New Covid-19 drugs provide additional fuel as Cipla fires on all cylinders

Firm domestic sales and positive outlook in the US point to robust earnings

Cipla’s stock surged nearly 8 per cent on Friday, following the recall of Albuterol — a respiratory product by its competitor Perrigo, in the US — over concerns that some units may not dispense properly because of clogging issues. 

This move is expected to benefit both Cipla and Lupin. Cipla is estimated to gain additional $20 million sales during September-December 2020 following the recall by Perrigo say analysts at a foreign brokerage. Also there could be more gains beyond the period as company gains market share and could lead to 4-6 per cent earnings upside feel analysts.Even if one goes beyond this news, Cipla’s performance has seen improvement and prospects look equally good.

Even as India’s pharmaceuticals market (IPM) continues to see pressure on growth because of Covid-led disruptions, Cipla has impressed the Street with its outperformance. In August, the drug major recorded 8.4-per cent growth, as against 2.2-per cent decline in the IPM, on the back of a strong chronic portfolio and Covid-19 management drugs. The IPM decline in August was driven by 5.3-per cent contraction in the acute segment, while chronic drugs grew by 4.8 per cent year-on-year.

The company’s chronic portfolio range is strong and includes respiratory, cardiovascular, gynaecology, central nervous system (CNS), and other drugs, which helped sustain growth momentum. Likewise, newly launched Covid treatment drugs such as Remdisivir, Favipiravir and already existing Toclizumab  are providing further mileage. 

Cipla’s performance in the US market, too, has improved. The firm’s strong operating performance in the June quarter was led by gains in generics of the respiratory product Albuterol, launched in the US, ahead of peers such as Lupin. Research and development spends, and a sharp cut in operating expenses helped further. Analysts say ebitda margins at 24 per cent were the best in the past 20 quarters.

The stock is trading near its 52-week highs, scaled last month. On earnings visibility, Credit Suisse says this has increased significantly for Cipla. There are three large drug launches lined up in the US, including for respiratory and oncology treatment, along with pre-chemotherapy generics. Besides, momentum is building on respiratory filings after the launch of Albuterol — Cipla has filed three more and plans to start trials of another two in late FY21, say analysts.

In terms of already-launched products such as generics of Migranal (for migraine treatment), Cipla has achieved a 16 per cent share in the three-player generics market, with an estimated size of $66 million, according to last data available. For the generics of Nexium (a drug for acid reflux treatment), too, Cipla's share has stabilised at 32 per cent in the suspension market, where it is the sole generic player (with market size of $86 million). For CNS drug Sabril’s generics, Cipla's share has improved to 40 per cent in the four-player generic oral solution market.

All of these factors point towards strong prospects for the firm in the US. Cipla has also been doing well in South Africa.  Kedar Upadhye, joint president & global chief financial officer, of the firm, remains confident of the growth trajectory in most of these markets, including India. In this backdrop, most brokerages have maintained a positive outlook. 

Emkay Research says that Cipla’s Indian business has recovered sharply from the lows of Q1FY20, and since then, the firm has outperformed industry growth for the fourth consecutive quarter. They expect the momentum to continue, led by strong growth in trade generics and Covid-related drugs. While it has raised FY21, FY22, and FY23 earnings estimates by 9-10 per cent each, Nomura has raised its target price to Rs 861 for the stock, which is currently trading at Rs 809.