Cipla: Triggers in place with launch, filings

Q3 is expected to be strong; Invagen integration, strong pipeline to keep profit growth healthy

Cipla recently announced two important filings and launches in its inhaler portfolio. The first was the approval for the launch of the generic equivalent of GSK’s Seretide evohaler, used for the treatment of asthma and chronic obstructive pulmonary disease. Mylan is the other generic player with a 15 per cent market share. For the strengths approved, the annual sales have been pegged at $278 million or just under Rs 2,000 crore. Analysts at Nirmal Bang expect the company to launch the product at a discount to that of Mylan and gather a market share between 10 and 30 per cent. The brokerage expects it to get a 20 per cent share in the next three years and about $40 million (about Rs 270 crore) in revenue if it is priced at a discount of 30 per cent. The incremental net profit contribution is expected to be Rs 40 crore. 

In the second case, in the US, the company has filed the ANDA (abbreviated new drug application) for its first inhaler in the US market and should be able to launch it in three years. The product, ProAir HFA, a bronchodilator, had sales of $540 million in calendar year 2015. Kotak Institutional Equities analysts expect ProAir to be on the market from FY2020 with a revenue potential of $80-100 million in the first year of the launch.

The respiratory segment is the second-largest revenue generator for the company with sales of $360 million, or about Rs 2,400 crore, in 2015-16. In its pipeline of products based on innovative technologies, the inhaler segment, which has a market of the $8.1-billion and comprises 11 products, is by far the biggest for the company (the others being suspension-based liquids, liposome injections and nanotechnology).

Kotak Institutional Equities analysts say that an improved and focused strategy, supported by a low base, diversified portfolio and good pipeline in the US, should help the company improve its performance.

The near-term trigger for the stock will be the December-quarter performance. The Street will keep an eye on the management commentary on the UK inhaler launch and its prospects. Cost-cutting initiatives, a low base and the integration of Invagen, a company Cipla acquired last year, will help the firm to post a 300-basis-point gain in margins while sales and operating profits are expected to grow between 24 and 50 per cent, according to analysts at Jefferies. The stock, at 25 times its projected FY18 earnings, is trading at a slight premium to its peers and any correction could be a good entry point for long-term investors.