| Its presence across geographies ensures balanced revenue streams and a ready market for Ranbaxy's healthy product pipeline.
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| The stock price of Ranbaxy Laboratories has been moving up on the back of positive triggers over the last month.
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| India's largest drug maker acquired a 14.7 per cent stake in Orchid Chemicals and settled a patent infringement dispute settlement with Astra Zeneca on Nexium, a drug that controls gastric acid secretion.
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| While the marketing and manufacturing deal with Orchid is still being worked out, the agreement with Astra Zeneca should see a steady revenue stream over the next five years.
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Opting for settlements
The deal with Astra Zeneca on Esomeprazole magnesium, the generic equivalent of Nexium, the second largest selling drug in the US with sales of $5.5 billion is applicable for a five-year period.
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| The company will be supplying Active Pharmaceutical Ingredient (APIs) from May 2009, formulations from May 2010 and launch the generic version under a license from Astra Zeneca six months before the patent expiry on May 27, 2014.
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| Ranbaxy also got authorized generic status for two drugs from Astra Zeneca- Felodipine capsules (for hypertension) and Omeprazole 40mg tablets (for acidity). Ranbaxy management has indicated that the deal could bring in revenues of about Rs 5,000-Rs 6,000 crore over the 2009-14 period.
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| The Nexium deal is the second major patent infringement settlement for Ranbaxy in a year. Last year in June, the company had reached an agreement with Glaxo on the anti-herpes virus drug, Valtrex (Sales at $1.3 billion).
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| The agreement cleared the way for Ranbaxy to launch the drug in the US market towards the end of 2009. The Ranbaxy management has said that it is open to settling patent infringement cases on its first-to-file (FTF) portfolio of drugs. Out of court settlements saves on legal costs for the generic challenger while helping the patent holder protect its sales.
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The exclusivity bonanza
Ranbaxy management believes that it has FTF status on 19 Para IV ANDA filings with an innovator market size of $27 billion. It expects to market one FTF every year for the next five years and reap the rewards from the six month exclusivity benefit.
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| In 2006, the company's revenues were boosted by sales in the six month exclusivity period from the lipid lowering drug, Simvastatin. The drug recorded sales of Rs 344 crore last year. The company launched another FTF drug Pravastatin (80 mg) (reduces cholesterol) in June 2007, garnering 30 per cent of prescription marketshare in the 180-day exclusivity period. The market for the drug at the 80 mg strength is in excess of $200 million.
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| In addition to the FTF opportunity for the two of the world's largest drugs by sales, Lipitor (market size $8.5 billion, under litigation) and Nexium, the company also has a good earnings visibility from drugs such as Imitrex, which is used in treating migraine (expected launched by December 2008), and Flomax, which is used to treat enlarged prostate (expected launch by March 2010).
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Acquisitions
While keeping its focus on FTFs, the company has also been using its cash to acquire stakes in Indian companies. Its subsidiary Solrex Pharma acquired 14.7 per cent stake in Orchid Chemicals & Pharmaceuticals.
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| While the alliance involves multiple geographies and therapies, it will help both companies exploit the Carbapenem (new generation antibiotics) opportunity where the target market for drugs, which are going off patent between FY09-FY2011, is pegged at $1billion.
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| The deal also helps Ranbaxy avoid building capacity and instead use Orchid's USFDA approved facilities. Ranbaxy has a controlling stake in Hyderabad-based Zenotech, which provides it with access to two segments it did not have a presence in ---biosimilar (drugs made from proteins and enzymes) and oncology.
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| The global market size for biosimilar is estimated to be $65 billion, while the oncology market is valued around $35 billion. Ranbaxy also has a 14.9 per cent stake in Jupiter Bioscience, which gives it access to the over $1 billion peptide (amino acids) market for products such as insulin.
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Investment rationale
In addition to the exclusivities on drugs starting in CY2009, the demerger of the new drug discovery research unit called Ranbaxy Life Science Research and its listing in third quarter of 2008 should result in value unlocking.
| OVERSEAS GIANS |
| Rs crore |
CY07 |
CY08E |
CY09E |
| Net sales |
6,693 |
8,031 |
9,637 |
| EBIDTA |
999 |
1,365 |
1,927 |
| Net profit |
775 |
723 |
1,137 |
| EPS (Rs) |
19 |
18 |
30 |
| P/E (x) |
- |
26 |
15 |
| E: Analyst estimates |
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| The company has a target of reaching $5 billion mark by 2012 from the current $1.6 billion (2007) and will have to clock 25 per cent growth rate (current growth rate about 20 per cent) to reach there.
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| With the generic business facing pricing pressures due to a competitive environment, product launches in the six-month exclusive period remain its key to rapid growth. At Rs 469, the stock discounts its FY09 earnings of Rs 30 by 15 times and should deliver healthy returns over a two year period. |
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Content Guide
