Stock Review: Ranbaxy

After declining 13.5 per cent since November 8, Ranbaxy's stock has risen in the past two sessions on news that the company got approval from the US Food And Drug Administration (USFDA) to launch generics of alzheimer's drug – donepezil hydrochloride – in 5mg and 10 mg doses.

The research product of Eisai Co Ltd and Pfizer has been marketed under the brand name of Aricept. Ranbaxy, being the first-to-file (FTF) for the generics, will get 180-day exclusivity for the launch. The global market size of the drug is estimated at around $3 billion (Rs 13,800 crore), with the US market size at $2.4 billion (almost Rs 11,000 crore). Since the approval has been granted for just 10 mg and 5 mg tablets, the target market for Ranbaxy stands at $2.1 billion (Rs 9,675 crore), according to an Elara Capital report.

Considering that the launch of Valacyclovir generics has been driving earnings for the last three consecutive quarters, FTF launches (like that of Aricept generics) remain crucial for Ranbaxy's US business. Moreover, efficient transfer of the manufacturing site for Aricept will increase the possibility of a timely approval for generic Lipitor in November 2011, states an Elara Capital report.

The company's active pharmaceutical ingredient (API) segment has shown strong recovery of late, with resumed Nexium API supplies that remained suspended since May 2009 on FDA issues.

Although clarity on FDA issues remains crucial, the current developments make analysts at Angel Securities estimate `9,913 crore revenues (up 21.4 per cent) for the calendar year 2011 (Ranbaxy follows the January-December financial year). Net profit is estimated to grow 26.2 per cent to `1,182 crore during the period. The stock ended one per cent higher at `571.45 on Tuesday and trades 20 times the CY11 estimated earnings.

The USFDA nod for Aricept brightens the prospect of timely approval for generic Lipitor in November 2011