Morgan Stanley is bullish on Ranbaxy Labs and has maintianed overweight rating on the stock with target price of Rs 447.
Morgan Stanley research report on Ranbaxy Laboratories
Diovan (valsartan, USD1.4 billion brand size, USD 2.5 billion including HCT) patent challenge court case between Novartis and Ranbaxy has been discontinued. Court case out of the way, this appears to us a potential 180 days exclusivity for Ranbaxy, likely to get triggered in Sep'12.
Patent Picture
Diovan has three orange book listed patents - '578 (Sep'12 expiry), '990 (Oct'16) and '197 (Dec'17). Novartis did not litigate on '990 and '197 patents and the case has been settled with respect to '578 patent.
Commercialization Prospects
We believe that the earliest Ranbaxy can monetize this opportunity is in Sep'12 with 180 days exclusivity. In our view, this could be a shared exclusivity with 1-2 additional players. Ranbaxy can potentially gross USD 130 -USD 200 million (depending on whether it is ftf on HCT as well, and number of players sharing the upside).
Stock Implication
Given the distant commercialization prospects, this opportunity should not make a meaningful impact on the valuations now, we believe. However, for longer term investors, this opportunity highlights increasing depth in Ranbaxy's pipeline - a potential settlement in 2008, Valtrex by end 2009, Lipitor by mid 2010 (as case stands now), Diovan in 2012 etc. We reiterate our Overweight rating on the stock.
