Due to the delay in the approval and launch, the Imitrex opportunity has lost much of its sheen in terms of financial upside.
However, the approval of Imitrex holds special significance since it is Ranbaxy’s first product approval after the ban issued on its Indian facilities by the USFDA.
The Imitrex approval indicates that Ranbaxy’s product approvals in the USA (for products filed from facilities other than the Paonta Sahib and Dewas facilities) could resume, thereby aiding its US business.
The fact that Ranbaxy has received approval for the product in less than six months after re-filing it from the Ohm Laboratories’ site also highlights Ranbaxy’s skills and efficiency in harnessing its resources in adverse times in order to capitalise on business opportunities.
The approval also increases confidence on Ranbaxy’s ability to get approval for generic Valtrex (on which Ranbaxy has 180-day exclusivity). The company has re-filed the ANDA for the same (as the original ANDA had been approved from the Dewas facility, which has been banned by the USFDA).
Ranbaxy’s CY20008 performance was severely affected by forex losses and growth challenges across geographies including the USA.
Growth would remain a challenge for Ranbaxy, given the ongoing economic downturn (that has affected growth across the emerging markets), the USFDA import ban and the tough market conditions in Europe.
The continued uncertainty over the extent of the likely damage to the US business and the timing of the resolution of the USFDA issues will continue to cast a shadow on Ranbaxy’s prospects in the near term.
On the other hand, Ranbaxy’s decision to mark-to-market all its hedging losses will enable it to report higher operating profits in the coming quarters which may boost sentiments.
The stock has already risen by ~12-13% over the last one week in anticipation of the Imitrex approval. Thus, we feel that much of the upside from Imitrex has already been priced in and the above news would not catalyse the stock further significantly.
Based on our new estimates, we have revised our price target for Ranbaxy. Assigning a 14x multiple to the CY2009 earnings of the base business, we arrive at a value of Rs137 per share for the base business.
To that, we add the net present value of the first-to-file opportunities (excluding Valrtrex), which amounts to Rs103 per share. Thus, we get a fair value of Rs240 per share for Ranbaxy.
We maintain our HOLD recommendation on the stock with a revised price target of Rs240.