Business performance

Ranbaxy has charted out a conscious strategy to target the export market, which offers better realisation. There is also a huge opportunity in the generic segment, especially for drugs that have gone off-patent. With the domestic market rather flat, Ranbaxy's export focus is alltoo obvious.

Developed markets such as the US and Europe offer the most lucrative opportunities to exploit. Ranbaxy's sales in the US crossed the $100-million mark (approximately Rs 470 crore) and touched $41 million in the Europe, CIS and African markets. Growth rates were 37 per cent and 77 per cent respectively.

Ranbaxy's domestic performance too played a role in boosting the company's overall quarterly performance.

Formulation sales in the domestic market at about Rs 245 crore were up 18 per cent on a quarter-on-quarter basis. When one considers that the anti-infective market (to which Ranbaxy has an exposure of about 40 per cent) has registered negative growth and the growth of the market, as a whole, has been nothing to write home about, such a performance indicates Ranbaxy's strong equity in the domestic market.

US market, the key

Sales of generics, Augmentin and Ceftin, in the US market contributed 50 per cent of total sales in that geography. Ceftin (an anti-infective) has already racked up sales of $75 million in the first half of the calendar year.

However, with three other manufacturers scheduled to launch a generic version of this drug once it goes off patent later this month, it may be difficult to sustain the growth rates with pricing pressure sure to develop.

Likewise, Augmentin launched in January this year has garnered sales of about $25 million for the half-year (January-June).

With Ranbaxy in competition with other generic manufacturers for this drug, price realisations will be not be as attractive as it was for Ceftin (Ranbaxy had an extended run as the sole manufacturer of this drug apart from the original patent holder GlaxoSmithKline).

However, Ranbaxy has a couple of other products that would partially offset the decline in sales as well as margins of Ceftin after the generic competition sets in.

One, it has a six-month exclusivity for manufacturing and marketing Ganciclovir (an anti-infective), which should be launched any time now.

The exclusivity will certainly help Ranbaxy's realisations, though the total size of market for this formulation is relatively lower at about $32 million.

The other product, Sortret, which has had sales of about $6 million since its launch, addresses a much larger market.

The formulation is used to treat cases of severe acne and has a market size of about $415 million.

However, as this drug is known to have side-effects, Ranbaxy has undertaken the process of qualifying doctors to prescribe this drug.

Though 4,500 doctors have been qualified, it will take time before sales gathers momentum considering the procedure involved to drive prescriptions.

In the June quarter, Ranbaxy received royalties of $1.9 million from Bayer AG arising out of sales of Cipro 500mg in the January-March quarter; royalty payments are made 90 days after the completion of a quarter.

The launch of CiproXR1gm (likely in a couple of months) should provide a further fillip to Ranbaxy's royalty receipts, as it is likely to have a higher upside potential than CiproXR500mg.

R&D pipeline

Ranbaxy's R&D pipeline continues to be strong; in the last quarter the company filed four Abbreviated New Drug Application (ANDAs) and got US FDA approval for six (including for those filed earlier). The company is on track to file 15-20 ANDAs this year.

With the US Government bringing in legislation that would see a quicker introduction of generics in the marketplace, companies such as Ranbaxy should benefit.

Additionally, the molecule that it has out-licensed to Schwarz of Germany (for the treatment of benign prostatic hyperplasia) has completed Phase-I clinical trials.

Another research product for asthma is through Phase-I clinical trials.

Admittedly, there is a huge degree of uncertainty about the payoffs. Ranbaxy's investments only reflect its intent to make a mark in the global pharma firmament.

Stock outlook

At the current market price, the stock trades at a multiple of about 16 times its trailing four-quarter earnings per share.

The competition for Ceftin notwithstanding, Ranbaxy continues to be one of the better pharma plays. Stay invested; fresh exposures can be contemplated on further developments on the export front.

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