Pharma majors Zydus Life and Lupin shares will be in focus on September 20, after the US Court of Appeals for the Federal Circuit stated that the district court which invalidated the ‘780 patent covering Mirabegron erred in the decision-making process.
Zydus Life and Lupin are the only two players that have launched generic Mirabegron at risk. However the maker of the original, Astellas Pharma Inc., sued to block Lupin’s and Zydus’ generic versions, stating it infringes on their patent. A federal judge rejected this request in April 2024.
Mirabegron is used in the treatment of overactive bladder (OAB) with symptoms of urge urinary incontinence, urgency and urinary frequency. The companies are among the first to launch the generic version in 25 mg dosages in the US market and is prepared to launch 50mg dosages imminently.
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InCred Equities maintained its 'add' rating on Lupin, with a target price of Rs 2,329 per share, while reiterating its 'add' Zydus Life, but cut its target price to Rs 1,330 per share. The brokerage noted that there are various potential outcomes, but despite the ongoing litigation, it does not foresee any immediate risks to the earnings estimates.
Currently, InCred Equities projects revenue of $135 million and $35 million from Mirabegron for Zydus, and $70 million and $10 million in FY25 and FY26, respectively.
JPMorgan added that while the development adds uncertainity to the litigation outcome, the international broking firm believes it is not likely to impact Lupin's or Zydus' product strategy at the moment. The current development might stall incremental generic entry from other players for six to nine months, until clarity emerges.
Also Read | Lupin launches Mirabegron extended-release tablets in US after USFDA nod
In the worst case scenario, both the players end up paying damages based on a percentage of loss of profits which was incurred by the innovator. For Lupin, the drug accounts for eight percent of its FY25 profits, while it is 12 percent for Zydus Lifesciences.
Japanese brokerage Nomura sees two outcomes: the first, the generic is barred from being sold and the second, Zydus and Lupin continue to sell the product.
In the first case, the innovator may pursue an injunction against generics on the back of the appeals court decision. If successful, generic will have to stop selling, thus impacting upsides forecasted for FY25/26/27.
"We think the impact on FY25 earnings will be lower than the total contribution, as the companies have already booked more than 50 percent of the FY25F sales in 1HFY25, in our view," said the brokerage.
In the event that Lupin and Zydus are allowed to sell the product, Nomura said, "We think the
companies have made assessment of infringement, in case the patent is held valid. We
think the scope for non-infringement is high particularly for the 25mg strength. The risk of damages may be limited to the upside earned from the product and may not be
materially higher (triple damages)."
Bank of America also does not believe that the pharma players will stop selling their generic versions, but the uncertainty of events does create a near-term overhang. As a result, BofA slashed its target prices on Lupin to Rs 1,560 from Rs 1,660 and on Zydus Life to Rs 1,145 from Rs 1,310 earlier.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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