CMP = Rs 352 (as of Monday)
Price target: Rs 500
Key points
- Pfizer Inc has lost the initial bid for a new patent on Lipitor, the world's best-selling drug that could extend the company's monopoly on the medicine until June 2011.
- The rejection of Pfizer Inc's plea to reissue the invalidated '893 patent by the US Patent & Trademark Office brightens Ranbaxy Laboratories' (Ranbaxy) chances of entering the $8.5-billion Lipitor market in March 2010, 15 months ahead of the expiry of the invalidated '893 patent.
- Lipitor is the world's largest selling drug with annual sales of $8.5 billion in 2006. Using the discounted cash flow (DCF) method, we have valued the Lipitor exclusivity opportunity for Ranbaxy at Rs48 per share.
- Ranbaxy has created a rich pipeline of one-time opportunities for itself, the current ones being for Pravastatin 80mg, Valtrex and Isoptin SR (an authorised generic). Further, the company has a First-to-File (FTF) status on approximately 20 Para IV abbreviated new drug application (ANDA) filings, representing a market size of about $26 billion.
- The management is confident of monetising one such opportunity every year during CY2008-10.
- Ranbaxy has underperformed the market by over 30% over the last one year, largely due to the overhang of the regulatory issues with the company's Paonta Sahib plant and the raid by the US Food and Drug Administration (USFDA) on its US offices. However, we believe that all the negatives relating to the company have been priced in, with limited downside potential from the current levels.
- To account for the lower dollar/rupee exchange rate for CY2007, we have adjusted our CY2007 revenues and earnings estimates by 5.7% and 10.9% respectively.
- At the current market price of Rs 352, Ranbaxy is trading at 19.0x its estimated CY2007 and 19.9x its estimated CY2008 earnings.
- I maintain Buy recommendation on the stock, with a price target of Rs 500.
