Ranbaxy: Temporary relief

Being allowed to sell Imitrex is a boost for the company but it needs to sort out issues with the US Food & Drug Administration.

That Ranbaxy can now sell generic Imitrex (anti-migraine) in the US market should come as a relief for the Rs 7,222-crore drug major. After all, Dr Reddy’s was able to earn Rs 360 crore from the same product during the December 2008 quarter and though it may be a late entrant and will share the market, Ranbaxy too should make some money.

The company has had a rough time since last September when the US FDA issued warnings and banned more than 30 medicines being sold in the US market. The addressable market for Imitrex is estimated at $1.1 billion and analysts estimate Ranbaxy should manage sales of around Rs 120 crore.

While this is no doubt a shot in the arm, for the stock to be rerated, the issues with the US FDA need to be resolved because the US is a key market for the company. The company is waiting for approval to sell a couple of other products. These include Velacyclovir (anti-herpes) and Tamsulosin (alpha-blocker)— which it hopes to be selling exclusively in the US in 2009 and 2010.

According to Morgan Stanley, Ranbaxy has been losing share in the US market and according to IMS data, the company has lost 45 per cent of prescriptions volumes in a relatively short span of time. Should it be able to do more business in the US market—which fetches around a fourth of the firm’s revenues—the company’s top line for 2009 could grow at 14-15 per cent. That would be better than the 8.6 per cent reported in 2008.

Also, last year, the company posted consolidated losses of Rs 915 crore, which includes a forex loss of Rs 776 crore. In the December 2008 quarter, US sales declined by 15 per cent y-o-y in dollar terms to $89 million. Ranbaxy’s been faring badly in other markets too — non-US revenues came off by around 14 per cent in dollar terms with the performance in Romania not too encouraging. Moreover, business in the home market, though better than in previous quarters, nevertheless posted single digit growth of 9 per cent.