Panacea Biotec Event Update ; mOPV1 vaccine under WHO scanner ; HOLD ; Target : Rs52

Panacea Biotec
 
mOPV1 vaccine under WHO scanner

 

HOLD
 
CMP: Rs53                  Target Price: Rs52

 

The DCGI (Drug Controller General of India) has suspended Panacea Biotec's sale of mOPV1s (Monovalent Oral Polio Vaccine) after it failed to meet the potency requirements set by WHO. In order to have more clarity on the issue and its impact on the OPV business, we spoke to the management. As per our discussions with the management and industry sources, this move will defer further supply of mOPV1 to UNICEF or the Indian government till it clears the potency test of WHO and NRA (National Regulatory Authority). We believe that in a worst case scenario, if Panacea fails to clear the potency test, it may have to take back and destroy the entire batch. We estimate this to negatively impact our FY10E EPS estimate by Rs 1.5.  However, we do not expect this to adversely impact its overall business with UNICEF or the Indian government. Owing to this development, we are downgrading our FY10E earnings estimates by Rs1.5 to Rs7.5. Downward revision in earnings has led to downward revision in target price and our rating on the stock. We have downgraded our rating from Buy to Hold with a revised target price of Rs52. At CMP of Rs53, the stock is trading at 7.0xFY09E and 7.1x FY10E.  Any adverse action taken by DCGI or WHO can be a key risk to our call.