Pharmaceuticals

Albuterol contribution to be higher from 4Q onwards – Lupin

Update on Indian equity market:
Following its global peers, Indian markets continued to rally for the 5th straight session as Nifty closed the day 143 points higher at 12,157. Within the index, the gainers were led by RELIANCE (3.6%), BAJAJFINSV (3.5%), and INDUSINDBK (3.3%) whereas Maruti (-2.9%), GAIL (-1.9%) and BHARTIARTL (-1.5%) were the laggards. Among the sectoral indices, PVT BANK (2.1%), BANK (1.9%), and FIN SERVICE (1.9%) led the index higher while PHARMA (-0.7%) and FMCG (-0.1%) were the only laggards.
Excerpts of an interview with Mr. Nilesh Gupta, Managing Director, Lupin with CNBC-TV18 dated 05th November 2020:
The company is witnessing growth in the US markets on the back of the launch of Albuterol. The drug is a great growth opportunity for Lupin.
The Albuterol story will really come out in 4QFY21E. The company is still in ramp-up mode. Lupin is expected to get more business in 3Q as compared to 2Q and will see a steady-state of demand from 4Q onwards.
The reason for optimism on Albuterol is a major competitor, Perrigo going out of business with no timeline of coming back.
Commenting on the re-launch of Glumetza, there were some teething problems regarding the product but management is confident about the re-launch of the drug.
The company is able to return to a $180- 200mn quarterly run rate in the US markets. The remediation costs and research and development spend in the past have started fructifying for the company.
In the Indian business, the company is expected to grow 6-8% YoY. The business has suffered in the 1st half of FY21 due to the COVID-related slowdown in demand from the acute segment. The market is expected to grow in the range of 4-5% and the company is confident of beating the industry growth rate.
Consensus Estimate: (Source: market screener website)
The closing price of Lupin was ₹ 931/- as of 05-Nov-2020. It traded at 40x/ 25x/ 21x the consensus EPS estimate of ₹ 23/ 38/ 45 for FY21E/ FY22E/ FY23E respectively.
The consensus target price of ₹ 945/- implies a P/E multiple of 21x on FY23E EPS of ₹ 45/-.
Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Revenue growth across segments expected to continue– Laurus Labs

Update on the Indian Equity Market:

On Monday, Nifty closed 0.2% higher at 11,669. Within NIFTY50, INDUSINDBK (+6.5%), ICICIBANK (+6.0%), and AXISBANK (+6.0%) were the top gainers, while RELIANCE (-8.7%), DIVISLAB (-2.8%), and EICHERMOT (-2.5%) were the top losing stocks. Among the sectoral indices, PRIVATE BANK (+4.2%), BANK (+4.2%) and FINANCIAL SERVICES (+3.9%) were the top gainerswhileIT (-0.9%), PHARMA (-0.6%), and AUTO (-0.3%) were the top losing sectors.

Revenue growth across segments expected to continue– Laurus Labs

Excerpts of an interview with Mr. Satyanarayana Chava, Founder & CEO, Laurus Labs, aired on CNBC-TV19 on 30th October 2020:
● In 2QFY21, LAURUSLAB’s revenue growth came from all three divisions and management expects that trend to continue.
● Management has very good visibility of revenue growth going forward.
● Management also expects to maintaingross margins and EBITDA margin. The EBITDA margin is expected to be maintained within the 1HFY21 band of 29%-33%. However, Management refrained from giving any numerical guidance.
● LAURUSLAB’s net debt as of 30th September 2020 is Rs 20,000 mn. Management does not want to bring down the net debt beyond this level as there is a large capacity expansion plan on cards.
● Based on the revenue visibility and order book level, investment in additional capacity is required. Over the next 24 months, management expects a capital outlay of Rs 12,000 to 15,000 mn. The capacity expansion will be done using internal accruals and no external funds will be raised.
● LAURUSLABS has an annualized net debt to equity ratio of 0.85x so they are not highly leveraged. So,the decision to not reduce the net debt levels will not hurt the company.
● Recently the rules have been relaxed in the production linked incentives (PLI) scheme for Active Pharmaceutical Ingredients (APIs), drug intermediaries, and medical devices. LAURUSLABS has some products where they could get benefit from the modified norms of the PLI scheme, but it will not be very significant.

Consensus Estimate (Source: market screener website)
● The closing price of LAURUSLABS was ₹ 301/- as of 2-November-2020. It traded at 18.1x/ 20.6 x/ 13.1x the consensus EPS estimate of ₹ 16.6/14.6/22.9 for FY21E/ FY22E/ FY23E respectively.
● The consensus target price of ₹ 309/- implies a PE multiple of 13.5x on FY23E EPS of ₹22.9/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Insulin Glargine is $2.2bn opportunity in the insulin segment – Biocon

Update on Indian equity market:
After the steep fall on Monday, markets were in a recovery mode for the second straight day as Nifty50 rose 65 points higher at 11,535. Among the index, ZEEL (+7.5%), M&M (+6.1%) and TATAMOTORS (+5.1%) were the top performing stocks while BAJAJAUTO (-2.4%), HEROMOTOCO (-1.4%) and ASIANPAINT (-1.4%) were the laggards. The negative market reaction to two-wheeler stocks came as a surprise as companies delivered good performance in the monthly volumes. Within the sectoral indices, MEDIA (+3.4%), METALS (+1.8%) and IT (+1.5%) were the top performing sectors whereas PSU BANK (-0.4%) and FIN SERVICES (-0.03%) were the only the sectors closed the day in red.
Excerpts of an interview with Kiran Mazumdar Shaw, Executive Chairperson, Biocon published on CNBC TV18 dated 2nd September 2020:
Biocon and Mylan announced the launch of Semglee (Insulin Glargine injection) in the U.S. to expand access for patients living with Diabetes. Ms Mazumdar Shaw said that the commercialization of insulin glargine in the U.S. represents another milestone achievement for the company in making insulin based therapy globally.
The company is leveraging science and global scale manufacturing expertise to expand affordable access of biosimilar insulins to patients in Japan, Australia, Europe, India and key emerging markets. The U.S. launch of Semglee takes the company closer to realizing its aspirations of reaching ‘one in five’ insulin dependent people with diabetes worldwide.
The company expects Semglee to contribute significantly to the company’s goal of impacting 5 million patients’ lives and achieving $1bn revenues by the end of FY22E.
The company rigorously compared Semglee to the reference insulin glargine in participants with type-1 and 2 diabetes and found similar glycemic results in both groups. As a result, this insulin was approved by the FDA for the same indications as its reference product Lantus, thus expanding access for millions of people within this important patient community.
Semglee has an identical amino acid sequence as Sanofi’s Lantus and is approved for the same indications. This product has now received regulatory approval in more than 45 countries around the world and is the third product approved by FDA through the Mylan- Biocon collaboration.
She mentioned that this product already has a $6bn market opportunity in terms of Lantus sales and the company expects it to be $2.2bn opportunity.
Consensus Estimate: (Source: market screener website)
The closing price of Biocon was ₹ 410/- as of 24-Aug-2020. It traded at 46x/ 31x/ 26x the consensus EPS estimate of ₹ 8.9/ 13.4/ 15.8 for FY21E/ FY22E/ FY23E respectively.
Consensus target price of ₹ 413/- implies a P/E multiple of 26x on FY23E EPS of ₹ 15.8.
Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

COVID has created both opportunities and challenges for Pharma companies- Lupin

Update on the Indian Equity Market:

On Tuesday, Nifty closed flattish with just 0.1% gains at 11,559. Within NIFTY50, INDUSINDBK (+6.5%), M&M (+4.2%), and TATAMOTORS (+4.1%) were the top gainers, while ONGC (-1.4%), RELIANCE (-1.4%) and BAJAJAUTO (-1.3%) were the top losers. Among the sectoral indices, REALTY (+6.4%), PSU BANK (+1.1%), and AUTO (+1.0%) gained the most. FMCG (-0.3%) and IT (-0.1%) ended with losses.

COVID has created both opportunities and challenges for Pharma companies- Lupin

Excerpts of an interview with Mr. Ramesh Swaminathan, Executive Director- CFO and Head- Corporate Affairs, Lupin, published on Economic times website dated 26th August 2020:
• Lupin has the approval to manufacture generic version of ProAir- albuterol sulphate. This is a very important market for LUPIN in the inhalation space. The overall market for Ventolin, Proventil and ProAir combined is $ 1.1 bn with volume share of 44%, 9% and 47% respectively.
• The Albuterol Sulphate is a complex product and the competition expected is less. The price erosion could also be potentially lower due to lower competition.
• Lupin has been working on 12 to 15 products in the respiratory segment for the past several quarters. A large chunk of Lupin’s R&D spends is for complex generics including the inhalations portfolio, biosimilars, and complex injectables. The drugs device combination in the inhalation space makes it particularly interesting and challenging, though the mechanical trials associated with it are daunting and expensive.
• Generic ProAir is a very profitable product and Lupin will try to maximize on that considering their market share record. Even though the device itself and API will be imported, given the price stickiness, the gross margins are expected to be good.
• Apart from ProAir, Lupin has plans for several other products in the Respiratory space. Some known products include Fostair in the EU market, first to file in terms of Spiriva which could be in FY23, Dulera in FY22 and a host of other products.
• Generic market in the US has been witnessing a decline. What was potentially a $67 bn market 3-4 years ago has come down to $ 57-58 bn levels. Companies which were at the top have come down in terms of market share whereas Indian companies have been ramping up. But there is a lot of potential in other emerging markets. The good thing about any generic portfolio is that it can be levered across various markets.
• Lupin’s US revenue of $ 155-158 mn in 1QFY21 was an aberration and they expect to bounce back from those levels 2QFY21E onward. Lupin had a stroke of bad luck with metformin and that would also be back by the end of 2QFY21. Products like Albuterol lined up will help Lupinto be back into the revenue levels seen over the last several quarters.
• Covid has brought in opportunities for Pharma companies but also posed a lot of challenges to the supply chain. One of the opportunities is the Albuterol market itself which is growing at 13%. But in general, the topline has been impacted across markets.
• In case of India, after virtually no growth in 1QFY21, July was okay, and in August Lupin reached the same levels as last year and expect things to pick up September onwards.
• Both acute and chronic in the US have declined and markets like Philippines or Latin America, Mexico in particular, have been significantly impacted.
• Sales promotion and travel expenses have certainly come down. Lupin is also exploring newer ways of promoting their products with doctors in India as well as overseas.

Consensus Estimate (Source: market screenerwebsite)
• The closing price of LUPIN was ₹ 983/- as of 27-Aug-2020. It traded at 44.6x/ 35.2x/ 28.7x the consensus EPS estimate of ₹ 25.7/ 37.6/ 47.1 for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 882/- implies a PE multiple of 18.7x on FY23E EPS of ₹ 47.1/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

An opportunity to re-imagine business – Cipla

Update on the Indian Equity Market:
On Wednesday, Nifty50 snapped its six-day winning streak to end 0.1% lower at 11,308. HCLTECH (+4.7%), SBIN (+4.3%), and TECHM (+2.8%) ended the day in the green. KOTAKBANK (-2.1%), CIPLA (-2.1%), and SUNPHARMA (-2.0%) led the laggards. Among the sectoral indices, PSUBANK (+2.7%), MEDIA (+2.4%), and AUTO (2.0%) led the gainers while PHARMA (-1.6%), REALTY (-0.7%), and METAL (-0.7%) led the losers.

Cipla recently declared 1QFY21 results. Mr. Umang Vohra, MD & Global CEO discussed the opportunities provided by the covid epidemic to the business with Economic Times on 11th August 2020. Here are the edited excerpts of the interview:

• He outlined three reasons for the good numbers reported. The first being that healthcare is a part of essential services continues to work despite the pandemic led lockdowns. The second being the tailwinds of the crisis is the increased levels of collaboration and cooperation with every healthcare authority in the world. The third reason being getting more Covid treatments out as soon as possible and ensuring drug supply is not affected.
• The Covid crisis has given an opportunity to reimagine their business. It has given an opportunity to understand what is important to running their business. There were a few costs that could not be incurred. Since all the manufacturing plants are operating, those costs have increased slightly as more precaution for social distancing needs to be taken. The absence of some of the field costs has helped the bottom line.
• The timelines of approvals are at an all-time high and in terms of pricing, the only market that was a concern was the US. In the US, more attention is paid to the availability of the product against price.
• Respiratory is the core therapy for Cipla and they are trying to expand their respiratory franchise. Albuterol is the first one and there is a reasonable pipeline built for unlocking the respiratory franchise in the US over the next 18-24 months.
• Albuterol production has ramped up quite significantly in the first quarter and it being a 60-million-unit market, Cipla will get its fair share in the market.
• Some of the cost control measures were voluntary and some were involuntary. Due to lockdowns, travel costs were not incurred. Some of that would resume again in the coming quarters. There is an ambitious cost program which has been running for the past 2-3 years and which will continue to run.
• The guidance for margins has been to the same level before lockdown; as a large portion of the cost base cannot be maintained so low. So the sustainable basis for every quarter is going to be slightly lower than the first quarter in absolute percentage terms.
• With the crisis lasting a little longer in India, chronic conditions will continue to stay the same. The respiratory linked illnesses, linked to weather and linked to winter will continue. Acute therapy is impacted as patients are healthier and not reporting sick. Hospitals are beginning to uptick now and expect to see a resumption of surgeries and elective procedures in a quarter’s time.
• Cipla’s business is changing and about 15-20% of its market will be very different compared to pre-covid.
• Digital has the ability to penetrate healthcare more significantly compared to physical representatives. Digital provides remote connect which is faster and economical.

Consensus Estimate: (Source: market screener website)
• The closing price of Cipla was ₹ 762/- as of 12-August-2020. It traded at 29x/ 25x/ 21x the consensus earnings estimate of ₹ 26.2/ 30.2/ 36.7 per share for FY21E/FY22E/FY23E respectively.
• The consensus target price of ₹ 769/- implies a PE multiple of 21x on FY23E EPS of ₹ 36.7/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Pharma needs more government sops to ramp up API production – LUPIN

Update on Indian equity market:

Nifty started the week on a positive note, ending 56 points higher at 11,270. Within NIFTY50, CIPLA (9.5%), M&M (4.9%) and LT (4.8%) were the top gainers while EICHERMOT (-2.2%), ASIANPAINT (-1.2%) and MARUTI (-1.2%) were the top losers. All the sectoral indices closed the day in green led by PHARMA (5.5%), REALTY (2.8%), and IT (1.0%).

Excerpts of an interview with Mr.Nilesh Gupta, Managing Director, Lupin published in Mint dated 10th August 2020:

  • In the April-June quarter, the company was able to show improvement in margins even though the sales were down. Mr Gupta mentioned that margins were a function of the savings that the company was able to make in this quarter and he expects it to be sustainable even as business picks up.
  • The biggest savings came from SG&A (selling, general & administrative expenses). The company has planned to adopt a more digital approach in how they promote to doctors. 
  • In the specialty segment, Solosec (anti-infective) sales were impacted due to pandemic. The company had to cut down the sales force to a third. It has reduced the cash burn significantly. Other specialty products like NaMuscla and biosimilars like Etanercept will not get impacted in the same way and the company is continuing with its plans.
  • In case of APIs, the company was able to pass on input price increases to customers. The move away from China also opened opportunities for companies from other geographies including Lupin. The last two to three years has seen a resurgence of API and it still remains a great opportunity. The industry needs support from the government to ramp up the facilities.
  • The recent order from the US government will affect the revenues of essential medicines. Lupin has manufacturing in the US and can set up plants anywhere in the world. The order is not an individual company issue but has implications for India.

Consensus Estimate: (Source: market screener website)

  • The closing price of LUPIN was  968/- as of 10-Aug-2020. It traded at 37x/ 25x/ 21x the consensus EPS estimate of 26.1/ 38.2/ 46.5 for FY21E/ FY22E/ FY23E respectively.
  • The consensus target price of ₹ 865/- implies a PE multiple of 19x on FY23E EPS of ₹ 46.5.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Replacing China as a global chemical supplier is a medium to long term story- Lupin

Update on the Indian Equity Market:

 

On Tuesday, Nifty closed marginally lower at 10,302. Within NIFTY50, SHREECEM (+3.1%), MARUTI (+2.7%), and ICICIBANK (+2.6%) were the top gainers, while BPCL(-2.5%), POWERGRID (-1.9%) and SUNPHARMA (-1.9%) were the top losers. Among the sectoral indices, AUTO (+1.1%), FMCG (+0.3%), and FIN SERVICE (+0.3%) gained the most.  PSU BANK (-1.8%), MEDIA (-1.7%) and PHARMA (-1.5%) were the losing sectors.

 

Replacing China as a global chemical supplier is a medium to long term story- Lupin

 

Excerpts of an interview with Mr. Ramesh Swaminathan, Global CFO –Lupinpublished in Economic Times dated26thJune 2020:

  • The US Generic market has seen different phases in terms of pricing in the last 2 decades. Pricing was good during 2001-2005. In the 2005-2009 period, there was a sharp decline in prices which picked up later. 2011-2015 saw some tailwinds for pricing. 2015 onward due to customer consolidation and increased competition in generic space, the Pharma companies lost bargaining power leading to pricing pressure. However today, the situation has stabilized and everything depends on the portfolio.
  • There have been a lot of Indian generic entrants in the US generic space and that is where the competition is higher. US companies such as Teva, Mylan, and Sandoz have lost market share to the new entrants. But the smaller companies are now realizing that earning ROCE is not as easy. Companies have to invest in FDA approved manufacturing facilities of different kinds, there is a waiting period for getting ANDA approvals, and there is a working capital blockage. As a result, some players are backing out which will bring some pricing stability going forward.
  • In the last several years, Lupin, along with the other bigger companies, is focusing on delivering more complex generics including complex injectables, inhalation, etc. Complex injectables as a segment are growing at over 6-7%. Inhalations segment is growing at over 15%. These segments have lower competition because of the complexity involved.
  • In the specialty segment, a lot of the products are coming into the market over the next few years, which will help with the realizations for Indian generic companies. Companies need to have deep pockets because Specialty calls for a very different kind of approach. Innovation quotient and clinical data play a critical part.
  • Biosimilars is the sunrise industry for Indian pharma companies. There are considerable entry barriers, but once a company has a clone, has done immunogenicity studies well and, then potentially development risk will be mitigated. The pricing will also be better due to lower competition. Europe has adapted more to biosimilars. Once the American market picks up, the realization for players in that market would be much higher.
  • Lupin has got into women’s health because that is one space which has been vacated by big pharma and to that extent, the competition there is much lower.
  • Replacing China as a chemical producer for the world will be a medium to long term story. India has about 25% of USFDA approved API capacities in the world but there is still some way to go when it comes to supply. The government is trying to encourage this shift but the investments have to materialize.
  • There are 3 specific growth drivers for Indian pharma companies. One is the large American market, specifically the complex products which Lupin is also getting into. Second, the Indian domestic market is still underpenetrated. Due to the COVID-19 situation, there is going to be thrust from the Indian government and more public awareness which will aid faster growth. Third, many emerging markets are underpenetrated and if the portfolio is right, there is potential for growth in those markets.
  • There might be some demand contraction in India as well as America due to COVID-19 disruption. However, it is a very temporary situation and the second half of FY21E will be much better.
  • The flavor of the day seems to be a nationalistic foot forward. We can see in India as well as in America and other parts of the world. Lupin has been conscious about this for a while and has local manufacturing in countries where it operates. For Indian pharma companies, the basic paradigm should be low-cost manufacturing from India but supplemented with local manufacturing capabilities in overseas markets.

Consensus Estimate: (Source: market screener website)

  • The closing price of lupin was ₹ 910/- as of 30-June-2020. It traded at 31.9x/ 23.4x the consensus EPS estimate of ₹ 28.5/ 38.9 for FY21E/ FY22E respectively.
  • Consensus target price of ₹ 852/- implies a PE multiple of 21.9x on FY22E EPS of ₹ 38.9.

 

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

A big opportunity is beginning to unlock for us in the US: Cipla

Update on the Indian Equity Market:

On Tuesday, NIFTY ended up 56 pts (+0.63%) at 8879 level. Among the sectoral indices, MEDIA (2.0%), AUTO (1.03%) and IT (0.99%) were among the top gainers while PSU BANK (-2.59%), REALTY (-0.7%) and PVT BANK (-0.49%) were the losers.
BHARTIARTL (10.81%), ADANIPORTS (+9.0%) and ONGC (+5.69%) were the top gainers. UPL (-9.78%), VEDL (-2.65%) and RELAINCE (-2.2%) were the top losers.

A big opportunity is beginning to unlock for us in the US: Cipla

Edited excerpts of an interview with Mr. Umang Vohra, Managing Director (MD) & Global Chief Executive Officer (CEO), Cipla:

Our ambition is to dominate the inhaler space across all markets and offer solutions to patients, says Umang Vohra, MD & Global CEO, Cipla.

• His comments on Profit Margins: Company has guided at the beginning of the year and that is standing up at close to 19% range. The fourth quarter is usually off-season for the company and therefore historically, have always been subdued. There are some of the specific one-offs:
o Company was not able to invoice about Rs 2000 odd mn of sales on account of the last week of Covid closure and that is pretty high margin sales. The impact would have been directly on profitability.
o In comparison to the base in the previous year where there was a huge amount of cinacalcet sales, that is not the right comparison for 4QFY20 and for 1QFY21E too.
o Cinacalcet itself had some charges in 4QFY20 as exclusivity has ended.
o In the last six to nine months, a fair amount of cost and effort on the remediation was required for Goa which is now completely in numbers. The remediation effort and work for Goa that is required will finish approximately by June/July, 2020. The charges have largely been taken in 3QFY20.

• His views on sale pick up in the year to come – A pretty solid year is expected on account of Sensipar, Albuterol approval and also esomeprazole granules approval received in the last week of 4QFY20.
• When asked about the US market he informed that US is a 55 mn unit market and with the recent shortage of Albuterol in the US, it moved to a 50-65 mn unit market. On the branded side, it is close to 4 bn in sales across the three brands of Albuterol. It is a very significant and sizable market for Cipla to play in.
• When asked about the main growth drivers going ahead he commented that respiratory franchise might be boosted by another complex inhaler filing. The inhaler opportunity can add to position Cipla as the lung leader. Already, Cipla is number two in terms of both Metered-dose inhaler (MDI) and Dry-powder inhaler (DPI) sold worldwide, just with the number of devices that Cipla sells worldwide in both these categories. Company’s ambition is to dominate this space across all markets and offer solutions to patients which they are not getting today.
• Cipla had albuterol approved that is a great validation for MDI. The trial just finished and a filing is imminent in the next one or two days for the Advair product which is a product that many companies have struggled to get a first part clinical trial approval and Cipla have just passed that.
• Cipla also filed another product which cannot be disclose right now due to IP. It has also filed another product which is again another inhaler in 4QFY20 and have a partnered asset which is another very large category where nobody else is working. That product is at the clinical trials stage with their partner.
• If we combine the above four and the rest of the products that Cipla is likely to do, a big opportunity is beginning to unlock for Cipla in the US and carries a fairly significant value for the company in the long term.
• His views on COVID-19, India and other emerging market business and the process for other prescription drugs: In the first two, three weeks of the lockdown, there was a serious dip because everyone was dealing with the lockdown initially. In week three and four, activity was resumed by doctors, who started interacting virtually with their patients. In the last week, the green and orange zones are opening up and activity is resuming in these areas. Of course, there are sections where the doctors are not meeting as much. For example, dentists and dermatologists because of the risk of this infection being real, are perhaps not meeting as much as interventionists, chest physicians etc. So, it is gradually opening up. As the red zones begin to open up, resumption in activity can be seen depending on the zone.

Consensus Estimate: (Source: market screener website)

• The closing price of Cipla Ltd. was ₹ 594/- as of 19-May-20. It traded at 25.4x/ 21.2x the consensus EPS estimate of ₹ 23.7/28.4 for FY21E/ FY22E respectively.
• The consensus target price of ₹ 623/- implies a PE multiple of 22x on FY22E EPS of ₹ 28.4/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Not working on Remdesivir generic; eyeing HCQ opportunity: Mr G V Prasad, Chief Executive Officer (CEO) and Co-Chairman of Dr Reddy’s Labs (DRL)

Update on the Indian Equity Market:

On Friday, NIFTY ended up 273 pts (+3.05%) above 9200 level as Reserve Bank announced a slew of liquidity-boosting measures to support the economy during the coronavirus crisis. The RBI further eased bad-loan rules, froze dividend payments by lenders and pushed banks to lend more by cutting the reverse repo rate by 25 basis points.

Among the sectoral indices, PVTBANK (7.4%), BANK (6.6%) and FIN SERVICE (5.5%) were among the top gainers while FMCG (-1.1%) and PHARMA (-0.5%) were the losers. AXISBANK (13.9%), EICHERMOT (+9.9%) and ICICIBANK (+9.7%) were the top gainers. NESTLEIND (-2.9%), HUL (-2%) and INFRATEL (-1.9%) were the top losers.

Not working on Remdesivir generic; eyeing HCQ opportunity: Mr G V Prasad, Chief Executive Officer (CEO) and Co-Chairman of Dr Reddy’s Labs (DRL) edited excerpts of an interview dated 16th April 2020:

DRL shares have risen over the past few days on speculation about the company being in the early stages of developing a generic version of anti-viral Remdesivir, owned by Gilead. The stock has risen around 32% over the last month and is at a 52-week high. Remdesivir is an experimental anti-viral drug being studied for Ebola, and in some cases, used on a compassionate ground against COVID-19.

DRL had no rights to work on a generic version of Remdesivir as Gilead still owned the patent. Prasad also said his company was not in talks with Gilead for contract manufacturing of Remdesivir, or for any licensing agreement.

DRL was looking at opportunities in other drugs which are being explored for treating COVID-19. Anti-malarial drug hydroxychloroquine or HCQS is one such. DRL is currently selling it in the US through a local partner. So far, DRL had not been selling it in India, but could look at it if there is strong demand. Besides the HCQS the company sells in the US, there is no COVID-19 drug that DRL is associated with.

DRL was facing a shortage of the active pharmaceutical ingredients (APIs) for HCQS, since its supplier is in Europe. But for the industry in general, supply was not an issue.

The other drug which is being explored as a cure for COVID-19 is ivermectin which is currently used for treating head lice. Exploring this drug as a cure for COVID-19 is at early stages with human trials not having commenced.

DRL continued to explore all non-patented drugs. Mr Prasad is of the view that for finding a cure to COVID-19, one needs to reposition existing drugs first, followed by vaccines and try novel drugs only as the last resort.

Drug repositioning is a drug development strategy predicated on the reuse of existing licensed drugs for new medical indications. According to Mr Prasad, repositioning existing drugs already might have a higher chance of success and novel drugs won’t be an immediate solution. The novel drugs being tested for COVID-19 include Gilead’s Remdesivir and Fujifilm’s influenza antiviral drug Avigan.

On manufacturing, DRL US sites and factories were functioning normally, and the staff at the offices were working from home. In India, there were some logistics issues in the initial days of the lockdown, but those have been overcome and the factories are now operating at “good” capacity.

He said the pace of approvals for its US drugs were progressing at a ‘normal’ rate. Similarly, Mr Prasad said too much should not be read into the recent spate of Establishment Inspection Reports received by multiple Indian facilities over the past few days. The EIRs received according to Mr Prasad were for the facilities which had ‘reasonably good’ inspections. For the industry as a whole, the quality of systems and level of compliance have matured resulting in these successful inspections.

On the fundamentals of the business, Mr Prasad said due to the recent disruptions, his company was slightly late in responding to the queries issued by the USFDA on their two key drugs in the US pipeline — contraceptive drug Nuvaring generic and multiple sclerosis drug Copaxone generic. They are in the process of finishing some work in order to reply to the queries on these two drugs within a few weeks. There is a renewed focus on India, Prasad said. This would not be acquisitions alone but through pipeline development and marketing as well.

Consensus Estimate: (Source: market screener, investing.com websites)

The closing price of Dr Reddy’s was ₹ 3,940/- as of 17-April-20. It traded at 34.4x/ 27x/ 23.2x the consensus EPS estimate of ₹ 112/ 143/ 167 for FY20E/ FY21E/ FY22E respectively.
Consensus target price of ₹ 3442/- implies a PE multiple of 20.6x on FY22E EPS of ₹ 167/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

See a gap of 2-3 days without inventory; material shipments arriving by sea- Krishna Chigurupati, Granules India

Update on the Indian Equity Market:

On Thursday, NIFTY closed marginally higher (+0.2%) at 11,269 after a continuous losing streak in the previous days. The top gainers in NIFTY50 were Yes Bank (+26.9%), Eicher Motor (+2.9%) and Kotak Bank (+2.6%), whereas Zeel (-5.6%), Hindalco (-2.9%) and Infratel (-2.6%) were the top losers. Among sectoral indices, PSU Bank (+1.4%), FMCG (+1.1%) and Pharma (+0.7%) were the gainers while Realty (-1.1%), Metal (-0.8%) and Media (-0.7%) closed in red.


Excerpts from an interview of Mr. Krishna Prasad Chigurupati, Chairman and MD- Granules India with CNBC-TV18 dated – 3rd March 2020:

  • He said, “We just have to apply to the Directorate General of Foreign Trade (DGFT) for permissions and then they would give us permission to export based on past exports”.
  • In the worst case, maybe some of the shipments from this month may spill over to next month. Otherwise, two quarters put together he doesn’t see any big impact.
  • Most of the intermediates or the raw materials come from China. For example with regards to Paracetamol – the key intermediate comes from China and there has been a disruption or delay for about a week.
  • They have inventory for another 10 days but materials are arriving. So, there could be a gap of about 2-3 days without inventory but the shipments are already on the way and they should be getting them by next week. So, there is no issue on the inventories side.
  • It depends on how quickly the government acts on awarding permission to exports so there could possibly be little spill over into the next quarter. There could be a little fall in 4QFY20 which will be made up in the next quarter.
  • Airlifting of some products is happening. Air freights have gone up, the prices have gone up and there could be an increase in the cost of raw materials.
  • As far as their products are concerned there is absolutely no issue, everything is coming by sea. So, he doesn’t see any impact on margins.
  • They supply APIs to Indian companies, Paracetamol especially, but formulations are all for exports. They never sell any formulations within India. 

Consensus Estimate: (Source: market screener website)

  • The closing price of Granules India was ₹ 178/- as of 05-March-2020.  It traded at 13x/ 11x/ 9x the consensus earnings estimate of ₹ 13.6/ 15.5/ 19.2 for FY20E/FY21E/FY22E respectively.
  • The consensus target price for Granules is ₹ 172/- which implies a PE multiple of 9x on FY22E EPS of ₹ 19.2/-.