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Ranbaxy: View Point

Ranbaxy Laboratories 

·         Ranbaxy resumes sales of Lipitor in USA; may regain part of market share lost: After three months of halting production of drug substances of generic Lipitor, Ranbaxy Laboratories (Ranbaxy) has restarted the production of these substances for the purpose of supplies to the USA, after the US Food and Drug Administration (USFDA) gave green signal to it. The company was forced to resort voluntary recalls of select batches of generic Lipitor from the US market due to tiny glass particles found in some lots. This subsequently led to a complete halt of production for the US market. Though the company continues to supply this product in other parts of the world, the US sales suffered badly during the past three months. The market share of Ranbaxy in generic Atorvastatin Calcium market plunged to 3% in January 2013 from nearly 34% after exclusivity market share. However, with the resumption of supplies, Ranbaxy is expected to regain part of the market share it lost earlier. We expect Ranbaxy to fetch around $20-25 million in Q1CY2013 (for five weeks). Though the company has not disclosed the details of conditions or corrections if any, suggested by the USFDA as pre-conditions to allow reproduction of the drug substances, we consider it a positive development for the company.

·         Strong product pipeline and key FTF opportunities to drive the growth: Ranbaxy has one of the strongest product filings and approvals among the Indian peers and that also includes a strong pipeline of first-to-file (FTF) opportunities in theUS market, which enabled limited period of market exclusivity. The company launched generic Actos (Pioglitazone) as authorised generics in the USA during Q3CY2012 and gained a market share of 25% initially. Having a strong franchise in theUS market, we believe Ranbaxy would be able to hold a strong market share in this product. Besides, it also managed to hold market exclusivity status of Diavon (market size $1 billion), despite the pending final approvals from the USFDA. It is slated to launch acne drugs, Absorica (Teva and Mylan as competitors) and Ximino (seven competitors), that have a market potential of about $400 million each in the USA in the next few months. 

·         Few overhang remains: Despite a few positives, Ranbaxy is yet to come out of overhangs, like (a) a slow growth in base business (despite restructuring of the European business and other emerging market business); (b) consumer complaints in the USA demanding a complete recall of the generic Lipitor; (c) the final approval of Diavon from the USFDA is yet to come and therefore the chance of missing the FTF opportunity looms large; and (d) a consent decree is yet to get over and the final cost of consent decree is yet to be determined (Ranbaxy set aside $500 million to comply with the consent decree). 

·         Outlook and valuation: We believe the stock has factored most of the negatives and is currently available at a decent valuation. Its strong products pipeline, ability to monetise FTF opportunities in challenging environments and focus on niche segments would help them improve performance going forward. The stock currently trades at 14x CY2013E earnings, which is nearly a 40% and 22% discount to Sun Pharmaceuticals and Dr Reddy’s Laboratories respectively. The stock is not in our active coverage. However, we keep positive stance on the company.