Likely competition for generic Lialda bears on Cadila's stocks

Zydus had launched generic Lialda in US in July this year after winning patent battle with innovator Shire

Cadila Healthcare's (Zydus Cadila) blockbuster drug the generic version of mesalamine (Lialda) is likely to face competition from the innovator itself as Irish pharma firm Shire Plc is expected to launch an authorised generic (AG) version of the drug in the US market soon. The ulcerative colitis drug is estimated to have a market size of $1.15 billion and Zydus was the first to file (FTF) an abbreviated new drug application (ANDA) for a generic version of Lialda in the US.

The markets reacted by correcting in the stock price on Monday, which dipped around 5 per cent during day's trade on the BSE to Rs 477.25 a share.

Zydus had commercially launched its mesalamine delayed release tablets (1.2 g) in the US market in mid-July this year from its Moraiya facility near Ahmedabad. It was the first to file an ANDA for the generic version of the drug and is currently the only generic available to patients in the US. The drug is indicated for the treatment of mild to moderate ulcerative colitis, which affects roughly 700,000 people within the US.

The company had received a favourable judgement from a US federal court in a patent infringement case in favour of its US subsidiary Zydus Pharmaceuticals (USA) Inc in May and eventually received the US Food and Drug Administration (USFDA) nod for the generic version of the drug in June. The company was prompt to commercially launch the drug in July and enjoys a 180-day exclusivity period for the drug.

Post-USFDA approval, Angel Broking had estimated that the company can add around $60 million and $20 million in sales and net profit respectively from the drug alone.

However, the market is now abuzz that the innovator company Shire Plc is gearing up to launch an AG version of the drug in the US market soon which would eat into Zydus's market share. Shire has reported annual sales of $714 million for this product in 2016 in the US. Post the Zydus' approval, analysts had predicted that Shire will take a 2 per cent to 3 per cent hit on revenues because of the Lialda competition.

A senior official of Cadila Healthcare said: "Shire is indeed likely to launch an AG version of the drug as the generic market for the drug has opened and being the innovator company it could do so. It has, however, not launched the drug yet." He did not wish to comment on what kind of business impact it could have for Zydus' version of the drug.

Sarabjit Kour Nangra, vice president, research, pharma, Angel Broking felt that as such for FTFs the usual horizon is around six months and beyond that there are copy cat drugs from other generic players. "In case of Lialda too there is Teva, Mylan and Lupin in the horizon who are waiting to launch their generic versions of the drug. We would like to see how competition pans out in the next six months over the drug, but I do not see any significant challenge before FY19," she said. In fact, Nangra felt that the revenues for this quarter and the coming one would see a boost thanks to the launch of the drug, but revenues for a one-year period may see a hit as competition becomes intense.

As such, mesalamines have proven to be a challenging class of drugs for generic companies to break into.

The US market contributes around 40 per cent to Zydus Cadila's sales. According to Angel Broking, its overall revenue from the US market in FY17 was Rs 3,709 crore, or 40.22 per cent of its consolidated annual turnover of Rs 9,220 crore. The Broking firm expects overall exports, including to the US, Europe and emerging markets, to post a compounded annual growth of 23.7 per cent over FY17-19. New product launches are likely to play a key role.