Indian Pharma: US prescription trends ::CLSA

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US prescription trends
Recent IMS numbers show pick up in volumes for Cadila and Dr Reddy’s
while Sun Pharma and Ranbaxy saw QoQ decline. Dr Reddy’s gained
market share in some key products like Prevacid and Prilosec OTC. With
20-40% of total revenues coming from the US generics market, growth in
this market is of significance for most leading pharma companies. Based
on the pipeline of products and earnings growth through FY12, we prefer
Dr Reddy’s.
Limited new products during the quarter
􀂉 Most Indian pharma companies have seen limited new product introductions in the
US market in the recent quarter.
􀂉 Companies gaining market share in their more profitable products are likely to
deliver strong earnings for the quarter.
􀂉 While Dr Reddy’s will see a QoQ decline due to Allegra D24 in previous quarter, we
expect reasonable quarter for Dr. Reddy’s based on market share gains in Prevacid
and traction in its generic versions of Prilosec OTC and Allegra OTC.
􀂉 Ranbaxy and Sun Pharma have seen declining overall prescriptions with Ranbaxy
losing share in a couple of products including Valtrex and Sun Pharma primarily
losing share in Protonix.
Long term growth potential intact
􀂉 With a strong wave of patent expirations in the US going up to 2015, we see
substantial earnings accretion for most of the Indian pharma companies.
􀂉 Considering that most of the Indian companies currently have a small absolute size
in the US market, scope of growth does not reduce dramatically with reduction in
patent expiration wave.
Dr Reddy’s preferred for near term triggers
􀂉 We prefer Dr Reddy’s based on four potential near term triggers beginning with
generic launch from penicillins portfolio (acquired from GSK) in Aug-Sept 2011,
Allegra D24 OTC in 2QFY12, Zyprexa in Oct 2011 and potentially Arixtra in 2QFY12.
􀂉 We expect 37% reported earnings cagr in case of Dr Reddy’s over FY11-13. 1QFY12
should see Dr Reddy’s profits growing 22% YoY though declining QoQ.
􀂉 In case of Ranbaxy and Sun Pharma, high base would result in YoY profit decline in
this and likely in next quarter.
􀂉 We have revised our earnings Torrent and target prices (based one one year
forward PE multiples) in case of Cadila, Cipla, and Sun Pharma.