11.
Resumption of review of ANDAs from Paonta and Dewas is subject to Ranbaxy a)
hiring a third party expert to conduct a internal review and audit applications b)
implement procedures and controls sufficient to ensure data integrity and c) withdraw any
applications that might contain data irregularities or that may make false claims. Ranbaxy
relinquishes 180 day exclusivity for 3 small ANDAs, and could affect bigger exclusivities
if certain requirements are not met. In addition, it prevents the company from participating
under PEPFAR (for AIDS relief) program and allows FDA to cover additional facilities
under decree if there is breach of compliance.
Base business recovery to take time, downgrading to UW: While company has set
aside USD500mn provision for payment of fines, consultant and other fees, exact amount
of fine payment is not discussed in decree. Since the announcement of consent decree
stock has rallied c17% with expectation of gradual approval of affected products from the
facilities. However, based on our understanding from consent decree we believe product
approvals will take at least 1.5-2 years. We haven’t built any material recovery in base US
sales, possible risk to exclusivities warrant us to lower our target multiple to 18x (from
earlier 20x), 20% discount to other large caps. At 18x Sep-13 EPS of INR20 with reduced
para-IV value of INR40 (from INR53, discounting due to higher price erosion in Lipitor)
our new TP is INR400 (from earlier INR454). We downgrade to Underweight.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Ranbaxy (RBXY IN)
Downgrade to UW: Consent decree under strict terms
US Department of Justice files consent decree of permanent
injunction against Ranbaxy enforcing cGMP compliance at
all sites – Paonta Sahib, Dewas and Gloversville
Product approvals delay aside, decree puts strict terms on
maintaining FTFs – forfeits 3 exclusivities, risking additional
filings and adding liquidation damages
Contrary to street expectations, base business recovery is
not in vicinity. Downgrade to UW from Neutral with target of
INR400 (earlier INR454) – 18x Sep-13 EPS with para IV INR40
Consent decree seeks permanent injunction: US has filed consent decree of permanent
injunction requesting court to a) permanently restrain and enjoin Ranbaxy under the Act,
21 USC from manufacturing, processing-distribution and related activities at all three sites
including Paonta Sahib, Dewas and Gloversville; b) order that FDA be authorized to
withhold review of any applications from any of these affected sites c) award damages
and other equitable relief as deemed fit. As known, Paonta and Dewas have been under
import alert since 2008 and Gloversville liquid formulation facility was closed in Oct-11.
Resumption of review of ANDAs from Paonta and Dewas is subject to Ranbaxy a)
hiring a third party expert to conduct a internal review and audit applications b)
implement procedures and controls sufficient to ensure data integrity and c) withdraw any
applications that might contain data irregularities or that may make false claims. Ranbaxy
relinquishes 180 day exclusivity for 3 small ANDAs, and could affect bigger exclusivities
if certain requirements are not met. In addition, it prevents the company from participating
under PEPFAR (for AIDS relief) program and allows FDA to cover additional facilities
under decree if there is breach of compliance.
Base business recovery to take time, downgrading to UW: While company has set
aside USD500mn provision for payment of fines, consultant and other fees, exact amount
of fine payment is not discussed in decree. Since the announcement of consent decree
stock has rallied c17% with expectation of gradual approval of affected products from the
facilities. However, based on our understanding from consent decree we believe product
approvals will take at least 1.5-2 years. We haven’t built any material recovery in base US
sales, possible risk to exclusivities warrant us to lower our target multiple to 18x (from
earlier 20x), 20% discount to other large caps. At 18x Sep-13 EPS of INR20 with reduced
para-IV value of INR40 (from INR53, discounting due to higher price erosion in Lipitor)
our new TP is INR400 (from earlier INR454). We downgrade to Underweight.
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