Buy CIPLA; target of Rs 671: Emkay

Emkay Global Financial Services research report on CIPLA

Cipla has launched two strengths (25/125mg, 25/250mg) of Fluticasone/Salmeterol combination inhaler, generic version of GSK’s Advair MDI (metered dose inhaler) in two European countries. This is the first combination inhaler launch by Cipla in European countries. According to company press release, Cipla will be launching the drug in other European countries over next 12-18 months. Although market size of Advair MDI in Germany and Sweden is small (~USD40mn), overall market for Advair MDI in Europe is ~USD800mn. The launch establishes Cipla as the front runner in combination MDIs as no other generic company has received approval in this category so far. According to Cipla management (based on 3QFY15 call) generic Advair MDI in Europe is likely to be a substitutable version.

 Going forward we are expecting Cipla will be able to launch the drug in UK, which is the largest market of Advair MDI (~USD400mn) in Europe. As the product is likely to be a substitutable version of GSK’s Advair, ramp up of the product should happen very fast. Competition should also remain very limited as only Mylan seems to be the other company developing generic version of Advair MDI and is expecting approval in 1HCY15. With 50% generic penetration, 40% price erosion and 25% market share, we believe this can add ~USD120mn to Cipla’ topline in FY16E with very high margin (~50-60% EBITDA).

 As the inhaler opportunity starts unfolding company’s business outlook in regulated countries (Europe and US) now looks brighter. We believe, Cipla will be able to launch generic version of Symbicort MDI and Advair Diskus in US over the next 4-5 years. Apart from Inhalers in Europe, US sales of the company should also grow significantly over the next couple of years driven by niche launches like gBaraclude, gXopenex and gNasonex. Company will also benefit from operating leverage going forward (probably in FY16E) as the cost related to front end and restructuring have already been incurred.

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