Growth forecast in US market set to drive gains for Cipla stock

Street remains bullish on India prospects, regulatory headwinds for Goa site continue

The stock of pharma major Cipla was the biggest gainer in the Nifty Pharma and Healthcare indices, jumping about 5.5 per cent in trade on Tuesday. The Healthcare index also saw the largest increase among sectoral indices with a rise of about 3 per cent.

The Street is betting on a strong launch pipeline in the US, market share gains of recent launches and rising scale in the consumer business as some of the positives for the third-largest listed pharma entity.  

The company has captured a 9.3 per cent market share as of August in Lanreotide, a drug used in treating a growth hormone disorder. Cipla is the only generic player in the market and had launched the drug seven months earlier in February. IIFL Research says that the unlocking of Cipla’s peptide injectables pipeline has commenced through launch of Lanreotide and five other products are pending for approval by the US Food and Drug Administration (USFDA). They expect the revenue potential of the drugs to be launched by financial year 2024/2025 (FY24/25) at $30 million to $50 million each.

In addition to this, the Street will focus on the traction its US pipeline launches will get going ahead. The company is seeking to double its US sales over the next five years, riding on the back of its respiratory and injectables product pipeline. While the company achieved a 7 per cent growth in US sales over FY19-22, the Street is banking on a 16 per cent plus growth over FY22-25.  

Analysts, led by Prashant Nair of Ambit Capital, highlight that Cipla’s lower scale in the US compared to other sector leaders such as Sun Pharma, Dr Reddys and Lupin offers it the ability to scale up faster on good pipeline execution. While recent launches validate capabilities, improved visibility on complex assets in the pipeline provide comfort on growth in a high price erosion environment, they add. The key drug launches in the current year are Advair (asthama), Revlimid (cancer) and Abraxane (chemotherapy).

The company also seeks to outperform the Indian pharmaceutical market and is expected to grow at 12-13 per cent and double the size of its India business (both prescription and generic businesses) over the next five years (FY22-27). Incremental gains are expected to come from its consumer wellness subsidiary, Cipla Health (CHL) which is pegged to grow at five times from its current annual run-rate of Rs 500 crore to about Rs 2,500 crore by 2027. Key brands in CHL include Nicotex (nicotine replacement), vitamin Maxirich, oral rehydration Prolyte ORS and cough lozenges Cofsil.

While these are positives, there have been regulatory headwinds for the company. The USFDA made some observations for its Goa formulation site after inspection in August. Three of the six comments by the USFDA are repeat observations; the site had received a warning letter in February 2020 after the inspection in September 2019.

The Street has a mixed view on the same. Sales contribution from the Goa site, according to Nomura Research, has reduced due to price erosion in the base portfolio and site transfer of products such as generic version of asthama drug Pulmicort to Indore facility.

However, Ambit Capital says that the compliance resolution at its Goa plant is key to watch for, especially with respect to the Abraxane filing that is a near-term potential launch. Inability to resolve them to the agency’s satisfaction could lead to delay in approval and launch, says the brokerage. It pegs the FY24 sales from the drug expected to be launched in the second half of FY23 at $40 million.