Cipla rating: Purchase approval for Lanreotide, a positive event
The company is likely to gain a healthy market share over the next 12 months, resulting in ~ 6-8% of FY23e EPS; ‘Buy’ withheld with TP of Rs 1051
Cipla announced on December 18, 2021 the final approval by the USFDA of the depot injection of Lanreotide under the 505b pathway (2). We expect the product to be launched soon. The approval is a positive surprise and is not explicitly factored into our earnings estimates. In the United States, the Lanreotide depot is available under the brand name Somatuline and there are no generic approvals for the product. Somatulin is approved for the treatment of acromegaly (high production of growth hormone), gastroenteropancreatic neuroendocrine tumors (tumors of the gastrointestinal tract). The product has a relatively complex API.
Lanreotide API is a large peptide molecule and is a somatostatin analogue. The formulation is relatively simpler (compared to other long-acting injectables) as it does not involve long-acting polymers or additives. Cipla has developed the product with its partners. The Cipla product is not substitutable for the original product. However, given the strong growth in volumes and the lack of competition, this should become a significant opportunity for Cipla in the short to medium term.
According to IQVIA, annual sales of Somatuline amounted to $ 867 million (MAT Nov 2021). The volumes show growth in the middle of adolescence. The company said global sales were $ 1.3 billion in 2020, increasing in the mid-teens. Ipsen Pharma introduced a new pre-filled syringe in 2019, and we believe the product variation of Cipla is primarily syringe related. Currently, we do not have the details to assess the differences and therefore the advantages / disadvantages of the formulation.
We expect further competition in due course. However, the competitive intensity is likely to be lower than that of most generics. CIPLA’s market share gain may be facilitated by the fact that the product is administered clinically (not self-administered) and is a growing market. Additionally, being a precursor, CIPLA is likely to gain significant market share over the next 12 months. Assuming 30-50% price erosion and 10-20% market share, CIPLA’s annual sales can reach around $ 50-75 million.
Assuming a gross margin of 60-65% (taking into account profit sharing / royalties with partners), we estimate the contribution to net profit of $ 25-35 million, which translates into EPS of 2 , 4 to 3.1. This is around 6-8% of our estimate of FY23F EPS of Rs 39.7.
Assessment and rating
We maintain a buy rating and TP of Rs 1,051, which is based on the SOTP methodology: (i) we value baseline activity at Rs 992, based on 25x FY23F EPS, and (ii) we are evaluating the gRevlimid opportunity at Rs 59 / sh. The stock is currently trading at 21.7x FY23F EPS of Rs 39.7. In addition to Lanreotide, there may be the potential for increased benefit estimates from gAdvair, gRevlimid and PLI which are not factored into our estimates.
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