Cipla: Limited new product triggers for FY24 now

3 Mar 2023 , 10:40 AM

Recommendation: Add

Target Price: Rs 950

The USFDA might require Cipla to perform a retrospective analysis of all these complaints particularly given that defective product components from a vendor were also used to manufacture several batches. While analysts at IIFL Capital Services rule out the possibility of an import alert, they assume a warning letter in their base case as a retrospective analysis of these past complaints might take 12 months to resolve. With both Goa and Indore under noncompliance, the key US product launches will get delayed by 12 months, and FY24 growth for Cipla will essentially be driven by Revlimid only. Analysts at IIFL Capital Services have cut their FY24/25 EPS estimates by 7/5% to factor-in the delay in Advair launch and have also downgraded the stock to ADD (TP Rs950).

Advair launch will likely get pushed to FY25 now

Given IIFL Capital Services’ base case assumption of the warning letter, analysts at IIFL Capital Services have delayed Cipla’s Advair launch from Q1FY24 to FY25, and have accordingly, removed USD50mn revenue and 6% EPS contribution from Advair in their FY24 estimates. Given that Indore is Cipla’s only inhaler facility, there could be a risk to USFDA approvals for other respiratory filings of Qvar/Dulera as well (Symbicort in development), if the Indore ‘483 takes more than 12 months to resolve.

Respiratory pipeline still accounts for 10% of IIFL Capital Services’ revised FY25 EPS

While analysts at IIFL Capital Services have downgraded their FY24/25 EPS estimates by 7/5% to factor-in the delay in Advair launch and a more gradual revenue build-out in Qvar/Dulera, these 3 respiratory products still account for ~10% of their FY25 EPS estimate, thereby leading to potential further downside risks if the Indore plant’s clearance is delayed beyond FY24.

Diversified US pipeline story gets pushed back by a year

With likely delays in approvals for Abraxane and Advair owing to plant issues, Cipla’s FY24 US growth (USD105mn incremental sales) will be largely dependent on Revlimid (USD85mn) and marginal scale-up in Lanreotide (USD20mn). Although Cipla could launch 1 peptide injectable product in FY24, analysts at IIFL Capital Services believe Cipla’s diversified US pipeline growth story will get delayed to FY25; accordingly, they have cut their target PE multiple from 25x to 22.5x.