Valtrex patent settlement +ve for Ranbaxy stock

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Merrill Lynch believes that Ranbaxy's launch of Valtrex generic in late 2009 with 180-day exclusivity will be a significant positive for the company. ML is bullish on Ranbaxy Laboratories and has maintained buy rating on the stock with a target of 492.

 

Merrill Lynch report on Ranbaxy Laboratories:

 

Likely USD 200mn+ profits from Valtrex patent settlement   

 

Ranbaxy today announced that it has settled the patent infringement suit with GSK Plc on generic Valtrex (USD 1.3 billion; herpes indication; 10% growth rate) which allows launch of the generic in late 2009 with 180-day exclusivity. We view this development as a significant positive and estimate USD 300 million+ revenues and  about USD 200 million+ one-off profits during the 6-month period. This implies Rs 18-20 NPV/sh assuming limited 30-35% discount, delayed authorized generic entry and 60-65% market share for Ranbaxy. Maintain Buy with a PO of Rs 492 per share.   

 

Likely more deal visibility ahead; one FTF p.a. till 2010   

 

Ranbaxy expects to continue pursuing this strategy of monetizing on its pipeline of First-to File (FTF) opportunities. As of date, Ranbaxy has ~20 Para IV ANDA filings representing ~USD 26 billion brand size. Based on this, we expect Ranbaxy to deliver one FTF p.a. for the next three years. These include (a) Possible Para IV  launch /settlement in 2008 (not yet announced) (b) generic Valtrex in 2009 (Rs 18-20 NPV) and (c) generic Lipitor in the US in 2010 (Rs 30-35 NPV).   

 

Robust medium-term outlook; Reiterate Buy - PO Rs 492 per share

 

We estimate robust core earnings growth of 24% in CY07E and 32% in CY08E (Rs21.5), driven by higher growth and EBITDA margin in the coming quarters from the US and emerging markets. Further, there is a possibility of 30%+ EPS upside in CY08E from generic Lipitor launch in Canada and possible R&D    milestones from GSK plc. Maintain Buy with PO of Rs 492 per share