FY21/22e EPS up 6.4/3.8%; TP raised to Rs 535; ‘Neutral’ retained as return ratios are yet to improve significantly
Albuterol Sulfate MDI (g-Proventil) is CIPLA’s first device-based inhalation product to be approved by the USFDA for the US market. Based on the competitive scenario, we believe g-Proventil could add $60 mn to CIPLA’s revenues annually. Following g-Proventil’s approval and successful completion of g-Advair’s Phase-3 clinical study, we believe CIPLA is well poised to expand its inhaler portfolio in the US market.
We raise our EPS estimates for FY21/FY22e by 6.4/3.8% and revise P/E multiple to 20x (from 18x earlier) to factor in CIPLA’s improving complex pipeline.
Accordingly, we have revised our TP to Rs 535 on 12-month forward earnings basis. We remain positive on CIPLA due to robust ANDA pipeline and renewed strategy for the US market. However, we are yet to see meaningful expansion in return ratios, and thus, maintain Neutral.
Approval for g-Proventil marks entry into device-based inhalers in US: IMS MAT sales of g-Proventil/Albuterol Sulfate stood at $153 m/2.8 bn in Feb’20. There are currently 3 innovators, 3 AGs (authorised generics) and 1 generic player in this market. Branded products account for 60% of the Albuterol Sulfate market, and the remaining 40% is with AGs.
Based on reported numbers from GSK and Teva, we estimate the non-branded (AG and generic) market size at ~$600 m per year. With an assumption of 15% market share/30% price erosion for CIPLA, we believe g-Proventil could add up to ~$60 m to its revenues. Lupin, the other known potential entrant in this market, is expecting approval in 1HFY20.
R&D effort in inhalers for US market on monetisation path: CIPLA is currently investing significant resources in the US market to (a) expand its respiratory franchise, and (b) gain significant market presence. Besides g-Proventil, CIPLA has completed phase-3 trials for g-Advair and would subsequently file with the USFDA. It has 65 ANDAs pending for approval with a good mix of oral solids, injectable, ophthalmic and inhalation.
Valuation and view: We expect CIPLA to deliver 16% earnings CAGR over FY19-22e, led by 16% sales in the US and gradually improving growth in domestic formulation with renewed strategy. We have increased our PT to Rs 535 (from Rs 445 earlier).