Ranbaxy stock up 50% post deal with Sun Pharma; co grabs 13% market share after Diovan’s launch

The acquisition by Sun Pharma is proving to be the best thing that happened to drug maker Ranbaxy Laboratories, especially for its investors. Since the purchase was announced, Ranbaxy’s stock has been steadily gaining ground.

Gaining US Food and Drug Administration approval to exclusively launch generic Diovan has made it even more attractive. Besides, the nod by the stock exchanges for the deal has triggered a relief rally in the stock. All this has led to Ranbaxy gaining 50% since the news of the acquisition broke.

Ranbaxy has gained 13% market share in the first week of launching generic Diovan. This is an impressive start given that the Street had expected the company to get a 40% market share during the 180-day exclusivity period.

The approval of Diovan, albeit delayed since September 2012, significantly increases the possibility of Ranbaxy being able to monetise two more exclusivity opportunities — Nexium and Valcyte — sooner rather than later.

Sun Pharma and Ranbaxy now await the assent of shareholders and the Competition Commission of India. Analysts believe these approvals should not pose a major hurdle considering the high promoter holding in both Sun Pharma and Ranbaxy and there being very little product overlap between them.

Under the terms of the acquisition, for every five shares held in Ranbaxy, shareholders are going to receive four of Sun Pharma. Consequently, Ranbaxy’s stock is likely to trade closer to 0.8 times the value of Sun Pharma’s stock as the merger is close to completion, up from 0.7 now. However, with the merger likely to be completed by the end of this year and bright prospects for Sun Pharma gaining on the back of earnings growth, there is scope for Ranbaxy to appreciate further.