‘Neutral’ on Cipla, co well-placed to deliver 24% earnings CAGR

By: |
December 15, 2020 5:30 AM

Considering other settlements, limited build-up of sales over FY23-26E, and unlimited quantities of g-Revlimid by Cipla post Jan-26E, there could be a potential NPV addition of `40 per share from this opportunity. We await clarity on further details of the agreement.

It had reached a similar agreement with Alvogen on g-Revlimid sales in the US.It had reached a similar agreement with Alvogen on g-Revlimid sales in the US.

Cipla and Celgene (innovator) have reached an agreement to settle the litigation pertaining to g-Revlimid in the US. According to the settlement, Cipla can begin selling g-Revlimid in the US sometime after March 2022.
Considering other settlements, limited build-up of sales over FY23-26E, and unlimited quantities of g-Revlimid by Cipla post Jan-26E, there could be a potential NPV addition of `40 per share from this opportunity. We await clarity on further details of the agreement.

The extended benefit of operational cost savings in DF, ramp-up in albuterol sulfate sales, and increased business for Covid-19 products, Cipla is well-placed to deliver 24% earnings CAGR over FY20-23E. We maintain our ‘neutral’ rating as the valuation factors potential upside in earnings over the medium-term

According to the settlement terms, Cipla will be allowed to sell volume-limited quantities of g-Revlimid in the US beginning some time in FY23. Post Jan-26, Celgene has agreed to provide Cipla with a licence to its patent required to manufacture and sell an unlimited quantity of g-Revlimid in the US.

The innovator had settled cases with NTCPH, Alvogen and DRRD on g- Revlimid previously. According to the settlement with NTCPH, it is allowed to sell mid- to single-digit volume share of total g-Revlimid sold in the US in the first year of entry. The volume limitation would gradually rise each year until March 25, when it is allowed to sell up to one-third of all g-Revlimid sold in the US by volume.

It had reached a similar agreement with Alvogen on g-Revlimid sales in the US. However, the maximum volume share of g-Revlimid that Alvogen is allowed to sell in the final year of the settlement is restricted to single-digits. A similar agreement was reached recently with DRRD, too. However, the amount that DRRD is allowed to sell has not been disclosed.

SUNP, LPC, ARBP, CDH, Mylan, Apotex, and Hetero Drugs are other companies currently in patent challenges with innovator on g-Revlimid. g-Revlimid (Lenalidomide) is used to treat multiple myeloma in adults. The drug is available as orally administered capsules. Patents on g-Revlimid expire on April 27, 2027. g-Revlimid’s sales in the US stood at $7.3 billion in CY19, up 13% YoY. Its sales in 9MCY20 stood at $6.1 billion.

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