Drug maker Ranbaxy Laboratories Ltd reported stellar March quarter performance driven by Para-IV exclusivity of Valtrex, settlement income from Flomax and foreign exchange (forex) translation gains. We expect the company to have clocked $180 million of revenue from Valtrex, which boosted overall operating profit margin (OPM) as there was no authorised generic (AG) competition in the market.
Further, the company was able to garner $50 million from Flomax settlement. In spite of a stellar March quarter, the company has maintained its full-year revenue guidance of Rs7,800 crore with net profit of Rs460 crore. On the US Food and Drug Administration issue, Ranbaxy is still awaiting inspection of the Dewas facility, while the corrective action plan for Paonta Sahib is under way.
Graphic: Ahmed Raza Khan / Mint
For the first quarter of 2010, Ranbaxy reported net sales of Rs2,487 crore (Rs1,555 crore) driven by the US. In the US, the company clocked revenue of Rs1,211 crore driven by Valtrex exclusivity. In Europe, the company recorded sales of Rs310 crore, up 10% year-on-year (y-o-y) driven by the Romania region, which grew 14%. India and the Commonwealth of Independent States (CIS) region grew 6% and 26% y-o-y, respectively. Ranbaxy reported OPM (excluding other operating income) of 31% driven by Valtrex exclusivity.
Valtrex is expected to continue to contribute significantly in the June quarter as well as exclusivity for the product ends this month. The company also launched the AG version of Oxycodone ER tablets during the quarter, which is likely to be a limited opportunity for the company.
The company expects Romania to be on the growth trajectory, following the cost rationalization exercise taken last year and strong growth in the over-the-counter segment. Ranbaxy also stated that they are profitable in most of the European Union region, including Germany.
In India, the company booked revenues of Rs345.2 crore, up 6.0% y-o-y. However, excluding the one-off tender sales in the first quarter of 2009, revenues grew 15%. For project Viraat, the company increased the field force and entered into new therapeutic segments, which will result in 15-20% growth in the domestic formulations segment from the third quarter of 2010. In CIS, revenues came in at Rs110 crore, up 26% y-o-y. The company indicated that the pricing issue in Russia has partly played out without significantly affecting the company’s revenues.
On the Asia-Pacific (excluding India) front, the company clocked revenue of Rs66.2 crore, which fell by 38.0% y-o-y, following the restructuring done in the Vietnam and China region.
The company expects the Japan market to be one of its key growth drivers in the long term and would develop, manufacture and supply products to the newly formed company by Daiichi Sankyo to market generic products.
Excluding the exclusivity, we expect base business OPM to be in the range of 6-7%. The company clocked net profit of Rs960.5 crore (loss of Rs767.4 crore). Ranbaxy received $50 million on Flomax settlement from Boehringer Ingelheim, which was above our expectation. The company also reported forex translation gains of Rs319.4 crore on marker-to-market on foreign exchange derivatives. Excluding the forex translation gain, operating profit after tax stood at Rs657.1 crore (loss of Rs26.2 crore).
Ranbaxy has settled patent litigation with Takeda Pharmaceutical Co. Ltd on the generic version of Actos (Pioglitazone Hydrochloride) enabling the company to launch the drug with shared exclusivity in August 2012. Actos had $3.4 billion in brand sales for the 12 months ended 31 December.
Ranbaxy, one of India’s largest pharmaceutical companies, is an integrated, research-based and international pharmaceutical firm. On the back of strong March quarter, we have revised our 2010 estimates to incorporate higher sales from Valtrex and settlement income of $50 million from Flomax. We recommend neutral on the stock with a fair value of Rs480.