Ranbaxy Laboratories: Was Provigil forfeited by Ranbaxy? :: Kotak Securities PDF link

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Ranbaxy Laboratories (RBXY)
Pharmaceuticals
Was Provigil forfeited by Ranbaxy? Uncertainty over monetization of near-term FTFs
has increased post the recent episode of Provigil, in our view. We find it surprising that
Ranbaxy has not taken any step to reinforce its FTF status on Provigil, despite having
settled its patent challenge with Cephalon for a certain launch in April 2012. Ranbaxy’s
response is that Provigil was a unique case and had its own commercialization
challenges, which begs the question – will Ranbaxy launch this product post FTF in Sep
2012? In light of this, we remain unsure over near-term FTF launches —Actos (Aug 17,
2012 launch) and Diovan (September launch). We believe the loss of FTF status is a key
risk to the stock as post FTF sales are critical to recovery of base business in US. SELL
with TP at Rs380.



Ranbaxy settled with Cephalon for April 2012 launch of Provigil along with Mylan and Teva
Ranbaxy had FTF status on Provigil (US$1.1 bn sales in US) as per Cephalon (see excerpts from the
annual report below). Also as per Bloomberg analyst speak, Teva’s 2012E profit guidance did not
include sole FTF status on Provigil.
“In March 2003, we filed a patent infringement lawsuit against four companies—Teva
Pharmaceuticals USA, Inc., Mylan Pharmaceuticals, Inc., Ranbaxy Laboratories Limited and Barr
Laboratories, Inc.—based upon the abbreviated new drug applications ("ANDA") filed by each of
these firms with the FDA seeking approval to market a generic form of modafinil. In late 2005 and
early 2006, we entered into settlement agreements with each of Teva, Mylan, Ranbaxy and Barr.
As part of these separate settlements, we agreed to grant to each of these parties a non-exclusive
royalty-bearing license to market and sell a generic version of PROVIGIL in the United States,
effective April 2012, subject to applicable regulatory considerations.”
We find it surprising that Ranbaxy has not taken any step to reinforce its FTF status on Provigil
With Teva having been accorded exclusivity by FDA on April 5 and exclusivity having started from
March 29 (the date of launch of authorized generic version), we find it strange that Ranbaxy has
not taken any step to protect its FTF, like Mylan has. Mylan sued FDA on April 5 seeking a ruling
that Teva holds no exclusivity for generic Provigil. Ranbaxy’s response is that Provigil was a unique
case and had its own commercialization challenges, which then begs the question – will Ranbaxy
be able to launch this product post FTF in September 2012? We believe the loss of FTF status is a key
risk to the stock as post FTF sales are critical to recovery of business in US.
Uncertainty over commercialization of the other two near-term FTFs remains
In light of above, we refrain from including FTF value/share in our target price. We maintain target
price at Rs380 (18X 2012E base business earnings); stock trading at 24X 2012E base business
earnings.