Cipla Rating: buy; Cipla’s US outlook remains intact | The Financial Express

Cipla Rating: buy; Cipla’s US outlook remains intact

FDA to continue to withhold product approvals from Goa plant

Cipla Rating: buy; Cipla’s US outlook remains intact
FDA re-inspected the Goa plant in August 2022 after which it issued six observations.

Cipla received an update from the US FDA regarding inspection conducted in August 2022 at its Goa plant that it retains OAI (official action indicated) status for the facility. This implies that the FDA (food and drug administration) may continue to withhold product approvals from this plant till outstanding GMP (good manufacturing practices) deficiencies are resolved. FDA woes at the Goa plant started after inspection in September 2019 which resulted in a Form483 letter citing 12 observations for GMP deficiencies. Not fully satisfied with the company’s remediation plan, the FDA issued OAI status in January 2020 followed by a warning letter in February 2020. FDA re-inspected the Goa plant in August 2022 after which it issued six observations.

De-risking plans underway for key filings: Goa is one of the key plants for Cipla which accounts for 25-30% of its US sales in our understanding. OAI status may not impact supply of existing products from the plant, however, the FDA may continue to withhold product approvals including gAbraxane until the GMP issues are resolved. Cipla earlier indicated potential launch of gAbraxane in Q1FY24. In view of update at the Goa plant, launch timeline could likely shift by six months. While the timeline remains uncertain for FDA resolution at Goa, Cipla has already initiated work to de-risk some crucial filings (including gAbraxane) by transferring those to other plants.

Retain Buy with unchanged TP of `1,340: We assume the US launch of gAbraxane will now be in 2HFY24 (earlier assumption was end-FY23) post FDA update for the Goa plant. This has led to a minor 1.5% cut in our FY23e EPS estimate while our FY24/25e estimates remain unchanged. We continue to like Cipla’s sharp focus on key segments (India, South Africa, the US), delivery on cost efficiencies and prudent capital allocation. It remains on track to launch gAdvair inhaler (key awaited product) in the US in 2HFY23. Continued traction in material launches – gProventil, gRevlimid, lanreotide 505(b)(2) – should sustain US sales growth in the near term. Multiple notable pipeline products – e.g. inhalers and peptide injectables – provide comfort on the medium-term growth outlook for its US sales.

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Despite initial cost build-up for launches in India and the US and increased R&D spending on pipeline assets, we expect the core Ebitda margin to expand by c290bp between FY22 and FY25e driven by sales growth-led operating leverage and cost efficiencies. We retain our Buy rating and TP of Rs 1,340.

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First published on: 29-11-2022 at 01:00 IST