Citi believes Aurobindo is one of the best placed to ride out a challenging environment for generic companies in the US.
Aurobindo Pharma shares gained 3 percent intraday Friday, in addition to 7 percent rally in previous session, as analysts expect the stock to deliver up to 59 percent return over one-year period.
The drug major has received US FDA approval for a generic version of Renvela oral suspension (Sevelamer Carbonate oral suspension, 0.8gm & 2.4gm), a USD 140 million revenue opportunity in the US market. It is the only generic company with approval as of now despite being one of the last filers and is in the process of launching the product immediately.
While retaining a buy call with a target price of Rs 1,020 (59 percent upside over Thursday's closing price), Citi believes this is an important approval in more ways than one: a decent product, more confidence in the tablet version being approved and further validation of its ability to move up the complexity curve.
It validates the R&D strength of the company, which has been a key concern of investors, Jefferies said while retaining buy rating with a target price of Rs 750 (16.5 percent upside). Aurobindo remains preferred pick, it added.
Sevelamer is oral phosphate binder used by chronic kidney disease (CKD) patients on dialysis. Sevelamer franchise has two brands Renvela and Renagel which combined have annual sales of USD 750 million. Renvela also has a oral solid dosage with brand size of more than USD 500 million.
According to Citi, this could be a USD 30-40 million annual revenue opportunity for the company with above average profitability.
Sevelamer (carbonate and hydrochloride) is a polymeric drug, whose complexity and insoluble nature pose significant challenges in demonstrating and evaluating API sameness (bioequivalence). Consequently, navigating the FDA's requirements on this front has been a challenge for many companies, it said.
While Aurobindo has received approvals for complex products (viz. Intergrelin, Merrem, Tricor, Angiomax) in the past, Citi believes this would resonate more with the street, given that many of its peers (viz. Lupin, Glenmark, Cipla) have faced multiple delays in this product.
Hence, the research house also believes Aurobindo is one of the best placed to ride out a challenging environment for generic companies in the US, courtesy of its relatively low product concentration, clean compliance slate, large and improving pipeline as well as strong execution.
Its recent Q4 results, management commentary and approvals such as this one further validate this view, Citi said, adding rising scale and improving profitability in Europe would gradually reduce dependence on the US market and, along with better cashflows, augur well for longer term growth.
At 15:08 hours IST, the stock price was quoting at Rs 653.15, up Rs 9.95, or 1.55 percent on the BSE.Posted by Sunil Shankar Matkar