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Cipla ------------------------------------------------------------------------------------- Maintain NEUTRAL
Generic combination inhalers approaching?
● We assume coverage of Cipla with a NEUTRAL rating and
increase our target price to Rs300 (from Rs290).
● We expect Cipla’s near-term growth to be muted as it is growing
below the industry average in the domestic market and growth in
the export market should pick up in 2H12 as the Indore SEZ
ramps up meaningfully.
● Recently, news flow on generic combination inhalers in Europe has
picked up. Sandoz has filed for generic Seretide in Europe, Teva
plans to file for generic Symbicort in CY11 and Cipla’s partner
Neolab has been active in testing its inhaler against Seretide. Cipla
has four-five partners in Europe for the Inhaler opportunity – the
combined size of Seretide and Symbicort is US$3.5 bn.
● We value Cipla at 21x FY12E EPS, at the sector average multiple.
We do not value the generic combination inhaler opportunity, as it
is at least two years away, but note that as news flow around the
same picks up, Cipla’s multiple may benefit from it. We reduce our
FY11/12/13 estimates by 17/14/11% as we reduce our estimate
for technology license income and factor in slower ramp up of the
Indore SEZ.
Signs of generic EU combination inhalers emerging?
Recently, there have been several positive developments around the
launch of a generic version of Advair/Seretide in Europe:
● In November 2010, Vectura’s management disclosed that Sandoz
had ordered the first batch of Vectura inhaler devices (Sandoz is
the European partner for Vectura’s V315, a potential generic
version of Advair); this probably indicates that Sandoz is gearing
towards the launch of a generic combination inhaler.
● Teva on its Respiratory Day (November 2010) talked about filing a
generic inhaler for Seretide in Europe in CY12 and for Symbicort
in CY11.
● Neolab (one of the Cipla’s partners in Europe) has been actively
conducting trials for comparing its generic combination inhaler
(fluticasone+salmeterol) with GSK’s Seretide as the reference
product. Cipla had filed for the regulatory approval (through its
partner Neo Labs) of the generic Seretide inhaler in Europe in
2008, after the expiry of GSK’s data exclusivity.
Proving the bioequivalence of inhalers is complex and thus there are
specific guidelines available for generic inhaler products in the EU for
demonstrating therapeutic equivalence between two inhaler products.
However, no such guidelines exist in the US and thus the fastest route
to introduce the generic version in the US is through the branded
generic route instead of direct substitutability through the ANDA.
How big is the opportunity?
Seretide in Europe is almost a US$2.5 bn drug and Symbicort in
Europe is a US$1 bn drug. Cipla mentioned that it has four to five
partners for the entire Europe and one partner for the UK market (Neo
Lab). Thus, it’s possible that Cipla may have an agreement to supply
to multiple players. At 15% market share and price erosion of 60%,
the size of the opportunity for Cipla and partners is US$210 mn.
Assuming that formulations’ cost supplied by Cipla at 25%, the overall
upside is EPS of Rs2 for Cipla or Rs42/share at 21x P/E.
Why the generic version is not available in the EU as yet?
In inhalers, there are typically two types of patents – one is the
composition patent and the second is the device patent. Although
GSK’s combination patents were ruled as invalid in several locations
such as the UK, Germany and Ireland, but even now no generics are
available in the market. The main reason for that is data exclusivity for
GSK did not expire until 2008 (ten years from the first launch of the
drug in the EU) and thus, generics companies were unable to use
GSK’s clinical trials to demonstrate the safety of their generic
products. Thus, as clinical data is available, generics have started
filing their products to the regulators (Sandoz did the initial filing in
early 2010). In its Respiratory Day presentation, Teva mentioned it
takes almost 14 months to get approval in the EU. Assuming some
delay related to the first generic of combination inhalers, the first
generic version could be expected in CY12. Teva aims to submit a
generic filing in the EU in CY11 for Symbicort.
If generic launch is possible in CY12, why is market not
pricing it in?
Our discussions suggest that Sandoz may launch a generic Seretide
in Europe in CY12 and Teva may launch a generic Symbicort in
CY12/CY13. In the 2Q11 conference call, Cipla’s management said
combination inhalers could be expected in 18 months to two years in
Europe. Cipla has already got the regulatory approval for Seroflo
(fluticasone+salmeterol) in Russia and South Africa, and launched the
product in South Africa in 3Q11. We believe the market is not pricing
in this opportunity due to delays in the non-combination inhaler launch
in Europe so far. Additionally, as Cipla has not revealed its marketing
partner, it’s difficult to estimate its market share gain ability.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Cipla ------------------------------------------------------------------------------------- Maintain NEUTRAL
Generic combination inhalers approaching?
● We assume coverage of Cipla with a NEUTRAL rating and
increase our target price to Rs300 (from Rs290).
● We expect Cipla’s near-term growth to be muted as it is growing
below the industry average in the domestic market and growth in
the export market should pick up in 2H12 as the Indore SEZ
ramps up meaningfully.
● Recently, news flow on generic combination inhalers in Europe has
picked up. Sandoz has filed for generic Seretide in Europe, Teva
plans to file for generic Symbicort in CY11 and Cipla’s partner
Neolab has been active in testing its inhaler against Seretide. Cipla
has four-five partners in Europe for the Inhaler opportunity – the
combined size of Seretide and Symbicort is US$3.5 bn.
● We value Cipla at 21x FY12E EPS, at the sector average multiple.
We do not value the generic combination inhaler opportunity, as it
is at least two years away, but note that as news flow around the
same picks up, Cipla’s multiple may benefit from it. We reduce our
FY11/12/13 estimates by 17/14/11% as we reduce our estimate
for technology license income and factor in slower ramp up of the
Indore SEZ.
Signs of generic EU combination inhalers emerging?
Recently, there have been several positive developments around the
launch of a generic version of Advair/Seretide in Europe:
● In November 2010, Vectura’s management disclosed that Sandoz
had ordered the first batch of Vectura inhaler devices (Sandoz is
the European partner for Vectura’s V315, a potential generic
version of Advair); this probably indicates that Sandoz is gearing
towards the launch of a generic combination inhaler.
● Teva on its Respiratory Day (November 2010) talked about filing a
generic inhaler for Seretide in Europe in CY12 and for Symbicort
in CY11.
● Neolab (one of the Cipla’s partners in Europe) has been actively
conducting trials for comparing its generic combination inhaler
(fluticasone+salmeterol) with GSK’s Seretide as the reference
product. Cipla had filed for the regulatory approval (through its
partner Neo Labs) of the generic Seretide inhaler in Europe in
2008, after the expiry of GSK’s data exclusivity.
Proving the bioequivalence of inhalers is complex and thus there are
specific guidelines available for generic inhaler products in the EU for
demonstrating therapeutic equivalence between two inhaler products.
However, no such guidelines exist in the US and thus the fastest route
to introduce the generic version in the US is through the branded
generic route instead of direct substitutability through the ANDA.
How big is the opportunity?
Seretide in Europe is almost a US$2.5 bn drug and Symbicort in
Europe is a US$1 bn drug. Cipla mentioned that it has four to five
partners for the entire Europe and one partner for the UK market (Neo
Lab). Thus, it’s possible that Cipla may have an agreement to supply
to multiple players. At 15% market share and price erosion of 60%,
the size of the opportunity for Cipla and partners is US$210 mn.
Assuming that formulations’ cost supplied by Cipla at 25%, the overall
upside is EPS of Rs2 for Cipla or Rs42/share at 21x P/E.
Why the generic version is not available in the EU as yet?
In inhalers, there are typically two types of patents – one is the
composition patent and the second is the device patent. Although
GSK’s combination patents were ruled as invalid in several locations
such as the UK, Germany and Ireland, but even now no generics are
available in the market. The main reason for that is data exclusivity for
GSK did not expire until 2008 (ten years from the first launch of the
drug in the EU) and thus, generics companies were unable to use
GSK’s clinical trials to demonstrate the safety of their generic
products. Thus, as clinical data is available, generics have started
filing their products to the regulators (Sandoz did the initial filing in
early 2010). In its Respiratory Day presentation, Teva mentioned it
takes almost 14 months to get approval in the EU. Assuming some
delay related to the first generic of combination inhalers, the first
generic version could be expected in CY12. Teva aims to submit a
generic filing in the EU in CY11 for Symbicort.
If generic launch is possible in CY12, why is market not
pricing it in?
Our discussions suggest that Sandoz may launch a generic Seretide
in Europe in CY12 and Teva may launch a generic Symbicort in
CY12/CY13. In the 2Q11 conference call, Cipla’s management said
combination inhalers could be expected in 18 months to two years in
Europe. Cipla has already got the regulatory approval for Seroflo
(fluticasone+salmeterol) in Russia and South Africa, and launched the
product in South Africa in 3Q11. We believe the market is not pricing
in this opportunity due to delays in the non-combination inhaler launch
in Europe so far. Additionally, as Cipla has not revealed its marketing
partner, it’s difficult to estimate its market share gain ability.
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