Ranbaxy Labs to enter into a licensing agreement with Gilead to increase access to Hepatitis C treatment

Ranbaxy Labs, like Cadila healthcare and Cipla have signed a non-exclusive licensing agreement with Gilead Sciences, Inc. for manufacturing and distribution of Sofosbuvir mono, investigational Ledipasvir mono, the fixed-dose combination of Ledipasvir/Sofosbuvir with each other and the combination of Sofosbuvir or Ledipasvir with other active substances, for the treatment of hepatitis C.

Under this licensing agreement, Ranbaxy will be allowed to manufacture and market Sofosbuvir, Ledipasvir in 90-91 countries including its home markets India and South Africa under their own brand names. It also covers countries like Egypt which has a high incidence of Hepatitis C.

According to World Health Organization (WHO), 130-150 million people globally have Hepatitis C infection. In India alone, it is estimated that 10-20 million patients are infected with Hepatitis C which is several fold greater than those with HIV/AIDS. The countries within the agreement account for more than 100 million people living with hepatitis C globally representing 54% of the total global infected population. As per the agreement, Cipla has the option of receiving a technology transfer of the manufacturing process from Gilead.

Sofosbuvir is a new antiviral drug which in combination therapy has shown to have higher cure rates. It represents a breakthrough in the treatment of hepatitis C. Sofosbuvir was approved by the U.S. Food and Drug Administration (FDA) in December 2013 and by the European Commission in January 2014. Sofosbuvir, in combination with other agents, offers a cure with a short-term course of treatment with few side effects and without the need for injections.

While the exact financial details are not known, we believe the deal can potentially add around `200cr to the company’s full year sales. Thus we upgrade our company’s FY2015 and FY2016 EPS by 4.9% and 9.0% respectively. However, on back of valuations, we remain neutral on the stock.

Gilead to allow 5 Indian firms to sell hepatitis generics in 90 countries

Gilead to allow 5 Indian firms to sell hepatitis generics in 90 countries: According to sources, multinational American drug maker Gilead Sciences is set to join hands with at least 5 Indian generic pharmaceutical companies and allow them to manufacture and sell cheaper versions of its new hepatitis C medicines - sofosbuvir and ledipasvir – in 90 countries. Among the companies likely to sign deals with Gilead are Cadila, Hetero, Strides Arcolab and Mylan, while Cipla is expected to earn active pharmaceutical ingredient (API) rights. Gilead has applied for a patent on these drugs in many countries, including India.

As part of the deal, Gilead might allow technology transfer and data sharing for the two drugs by generic companies but sale of the cheaper versions by partners might be restricted to the countries part of the deal, even in the absence of patent rights there. The agreement will exclude economies like China, Brazil, Ukraine and Malaysia. While the generic penetration will allow prices to come down significantly in those 90 markets, including India, irrespective of the drugs’ patent status, Gilead is likely to retain its monopoly in all other geographies. While the exact details are not know, a back of the envelope calculations, suggest that the drug can potentially be a US$300-500mn and US$110-185mn formulation and API opportunity respectively. Currently, on back of non-confirmation of news, we retain our numbers and recommendations on the stock. We remain neutral on Cipla and Cadila healthcare.

Weekend Highlights – 13 September, 2014

Clinical Trial Rules counter-productive: ASSOCHAM

Major industry chamber ASSOCHAM has expressed concern at the setback to clinical trials for new pharmaceutical drugs in the country and has called for several changes in the Drugs and Cosmetics Amendment Rules (DCAR) to meet industry concerns about these trials.

In its study on the Indian Pharmaceutical Industry (IPI) the chamber pointed out that n++few clinical trials have been approvedn++ in calendar year 2013 after the Supreme Courts interim order on this subject. As against 55 global clinical trials in 2012, only 17 were approved last year. With India having 16 per cent of the world population and 20 per cent of the global disease burden, only 1.5 per cent of the global clinical trials were being conducted in the country.

Allaying much of the myths against these trials, the chamber stressed the need to create awareness among various groups at all levels about the need and importance of clinical trials among the Indian population groups to enable foreign drug discoveries to be applied in our conditions. n++Clinical trials are NOT unsafe and are NOT conducted in India only because of cost effectiveness, patient vulnerability and lack of regulatory safeguards,n++ ASSOCHAM pointed out. Testing drugs in the ethnic groups is of paramount importance before approving any drug of foreign origin, the study stressed.

Attacking what the study calls n++the mythsn++ created regarding clinical trials in India, the study also pointed out that n++patients/subjects across the globe take an informed decision to participate in clinical research after made fully aware of the potential benefits and risks involved and clinical research is carried out in a highly regulated environment.n++

About the regulatory environment in India, the chambers study said that n++certain outstanding concernsn++ of the industry remain to be addressed in the draft rules the Ministry of Health has published in this regard. These relate to criteria entitling a patient to compensation, broad definition of trial related to injury and the strict and unreasonable reporting timelines required to be followed in case of serious adverse events. The draft Drugs and Cosmetics (Amendment) Rules 2014 published last April were addressing only some of the industry concerns and remain yet to be finalized.

RBI hopes for investment turnaround in FY2015

The Reserve Bank of Indian has released the report on Corporate Investment: Growth in 2013-14 and Prospects for 2014-15. The key highlights of the report are as follows:

* Capex intentions of the companies indicate further weakening of the business sentiment in FY2014 compared with FY2013.

* Investment plans made were Rs 2148 billion (1065 projects) in FY2014 against Rs 2566 billion (958 projects) in FY2013.

* Investment in FY2014 was mainly envisaged in power, metal & metal products, textiles, cement and construction industries.

* Capital investment likely to be incurred in 2013-14 dipped 18% to Rs 2,513 billion.


* Capital investment seen in FY2014 (Rs 2513 billion) seems to be attainable in FY2015 with the steps being taken to bolster investor confidence.

* Lead indicators point to continuing sluggishness in domestic economic activity in Q1FY2015.

* Deficient monsoon could affect agricultural production.

* Decline of the consumption and investment demand could be arrested in the forthcoming years due to a decisive election mandate bolstering investor confidence and raising expectations of revival of economy.

* Considerable improvement in the Business Confidence Index.

* Recent measures to incentivize long-term financing for infrastructure projects.

* Fast paced decision-making, economic reforms, improvement in business climate and fast tracking the projects already in pipeline, could revive sentiments, re-kindle investments and put the economy firmly on the path of recovery.

Moodys: Asian Liquidity Stress Index declines to 22.3%

Moodys Investors Service says that its Asian Liquidity Stress Index declined to 22.3% in August from 23.2% in July.

The decline, the third in as many months, came as the net number of rated high-yield companies with Moodys weakest speculative-grade liquidity score (SGL-4) decreased to 27 from 29 and the number of rated high-yield companies decreased by four to 121.

The index — which increases when speculative-grade liquidity appears to decrease — remains well below the record high of 37.0% reached during the fourth quarter of 2008 amid the global financial crisis, says Annalisa Di Chiara, a Moodys Vice President and Senior Analyst.

It is a bit above the indexs long-term rolling average of 20.2% and its trailing 12-month average of 21.8%, adds Di Chiara.

The liquidity sub-index for Chinese speculative-grade companies fell to 20.3% in August from 25.0% in July, reflecting a combination of rating movements and withdrawals rather than any intrinsic improvement in underlying corporate liquidity. And the number of high-yield Chinese companies decreased to 64 from 68. Meanwhile, the number with an SGL-4 score declined by four to 13.

Chinas high-yield property sub-index also declined, to 12.8% from 19.5% and the Chinese high-yield industrial sub-index also declined to 32.0% from 33.3%.

By contrast, the Indonesian sub-index jumped to 12.0% from 8.0% in July as the number of Indonesian companies with an SGL-4 score rose by one to three while the total number of high-yield Indonesian companies remained at 25.

The trailing 12-month high-yield default rate for Asian (ex Japan) corporates at end-July was 4.1%, up from 2.2% at end-2013. Moodys Credit Transition Model anticipates the default rate for this sector to peak at 4.3% in September and at end-2014 slightly lower at 3.3%

Sun Pharmaceutical’s US arm Taro recalls Warfarin from US markets

Sun Pharma’s subsidiary Taro recalled two lots of its leading blood clot drug from the market after the USFDA found that the product did not meet its quality norms. Taro has recalled Warfarin Sodium after the USFDA faulted its poor quality. Warfarin contributes 4.5% to Taro’s sales and thus just about~1.0% of company’s overall sales. Such recalls are not new, not only to company but industry also, and since only two lots have been recalled, it not have any major impact on the company’s financials; we remain neutral on the stock.

Weekend Highlights – 6 September, 2014

Domestic paint industry to cross Rs 62K crore mark by 2016-17: ASSOCHAM

Indian paint industry is likely to surge from the current level of about Rs. 40,600 crore to about Rs. 62,000 crore by 2016 witnessing a breathtaking double-digit compound annual growth rate (CAGR) of about 20%, apex industry body ASSOCHAM said.

The factors that have fuelled the paint industrys growth are the rise in disposable income and education, increasing urbanization, development of the rural market and various launches of many innovative products.

As per the ASSOCHAM recent report on n++Indian paint Industry: 2014n++ reveals that India is the second-largest consumer of paint in Asia. Top players include Asian Paints, Kansai Nerolac Paints, Berger Paints, AkzoNobel, Nippon Paints and Shalimar Paints, adds the report.

n++The Indian paint industry has seen a gradual shift in the preferences of people from the traditional white wash to higher quality paints like emulsions and enamel paintsn++, said Mr. D S Rawat, Secretary General ASSOCHAM.

As per the ASSOCHAM findings, the rural market has grown at a rate of around 20% a year (in financial year 2014). Increase in sales outside metros, as rural Indias incremental consumption expenditure is witnessing a handsome growth.

The rural sector has a major share of the decorative paints segment. Thus, any benefit to the rural sector for improving the dispensable income is directly co-related to the growth of the paint industry. Besides, decorative paints are marketing savvy products backed by large advertisement campaigns and dealership networks.

In FY14, the paint industry stood at Rs 40,600 crore with per capita consumption increasing to over 4 kgs, out of which the decorative segment contributed nearly 73 per cent at Rs 29,638 crore, while the remaining Rs 10,962 crore was contributed by the industrial segment, adds the paper.

n++Demands for decorative paints arise from household paintings, architectural and other display products. The demand for paint increases during festive season like Dusherra, Diwali, Onam, Christmas /New Year, as compared to other periodsn++, said Mr. Rawat.

The major boost to the growth in Indian paint market has been provided by the decorative paint segment, which is anticipated to grow at a CAGR of more than 18% during the period 2014-15.

World GDP growth projected to accelerate above 3% in 2015-Moodys analytics

Moodys analytics said the global economic environment remains mixed, but the broad picture still points to an acceleration into 2015.

RBI revises guidelines for acquisition of weak urban cooperative banks by commercial banks

The Reserve Bank of India has modified the existing guidelines for transfer of assets and liabilities of urban cooperative banks (UCBs) to commercial banks by stipulating the conditions that the acquiring bank should not incur any loss arising out of merger/ transfer of assets and liabilities of UCBs. The revised guidelines require that big depositors holding deposits in excess of Rs 1.00 lakh each will sacrifice in proportion to the deposit erosion of the target bank.

The revision in guidelines was undertaken with a view to facilitate the process of consolidation by way of non-disruptive exit of weak entities by a scheme of transfer of assets and liabilities of UCBs to commercial banks in a transparent manner without affecting the financial health of the acquiring entities and the banking system as a whole.

Cipla launches Salmeterol/ Fluticasone combination MDI (substitutable for Advair) in Germany and Sweden

Cipla launches Salmeterol/ Fluticasone combination MDI (substitutable for Advair) in Germany and Sweden: Cipla has announced launch of Salmeterol/ Fluticasone combination MDI (brand Advair) in Germany and Sweden. The said drug is estimated to have a total market size less than ~US $100mn. Thus, the development is not significantly accretive to the company’s earnings given the market size, it validates its ability to launch substitutable combination Inhalers in regulated markets and also given that several global players have failed towards this. With other MDI combination inhaler launches waiting in the wings along with the DPI, which is even bigger market size, the inhaler opportunity will be a long-term earnings driver for Cipla, both in EU & US markets over the next five years. We remain neutral on the stock.

Weekend Highlights – 23 August, 2014

Moodys revises outlook on Asian steel industry to stable from negative

Moodys Investors Service has revised its outlook on the Asian steel industry to stable from negative.

The improved outlook mainly reflects our expectation that the profitability of Asian steel manufacturers will increase moderately year-on-year in the next 12 months, says Jiming Zou, a Moodys Assistant Vice President and Analyst.

The improvement will be mainly driven by faster demand growth than net capacity increases in China, which will result in higher utilization rates. China is the key driver for the Asian steel industry, because the country accounts for a large proportion of steel production and consumption in the region, adds Zou.

Moodys expects steel demand growth in China to slow to about 3% during the next 12 months from about 9% in 2013 because GDP growth, fixed-asset investment and housing construction will slow.

However, this level of demand growth will still outpace projected net capacity growth, which will be largely flat. The low level of net capacity additions will be owing to the slower pace of new capacity additions and the acceleration of the removal of inefficient capacity by the Chinese government (Aa3 stable).

While Moodys expects the benefit from lower input cost of iron ore and coking coal to decline over the next few months, as pressure on steel prices increases, the lower costs will continue to help steelmakers improve their profitability.

100 entities waiting to apply for small and payment banks: ASSOCHAM Study

Recent draft guidelines on small and payment banks have enthused about 100 entities including microfinance institutions, telecom players, non-banking finance companies (NBFCs) and public sector companies to apply for such banking licence once RBI invites applications for the same, reveals the ASSOCHAM latest study.

These interested firms are awaiting final guidelines which will provide more clarity to firm up their plan to apply for the differentiated bank licence to further the objective of financial inclusion, according to a study conducted by ASSOCHAM.

Those which are looking to enter small banks space are awaiting clarifications like if a small bank can operate in an industry clusters across various states or it can operate in a particular state only, said Mr. D S Rawat Secretary General ASSOCHAM.

Besides, presence in a particular area could lead to potential threat of concentration risk that final guidelines can provide more light to avoid such a situation, added Mr. Rawat.

The study said, for example if there is draught or flood in a particular area, it will have quite a significant adverse impact on the balance sheet of a small bank with little diversification of risk.

Small banks would perform all basic banking operation like a commercial banks but with restricted area presence. It can collect deposits and disburse small-ticket loans to farmers and small and medium businesses, unorganised sector through high technology-low cost operations as par draft norms circulated by RBI.

As far as payment banks are concerned, it will cater to marginalised sections of society, including migrant labourers, for collecting deposits and remitting funds. They would not be allowed to indulge in lending operation.

Decline in WPI Inflation is motivating: PHD Chamber

Decline in WPI inflation to five months low is really encouraging and would pave the way for growth to pick up pace in the coming times, said Mr. Sharad Jaipuria, President, PHD Chamber.

The WPI inflation for the month of July 2014 declined to 5.19% in July 2014 from 5.43% in June 2014. The decline in WPI inflation is attributed mainly to decline in the prices of fuel costs.

The moderation in inflation despite the seasonal firming up of prices of fruits and vegetables is setting room for soft monetary policy stance in the coming times, said Mr. Sharad Jaipuria.

The recent announcements made in the Union Budget to improve agriculture infrastructure would go a long way to facilitate farm produce to deliver at consumers doorsteps, he said.

As the monsoon scenario is not that much promising in the current year, the government should take measures to mitigate the impact of deficient monsoon on prices of agricultural commodities, he said.

In view of the heavy dependence on monsoon for agriculture produce, it is necessary to facilitate farmers in the bad years by ensuring increased power supply, availability of fuel etc to farmers so that the sowing process is completed without delay, said Mr. Jaipuria.

Ranbaxy overcharged in Texas for drugs under its public-funded Medicaid programme

Ranbaxy overcharged in Texas for drugs under its public-funded Medicaid programme: State of Texas has imposed another hefty fine in the United States of close to `240cr. The company has been in negotiation with the US state over settlement of this issue for quite some time now. While final details are awaited, it is expected that the fine could be broadly split into two components. One of this, about 38%, could relate to some additional dues that the state may have claimed on account of Ranbaxy’s previous slippages from the US-prescribed manufacturing practices, which led to its coughing up US$500mn as fine in the US in May last year.However, a second component of about 61% of the settlement sum could be flowing from an assessment by the US state, which shows that the drugmaker has overcharged the state of Texas on one or more drugs under its public-funded Medicaid programme. In its first quater results, Ranbaxy Labs one-time provision of `237cr, which was slated to kept aside for specific ongoing settlement discussions with government authorities in the US.While the details are not avaible, the development will not have significant implications on the company’s financials,as the company has a comforable net debt position. Hence we maintain our neutral stance on the stock.

Cipla – 1QFY2015 Result Review

Results below expectations

Stock up 1.3%

Cipla (CMP: `448/ TP: `480 / Upside:7.1%)

1QFY2015 results for the company came below expectations. For the quarter, the company posted consolidated sales of `2647cr V/s `2720cr, expected         (`2331cr in 1QFY2014) a yoy growth of 13.6%. The growth on the top line came on back of domestic sales posting a growth of 17% yoy to end the period at `1289cr, while exports posted a low growth of 10.5%. The export formulation grew by 12.7% yoy to end the period at `1218cr, while export API posted a dip in sales which ended the period at `140cr V/s `148cr during the last corresponding period. With this formulations now constitute 95% of sales for the company. On the operating front, the EBDITA margins came in at 17.7% V/s 24.5% expected and V/s 22.2% during the last corresponding period. This was however much better than 13.1% during 4QFY2014. While the gross margins came in at 61.3% V/s 59.9% during the last corresponding period, still the margins dipped, on back of 48.5% yoy rise in employee expenses and 24.5% yoy rise in other expenditure. Further, the deprecation rose by 47.5% yoy, which lead the PAT came in at `295cr V/s `575cr expected, (`485cr in 1QFY2014) registering a yoy de-growth of 39.1%. We maintain our accumulate with a target price of `480.

Weekend Highlights – 16 August, 2014

Indian Railways Carry 357.57 Million Tonnes of Freight during April-July 2014

Indian Railways carried 357.57 million tonnes of revenue earning freight traffic during 1st April- 31st July 2014. The freight carried shows an increase of 14.57 million tonnes over the freight traffic of 343.00 million tonnes actually carried during the corresponding period last year, registering an increase of 6.25 per cent.

During the month of July 2014, the revenue earning freight traffic carried by Indian Railways was 89.89 million tonnes. There is an increase of 3.68 million tonnes over the actual freight traffic of 86.21 million tonnes carried by the Indian Railways during the same period last year, showing an increase of 4.27 per cent.

RBI to transfer Rs. 526.79 billion surplus to Government

The Central Board of Directors of the Reserve Bank of India approved the transfer of surplus amounting to Rs 526.79 billion for the year ended June 30, 2014 to the Government of India. The amount was Rs 30.10 billion for the year ended June 30, 2013. The surplus transfer will be effected August 11, 2014.

FDI enhancement in defence & up to 100% FDI in railways will boost manufacturing and reduce transportation costs: PHD Chamber

The Union Cabinets decision to enhance composite cap for foreign investments in defence sector to 49% from 26% is encouraging and it will go a long way to infuse innovation and to generate employment opportunities in the defence products manufacturing processes, said Mr. Sharad Jaipuria, President, PHD Chamber of Commerce and Industry

The move is expected to reduce dependence on defence imports and soften the burden of trade deficit in the coming times, said Mr. Jaipuria

The decision to permit FDI upto 100% in some railway operations in the country is also inspiring, he said.

This would overcome the problem of deficient financial resources of the Indian railway sector which has been a major deterrent to its capacity building and operational efficiency. Initiating the high speed train projects and development of dedicated freight corridors would enable the country to speed up the transportation mechanism and reduce the costs of transportation, he added.

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