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                          03 Nov 2011 - 10:17:45 PM IST
Global Markets Research




                          INDUSTRY ALERT                                                                           Industry Update
                          Health Care                                 Shrinking opportunities with rising concerns in US generics
                          Focus stocks                                Key takeaways from conference call of Teva (world's largest generic com‐
                          Ranbaxy (RANB.BO),INR513.60
                                                                      pany) and Hospira (world's largest generic injectible company) post their 3Q
                          Sell, Price Target INR225.00                interims for India Pharma:
                          Dr Reddy's Labs
                          (REDY.BO),INR1,638.70 Sell, Price           Positives for India Pharma (IP) - Teva: (a) Average price drop across Eu‐
                          Target INR1,265.00                          rope generics continues at ~5% (b) Teva may be inward looking in near‐
                          Sun Pharma (SUN.BO),INR503.80               term as it integrates its recent large acquisitions.
                          Hold, Price Target INR465.00

                          Lupin (LUPN.BO),INR474.70 Hold,             Negatives for IP - (i) Teva: (a) Of the target branded small molecules of
                          Price Target INR450.00
                                                                      USD 210bn in US (USD 300bn less USD 50bn for generics & USD 40bn for
                                                                      biologics), Teva has Para IV on USD 117bn with ftf on USD 55bn. We believe
                                                                      ~25% of mkt would be recently launched molecules with no para IVs. Thus
                          Teva: Trend in interims                     even Teva states that it is difficult to file exclusive ftf para IVs (b) Advent of
                                                                      para IVs since late 1990s resulted in innovators tightening patents (including
                                                                      secondary). Hence falling success rates in litigations for generics (c) Teva
                                                                      prefers to do “at‐risk" launches only with ftf exclusivity. Thus “piggy riding"
                                                                      on Teva's “at‐risk" launch for shared ftfs for risk‐averse India Pharma may
                                                                      be difficult (d) Hence Teva focuses on differentiated generics. Quicker
                                                                      genericisation driven by insurance only partly neutralises faster commodi‐
                          Source: Company, Deutsche Bank              tization (with more competition) making it tougher to create sustainable
                                                                      value (e) Despite current peaking of patent expiration in US and its large
                                                                      pipeline, flat gross profits and a fall in net profits in current ytd indicates
                                                                      that even Teva's pipeline has not matured (f) Recent re‐approval of Teva's
                                                                      Jerusalem & Irvine plants will aggravate competition.

                                                                      (ii) Hospira: (a) Rocky Mount (RM) plant in US (~25% of Hospira's rev)
                                                                      received a Warning Letter (WL) in Apr'10 followed by 483s in Jun & Aug'11.
                                                                      It believes this conveys unsatisfactory remediation progress. Despite its
                                                                      size, it is not clear on the reasons for the approval delay for ANDAs at its
                                                                      plants at Austin (with only 483 in Apr'11) & Chennai (India) (with no violation).
                                                                      Hence it announced production slowdown, inventory write‐downs and high
                                                                      remediation costs with ~23% cut in guidance. Thus a WL at a unit may
                                                                      aggravate approvals at all units (b) While issues at RM & Clayton seem sim‐
                                                                      ilar, the same set of US FDA inspectors, who reapproved Clayton gave 483
                                                                      to RM. Hence RM's size (10x of Clayton) seems to complicate issues (c) It
                                                                      is unable to give clarity on timelines for re‐approvals. Production bottomed
                                                                      at 60% and with improving signs, is getting ramped up.


                                                                       Abhay Shanbhag           Mayank Kankaria
                                                                       Research Analyst         Research Associate
                                                                       (+91) 22 6658 4035       (+91) 22 6658 4358
                                                                       abhay.shanbhag@db.com    mayank.kankaria@db.com
                          Deutsche Bank AG/Hong Kong
                          All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local
                          exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche
                          Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the
                          firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only
                          a single factor in making their investment decision.
                          THE VIEWS EXPRESSED ABOVE ACCURATELY REFLECT PERSONAL VIEWS OF THE AUTHORS ABOUT THE SUBJECT
                          COMPANY(IES) AND ITS(THEIR) SECURITIES. THEY HAVE NOT AND WILL NOT RECEIVE ANY COMPENSATION FOR PRO‐
                          VIDING A SPECIFIC RECOMMENDATION OR VIEW IN THIS REPORT. FOR OTHER DISCLOSURES PLEASE VISIT HTTP://
                          GM.DB.COM MICA(P) 146/04/2011.

				
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