Cipla stock: Should you Buy? Kotak explains what investors should really do

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Published: November 22, 2017 3:12:11 AM

Dacogen is the second key oncology injectable approval for Cipla, with Melphalan already launched through partner Par, and along with last week’s approval of Pulmicort Respules, the approval demonstrates Cipla’s capabilities in sterile products, particularly, lyophilised products and suspensions requiring particle size characterisation.

 Recent approvals of generic Dacogen and Pulmicort Respules vindicate Cipla’s sterile development and manufacturing capabilities, and along with approval of Renvela last month, reaffirm our positive view on Cipla’s US pipeline. (Reuters)

Recent approvals of generic Dacogen and Pulmicort Respules vindicate Cipla’s sterile development and manufacturing capabilities, and along with approval of Renvela last month, reaffirm our positive view on Cipla’s US pipeline. We expect continued launch momentum, and see Cipla as having one of the best US pipelines with a combination of near/mid-term, date certain exclusivities, as well as several limited competition launches from FY2018-20. Cipla announced the approval of generic Dacogen (decitabine) in the US, marking its third major approval in the US, following recent approvals of Renvela and Pulmicort Respules. Dacogen is the second key oncology injectable approval for Cipla, with Melphalan already launched through partner Par, and along with last week’s approval of Pulmicort Respules, the approval demonstrates Cipla’s capabilities in sterile products, particularly, lyophilised products and suspensions requiring particle size characterisation. We expect Dacogen to generate sales of $12 million in FY2019, and do not expect a major cut to DRRD’s FY2019 EPS, as our numbers already assume sales to decline to $20 million in FY2019 from $89 million at peak in FY2017 and $65 million in FY2018. We expect Cipla’s Pulmicort Respules to generate sales of $18 million in FY2019, easily offsetting a potential $10 million decline in profit share from Sandoz’ Pulmicort, which was also developed by Cipla.

Following the recent Renvela, Pulmicort and Dacogen approvals, we expect the launch momentum to build with the upcoming exclusive ARV launches of Viread, Reyataz and Norvir (March 2018), all of which are partnered products with date certain launches and profit share embedded in either formulation or API sales. We also expect several limited competition US launches over FY2018-21, including Fosrenol (2HFY18), Vidaza (2HFY18), Lotronex (2HFY18), Toprol XL (FY2019), Nasonex (FY2019), Flonase (FY2019), Travatan Z (FY2019), CiproDex (FY2019/20), ProVentil (FY2019), as well as Advair DPI in FY2021, for which, we expect pivotal trials to start in 3QFY18. The momentum is likely to continue in FY2021 with Truvada and Atripla exclusivities, followed by potential launch of Abraxane in FY2022.

To a great extent, Cipla is likely to emerge as a beneficiary of the problems plaguing many of the peers, given its low base, a solid pipeline that will benefit from quicker review cycles, and limited portfolio concentration from high value products. This, along with its top-three market positions in India and South Africa, ensure a balanced earnings profile. Cipla remains our top pick with target price of Rs 680/share.

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