ICICI Securities Ltd. | Retail Equity Research September 21, 2016 Monthly Update Syngene opens new centre; Domestic growth recovers… In a significant tie-up, Syngene has opened a dedicated centre for US based leading biologics dedicated player Amgen Inc. in Bangalore. This centre, christened as Syngene Amgen Research and Development Centre (SARC), will be Syngene’s fourth such exclusive R&D centre and the first for a biologics company. Syngene already operates dedicated R&D centres for Bristol-Myers Squibb (BMS), Abbott Nutrition (Abbott) and Baxter Inc. SARC will be staffed by a team of more than 100 Syngene scientists, working with Amgen researchers around the world on the discovery and development of innovative medicines. The Indian pharmaceutical market (IPM) grew 15% YoY to | 9643 crore for the month of August, the highest growth in nine months mainly due to recovery in volume growth (albeit on lower base) and seasonality benefit. The growth was largely driven by volumes increase – 9.1% followed by price hikes- 2.9% and new product launches- 2.9%. On a MAT basis, IPM growth stood at 10.5% YoY to | 102537 crore. On an innovation front, Glenmark has announced the discovery and initiation of investigating new drug (IND) enabling studies for a novel clinical development candidate, GBR 1372. GBR 1372 adds to Glenmark’s expanding oncology portfolio of biologics including GBR 1302 (HER2xCD3 bispecific antibody) and GBR 1342 (CD38xCD3 bispecific antibody) based on its proprietary BEAT technology. Glenmark is likely to file an IND with the USFDA in 2HFY18. Glenmark presently has a pipeline of six Novel Biologics Entity (NBE) and tow Novel chemical Entity (NCE) in various stages of preclinical and clinical development. Glenmark has entered into a tie-up with US based Particle Sciences, Inc. to develop and market a generic version of Celgene’s oncology injection Abraxane (paclitaxel protein (albumin)-bound particles for injectable suspension). As per the agreement, Glenmark has obtained global exclusive marketing and distribution rights of the product upon commercialization. Particle Sciences will develop this product exclusively for Glenmark. On a regulation front, Indoco’s Goa plant II (sterile and solid dosages facility) received six 483 observations from USFDA. Inspection was conducted between 31st August 31, 2016 to 4th September, 2016. The injectable ANDA filings triggered this inspection. In Mar 2016, Goa plant received establishment inspection report (EIR) for inspection conducted in July 2015. No red flag on earnings front; regulatory worries waning… Despite pricing pressure and client consolidation in the US, which were thought to be the significant headwinds post Q4FY16 numbers, most of the players (barring few) managed to expand volumes in Q1 thereby neutralising these headwinds. Regarding USFDA issues the Indian players have moved on and seem better prepared than 12-18 months ago as reflected by growing number of EIRs by the USFDA for Indian facilities. The Indian formulations also did reasonably well despite NLEM / FDC issues. We expect earnings momentum to continue on the back of incremental product launches in the US and likely positive outcome from the USFDA re- inspections besides normalising of Indian formulations growth. We expect healthcare universe revenue, EBITDA and PAT to grow at a CAGR of 12%, 13% and 16%, respectively, in FY16-18E. The growth will be steered by US (~13% CAGR over FY16-18E) and Indian formulations (~14% CAGR over FY16-18E). Health Check Sector View Positive Index Performance as on September 21, 2016 Return (%) 1M 3M YTD 1Y CNX 500 1.3 8.8 11.4 12.7 Nifty 1.3 6.8 10.5 10.0 NSE Pharma 1.2 10.4 -1.9 -7.7 Return (%) Stocks Performance Mcap Company 1M 3M YTD 1Y 21-Sep Sun Pharma.Inds. -0.6 5.8 -5.0 -13.5 187445 Lupin -1.9 6.6 -15.9 -17.8 69689 Dr Reddy's Labs 4.7 3.4 1.4 -20.3 52244 Cipla 8.0 24.4 -7.4 -7.4 48323 Aurobindo Pharma 5.6 12.0 -7.8 13.5 47261 Cadila Health. 4.9 24.1 19.5 -1.6 40069 Divi's Lab. 2.3 19.0 15.1 19.0 35287 Torrent Pharma. 4.2 21.6 12.7 13.8 27360 Glenmark Pharma. 4.0 18.1 -2.4 -12.0 25394 Glaxosmit Pharma -10.0 -20.0 -15.2 -16.1 23806 Biocon 11.6 30.5 82.5 114.9 18911 Apollo Hospitals -5.8 0.4 -10.5 -3.8 18251 Ajanta Pharma -0.2 34.1 47.6 35.8 17298 Alembic Pharma 1.1 20.3 -6.2 -5.8 12310 Natco Pharma -0.8 26.9 10.0 41.2 11094 Jubilant Life 24.1 84.3 52.7 81.3 10007 Wockhardt 11.8 -1.0 -41.7 -35.4 9851 Syngene Int. 13.8 17.9 15.7 49.7 9641 Strides Arcolab 4.6 -5.2 -20.0 -14.1 9211 Pfizer 4.7 5.9 -15.3 -22.4 9140 Ipca Labs. 15.2 20.2 -20.3 -22.2 7457 Indoco Remedies 8.1 25.7 1.2 1.1 3051 Unichem Labs. -2.7 1.1 -1.6 -3.6 2389 Return (%) M Market cap in | crore Price movement 4000 6000 8000 10000 12000 5000 6000 7000 8000 9000 10000 11000 12000 13000 14000 15000 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 CNX Pharma Nifty (RHS) Research Analyst Siddhant Khandekar [email protected]Mitesh Shah [email protected]
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ICICI Securities Ltd. | Retail Equity Research
September 21, 2016
Monthly Update
Syngene opens new centre; Domestic growth recovers… In a significant tie-up, Syngene has opened a dedicated centre for US based leading biologics dedicated player Amgen Inc. in Bangalore. This centre, christened as Syngene Amgen Research and Development Centre (SARC), will be Syngene’s fourth such exclusive R&D centre and the first for a biologics company. Syngene already operates dedicated R&D centres for Bristol-Myers Squibb (BMS), Abbott Nutrition (Abbott) and Baxter Inc. SARC will be staffed by a team of more than 100 Syngene scientists, working with Amgen researchers around the world on the discovery and development of innovative medicines. The Indian pharmaceutical market (IPM) grew 15% YoY to | 9643 crore for the month of August, the highest growth in nine months mainly due to recovery in volume growth (albeit on lower base) and seasonality benefit. The growth was largely driven by volumes increase – 9.1% followed by price hikes- 2.9% and new product launches- 2.9%. On a MAT basis, IPM growth stood at 10.5% YoY to | 102537 crore. On an innovation front, Glenmark has announced the discovery and initiation of investigating new drug (IND) enabling studies for a novel clinical development candidate, GBR 1372. GBR 1372 adds to Glenmark’s expanding oncology portfolio of biologics including GBR 1302 (HER2xCD3 bispecific antibody) and GBR 1342 (CD38xCD3 bispecific antibody) based on its proprietary BEAT technology. Glenmark is likely to file an IND with the USFDA in 2HFY18. Glenmark presently has a pipeline of six Novel Biologics Entity (NBE) and tow Novel chemical Entity (NCE) in various stages of preclinical and clinical development. Glenmark has entered into a tie-up with US based Particle Sciences, Inc. to develop and market a generic version of Celgene’s oncology injection Abraxane (paclitaxel protein (albumin)-bound particles for injectable suspension). As per the agreement, Glenmark has obtained global exclusive marketing and distribution rights of the product upon commercialization. Particle Sciences will develop this product exclusively for Glenmark. On a regulation front, Indoco’s Goa plant II (sterile and solid dosages facility) received six 483 observations from USFDA. Inspection was conducted between 31st August 31, 2016 to 4th September, 2016. The injectable ANDA filings triggered this inspection. In Mar 2016, Goa plant received establishment inspection report (EIR) for inspection conducted in July 2015. No red flag on earnings front; regulatory worries waning… Despite pricing pressure and client consolidation in the US, which were thought to be the significant headwinds post Q4FY16 numbers, most of the players (barring few) managed to expand volumes in Q1 thereby neutralising these headwinds. Regarding USFDA issues the Indian players have moved on and seem better prepared than 12-18 months ago as reflected by growing number of EIRs by the USFDA for Indian facilities. The Indian formulations also did reasonably well despite NLEM / FDC issues. We expect earnings momentum to continue on the back of incremental product launches in the US and likely positive outcome from the USFDA re-inspections besides normalising of Indian formulations growth. We expect healthcare universe revenue, EBITDA and PAT to grow at a CAGR of 12%, 13% and 16%, respectively, in FY16-18E. The growth will be steered by US (~13% CAGR over FY16-18E) and Indian formulations (~14% CAGR over FY16-18E).
Exhibit 1: Summary of USFDA approvals for Aug, 2016 [5
Company Drug Name Therapeutic Area Innovator company Generic Version of Market SizeSun Pharma Metformin Hydrochloride Anti-Diabetic Santarus Inc Glumetza US$ 1200 millionNatco Pharma Oseltamivir Phosphate Anti-Infective Roche Tamiflu US$ 403 millionAurobindo Pharma Linezolid Anti-Bacterial Harmacia Zyvox US$ 87 millionSun Pharm Buprenorphine Hydrochloride; Naloxone Hydrochloride Anti-Addictive Indivior Inc Suboxone NAAurobindo Pharma Galantamine Hydrobromide Anti-Alzheimer Janssen Pharma Razadyne NAGlenmark Pharma Triamcinolone Acetonide Dermatology NA NA US$ 4.4 millionAurobindo Pharma Esomeprazole Sodium GI Astrazeneca Nexium IV NADr Reddys Labs Paricalcitol Hormonal Abbvie Zemplar US$ 110 millionJubilant Felodipine Er Tablets CVS Astrazeneca Plendil NAAurobindo Pharma Omeprazole; Sodium Bicarbonate Gi Santarus Zegerid NAJubilant Telmisartan Tablets CVS Boehringer Ingelheim Pha Micardis US$ 250 millionCipla Trospium Chloride Cns Valeant Wellbutrin XL US$ 792 millionSun Pharm Morphine Sulfate Pain Management Purdue Pharma Ms Contin NADr Reddys Labs Nitroglycerin CVS Pfizer Nitrostat US$ 108 millionAjanta Pharma Olanzapine Cns Lilly Zyprexa NA
Company Drug Name Therapeutic Area Innovator company Generic Version of Market SizeTorrent Pharms Rosuvastatin Calcium CVS Astrazeneca Crestor NALupin Paroxetine Anti-Depressant Apotex Paxil NAAjanta Pharma Eletriptan Hydrobromide Pain Management Pfizer Relpax NA
Final Approvals
Tentative Approvals
CNS: Central Nervous System; CVS: Cardiovascular,GI: Gastro Intestinal, NA: Not available; Source: USFDA, ICICIdirect.com Research
M&As, Demergers, Tie-ups and JVs DRL to market three of Amgen’s Biological drugs in India DRL will be commercialising Amgen’s three biological drugs XGEVA (denosumab), Vectibix (panitumumab) and Prolia (denosumab) in India in the therapeutic areas of oncology and osteoporosis. Cadila partners Takeda for chikungunya vaccine Cadila health entered in to a strategic partnership with Japan's Takeda Pharma to develop vaccine for vector borne chikungunya. The agreement includes early stage development to the final commercialisation of the vaccine. As per management, there is currently no vaccine to prevent chikungunya virus infection. Glenmark Signs agreement with Particle Sciences For gAbraxane Glenmark Pharma entered into a strategic agreement with Particle Sciences, Inc. to develop and market a generic version of Celgene’s oncology injection Abraxane (paclitaxel protein (albumin)-bound particles for injectable suspension). As per the agreement, Glenmark has obtained global exclusive marketing and distribution rights of the product upon commercialization. Particle Sciences will develop this product exclusively for Glenmark, and shall receive certain milestone payments during various stages of the product’s development from Glenmark, including royalties on sales. Development of the product has been initiated for the US market and Glenmark intends to file the ANDA in FY19. The product will be subsequently filed in other key markets across the globe. Branded Abraxane marketed globally by Celgene has reported sales of US$ 967 million in CY15. Indoco acquires manufacturing plant at Baddi Indoco Remedies has acquired the manufacturing facility at Baddi from Micro Labs Ltd. The facility is spread over an area of 18000 sq mt, out of which 11,000 sq mt is the built-up area. It produces 4.3 billion tablets and 50
ICICI Securities Ltd. | Retail Equity Research
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million capsules p.a. With this acquisition, Indoco will now have six facilities for formulations and three for APIs. Price cuts / New Launches / Recalls/Approvals Glenmark announces Initiation of IND studies for GBR 1372 Glenmark has announced the discovery and initiation of investigating new drug (IND) enabling studies for a novel clinical development candidate, GBR 1372. GBR 1372 is the third Bispecific Antibody and also Glenmark’s third clinical candidate targeting an oncology indication. Law suits / Court rulings / Settlements / Regulatory Issues
Indoco Goa Plant II received six observations from USFDA Indoco remedies’s Goa plant II (sterile and solid dosages facility) received six 483 observations from USFDA. Inspection was conducted between 31st August 31, 2016 to 4th September, 2016. The injectable ANDA filings triggered this inspection. As per the management, none of these observations are related to data integrity issue. It expects to complete the corrective and preventive actions within a period of 30 days. In Mar 2016, Goa plant received establishment inspection report (EIR) from USFDA for inspection conducted in July 2015. Taro Pharma under anti-trust scanner for price hike Taro Pharma has been summoned by the US Department of Justice (DOJ) over its pricing policy. The DOJ's investigation comes at a time when pharma companies in the US are being accused of exorbitantly increasing the price of essential medicines. US FDA completes Aurobindo's Unit IV audit The company's management has indicated that the USFDA has completed inspection of unit IV plant at Andhra Pradesh and issued 2-3 observations. As per the management, the observations are minor which should not impact the approval of pending products from the site. Aurobindo, Sun and Lupin recall drugs in the US Lupin Pharma is recalling 26436 bottles of Lisinopril Tablet from US due to deviation from current good manufacturing practice (CGMP). Sun Pharma is also recalling 12109 HDPE bottles of Carvediol Tablets due to Failed Impurities/Degradation Specifications. As per the report, all the recalls are fall under a class III recall category. Aurobindo is also recalling 23016 bottles of Pantoprazole Sodium Delayed-Release Tablets under Class II category due to received a market complaint stating the presence of one foreign tablet (Montelukast Sodium Chewable Tab 4mg) in the product bottle of Pantoprazole. Others
Syngene sets up R&D centre for Amgen in Bengaluru Syngene has announced the establishment of a dedicated centre for Amgen, Inc. in Bangalore. This centre, called Syngene Amgen Research and Development Centre (SARC), will be Syngene’s fourth such exclusive R&D centre and the first for a biologics company. Syngene already operates dedicated R&D centres for Bristol-Myers Squibb (BMS), Abbott Nutrition (Abbott) and Baxter Inc. SARC will be staffed by a team of more than 100 Syngene scientists, working with Amgen researchers around the world on the discovery and development of innovative medicines. Q1FY17 Results
Apollo Hospital- Lower occupancy, Ind AS hit margins Standalone revenues increased 12% YoY to | 1465 crore on the back of a 22% increase in pharmacy business to | 633 crore. Healthcare business grew 6% to | 833 crore. EBITDA margins declined 85 bps to 12.8% on the back of adverse product mix and Ind AS, which impacted EBITDA margins of healthcare services negatively by 130-140 bps. Adjusted net profit de-grew 18% to | 72 crore due to higher interest cost and lower EBITDA.
IPM grew 15% in Aug- highest growth in 9 months • The Indian pharmaceutical market (IPM) grew 15.3% YoY to | 9643
crore for the month of August. The growth was driven by volumes increase – 9.1%, price hikes- 2.9% and new product launches- 2.9% and.
• The (Fixed dosage combination) FDCs related market de-grew 11.5%. • Drugs under NLEM list increased 4.5% to |1101 crore while non-NLEM
drugs posted a robust growth of 17.3% to | 8141 crore. Volume growth in NLEM and Non-NLEM was 14.9% and 9.6% respectively.
• Among companies under I-Direct coverage, Indoco, IPCA and Unichem, glenmark, Alembic and Sun have registered robust growth of 33.7%, 28.0%, 26.4%, 20.9%, 20.5% and 20.3% respectively. DRL, Torrent, Ajanta, Lupin, Cipla and Cadila registered growth of 17.3%, 12.7%, 10.0%, 9.3%, 8.6% and 6.7% respectively.
• Therapy wise, 6 therapies have outpaced the IPM growth. Notable among them with growth rates- Anti-Malarials – 38.6%, Anti infective – 19.6%, Respiratory—32.3%, Anti Diabetic —19.0%, Pain/Analgesics – 15.4% and GI – 14.2%.
• In all, 340 new brands were launched in Aug-16. • On a MAT basis, IPM growth stood at 10.5% YoY to | 102537 crore.
Domestic companies have grown 17.1%, while MNC companies have grown 9.0% in Aug-2016.
Exhibit 3: Domestic formulations - growth trend
12.2 13
.7
10.6
9.8
8.8
15.8
23.0
13.1
10.1 12
.6
20
4.7 6.
7
14.9
-5
0
5
10
15
20
25
Jul-1
5
Aug-
15
Sep-
15
Oct-1
5
Nov
-15
Dec-
15
Jan-
16
Feb-
16
Mar
-16
Apr-1
6
May
-16
Jun-
16
Jul-1
6
Aug-
16
(%)
Indian Pharma Market
[
Source: AIOCD data base, ICICIdirect.com Research
Exhibit 4: Companies growth in domestic market in Aug, 2016
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