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Ranbaxy: Ceftin concerns

May 23, 2002

Ranbaxy stock has been battered (down 9%) in the last couple of days. Besides, the general market pessimism what could be adding to the selling is the recent results declared by Lupin Labs. Ranbaxy currently is the sole generic marketer of Cefuroxime Axetil in the US markets. On the other hand, Lupin Labs has a contract to supply bulk required for Cefuroxime formulations to Apotex, who is the next competitor of Ranbaxy. It may be recalled that Ranbaxy received FDA approval for marketing Cefuroxime Axetil tablets in the US markets after a prolonged legal battle. Ceftum (generic Cefuroxime) is a molecule with a market size of US$ 400 m. Though the approval does not ensure six-month marketing exclusivity for Ranbaxy, the only generic competitor, Apotex is still in the process of getting the relevant FDA approval. Currently, it is awaiting US FDA approval and a final settlement of its lawsuit with GlaxoSmithkline.

Ranbaxy got the approval for Cefuroxime in Feb'02 and has already enjoyed almost 3 months of exclusivity. Even after Apotex approval (which we expect in July'02) the market is expected to be a duopoly atleast for a year after that. Ranbaxy has currently captured more than 50% market share for the drug with the generic drug priced at 30% discount to the branded Ceftin.

However, results of Lupin Labs for the fourth quarter show sales of Cefuroxime Axetil in the API form. This could be an indication that Apotex is soon expected to launch the drug in the US, breaking the generic monopoly status for Ranbaxy. However, the entry of competition from Apotex seems to be in line with our expectation of July launch. Further, as mentioned earlier it is unlikely that a third player would enter the market before mid 2003 and thus price cuts are not expected to be steep. We have factored in competition in our FY03 earnings expectations and we maintain our consolidated global EPS estimates of Rs 35 on the company. At the current market price of Rs 778, the stock trades at 22x consolidated global earnings for FY03.


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