ICICI Securities Ltd. | Retail Equity Research March 16, 2017 Monthly Update Some USFDA respite for Sun; not yet for DRL… The USFDA has lifted the import alert from Sun’s Mohali (erstwhile Ranbaxy facility) facility and removed the same from the Official Action Initiated (OAI) status. This proposed action will clear the path for Sun Pharma to supply approved products from the Mohali facility to the US market, subject to normal USFDA regulatory requirements. The USFDA had taken action against the Mohali facility in 2013 when it ordered the facility to be fully subject to Ranbaxy’s consent decree of permanent injunction. On the other hand, Dr Reddy's received 13 Form-483 observations from the USFDA for Duvvada (Vizag) oncology formulation unit. The company has to respond with a corrective action plan. Duvvada was one of the three plants, which received a warning letter on November 2015, of which Srikakulam (API unit) is the major contributor to US revenues. In an important development, Syngene has tied up with HerbalLife Nutrition, to develop nutrition based products that can be sold by the company in India. This is the fifth dedicated centre for Syngene. Biocon’s partner Mylan has settled Herceptin patent dispute with Roche. As per the terms, Roche will grant the partners a global license (excluding Japan, Brazil and Mexico) for Herceptin in return for Mylan's promise to back off of two challenges pending at the US Patent and Trademark Office. On the innovative pipeline front, Glenmark has received USFDA clearance of IND for GSP 304. It plans to initiate clinical development with a Phase II study in subjects with mild to moderate COPD. Finally, the Indian pharmaceutical market (IPM) grew 7.1% YoY to | 8980 crore for in February. IPM growth was mainly driven by volumes increase – 2.1%, new product launches – 3.3% and price hikes- 1.4%. On a MAT basis, IPM growth was at 10.2% YoY to | 110149 crore. Positive news on cGMP front yet to outweigh other apprehensions Almost all players with US franchisee from the I-direct universe have witnessed USFDA inspection/re-inspection in the past six months with higher number of positive outcomes. However, this has done little to lift sentiments as the pricing pressure in the US base business, ranging from high single digit to low double digit continues will weigh. Similarly, the strengthening of the rupee vis-à-vis the US dollar after recent events is also likely to weigh in the near term. Apart from this, other issues/uncertainty in the US like pricing probe by the Department of Justice (DoJ), adapting to the bidding process and imposition of border tax on imported drugs are other near term overhangs. Front loading of investments, although useful for long term growth strategy, is also likely to impact near term profitability. For the time being, attractive valuations and decent growth expectations for FY18, FY19 are likely to be on the backburner due to these apprehensions. In the long run, however, we expect the earnings momentum to pick up on the back of incremental product launches largely on speciality, biosimilar and injectables front in the US besides normalising of Indian formulations growth. We expect healthcare universe revenues, EBITDA and PAT to grow at a CAGR of 11%, 11% and 13%, respectively, in FY16-19E. The growth will be steered by US (~10% CAGR over FY16-19E) and Indian formulations (~13% CAGR over FY16-19E). Health Check Sector View Neutral Index Performance as on March 15, 2017 Return (%) 1M 3M YTD 1Y CNX 500 4 13 13 27 Nifty 4 12 12 22 NSE Pharma 3 1 4 -6 Return (%) Stocks Performance Mcap Company 1M 3M YTD 1Y 15-Mar Sun Pharma.Inds. 9 10 13 -15 170345 Lupin 1 -1 -2 -17 65551 Cipla 3 6 6 13 48429 Dr Reddy's Labs -6 -11 -10 -13 45697 Cadila Health. 3 18 24 31 45398 Aurobindo Pharma 4 -1 3 -5 40175 Glenmark Pharma. -3 -3 1 9 25385 Torrent Pharma. 9 5 4 9 23160 Glaxosmit Pharma 1 0 -1 -19 22904 Biocon 2 14 18 137 22420 Divi's Lab. 6 -33 -1 -20 20599 Apollo Hospitals -2 1 4 -10 17050 Ajanta Pharma 0 -3 -1 27 15524 Natco Pharma 3 33 37 66 13816 Jubilant Life 15 27 27 113 12755 Alembic Pharma 12 -2 3 -1 11596 Strides Arcolab -4 4 8 8 10251 Syngene Int. 3 -13 -9 30 10227 Wockhardt 10 10 14 -22 8325 Pfizer -1 -7 -6 2 7873 Ipca Labs. 6 2 4 4 7015 Unichem Labs. 5 6 11 30 2583 Indoco Remedies -2 -2 -1 -6 2368 Return (%) Market cap in | crore Global Index Performance Company 1M 3M YTD 1Y 3Y 5Y S&P 500 Pharm Index (US) 4 9 10 14 9 16 NASDAQ Biotechnology (US) 3 11 14 21 6 21 S&P Pharmaceuticals (US) 0 6 8 9 -1 13 DJ Pharma and Biotech (US) 4 10 11 17 8 17 DJ STOXX Healthcare (EU) 3 8 7 10 11 15 TOPIX Pharma Index (Japan) 1 5 3 3 16 18 MSCI World Pharm & Biotech 3 10 10 10 5 14 Bl World Pharma index 3 9 9 8 4 12 BI Global Spectalty-Generic Pharm -10 -6 -7 -32 -12 4 NSE Pharma 3 1 4 -5 12 18 Return (%) Research Analyst Siddhant Khandekar [email protected]Mitesh Shah [email protected]
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ICICI Securities Ltd. | Retail Equity Research
March 16, 2017
Monthly Update
Some USFDA respite for Sun; not yet for DRL… The USFDA has lifted the import alert from Sun’s Mohali (erstwhile Ranbaxy facility) facility and removed the same from the Official Action Initiated (OAI) status. This proposed action will clear the path for Sun Pharma to supply approved products from the Mohali facility to the US market, subject to normal USFDA regulatory requirements. The USFDA had taken action against the Mohali facility in 2013 when it ordered the facility to be fully subject to Ranbaxy’s consent decree of permanent injunction. On the other hand, Dr Reddy's received 13 Form-483 observations from the USFDA for Duvvada (Vizag) oncology formulation unit. The company has to respond with a corrective action plan. Duvvada was one of the three plants, which received a warning letter on November 2015, of which Srikakulam (API unit) is the major contributor to US revenues. In an important development, Syngene has tied up with HerbalLife Nutrition, to develop nutrition based products that can be sold by the company in India. This is the fifth dedicated centre for Syngene. Biocon’s partner Mylan has settled Herceptin patent dispute with Roche. As per the terms, Roche will grant the partners a global license (excluding Japan, Brazil and Mexico) for Herceptin in return for Mylan's promise to back off of two challenges pending at the US Patent and Trademark Office. On the innovative pipeline front, Glenmark has received USFDA clearance of IND for GSP 304. It plans to initiate clinical development with a Phase II study in subjects with mild to moderate COPD. Finally, the Indian pharmaceutical market (IPM) grew 7.1% YoY to | 8980 crore for in February. IPM growth was mainly driven by volumes increase – 2.1%, new product launches – 3.3% and price hikes- 1.4%. On a MAT basis, IPM growth was at 10.2% YoY to | 110149 crore. Positive news on cGMP front yet to outweigh other apprehensions Almost all players with US franchisee from the I-direct universe have witnessed USFDA inspection/re-inspection in the past six months with higher number of positive outcomes. However, this has done little to lift sentiments as the pricing pressure in the US base business, ranging from high single digit to low double digit continues will weigh. Similarly, the strengthening of the rupee vis-à-vis the US dollar after recent events is also likely to weigh in the near term. Apart from this, other issues/uncertainty in the US like pricing probe by the Department of Justice (DoJ), adapting to the bidding process and imposition of border tax on imported drugs are other near term overhangs. Front loading of investments, although useful for long term growth strategy, is also likely to impact near term profitability. For the time being, attractive valuations and decent growth expectations for FY18, FY19 are likely to be on the backburner due to these apprehensions. In the long run, however, we expect the earnings momentum to pick up on the back of incremental product launches largely on speciality, biosimilar and injectables front in the US besides normalising of Indian formulations growth. We expect healthcare universe revenues, EBITDA and PAT to grow at a CAGR of 11%, 11% and 13%, respectively, in FY16-19E. The growth will be steered by US (~10% CAGR over FY16-19E) and Indian formulations (~13% CAGR over FY16-19E).
Health CheckSector View
Neutral
Index Performance as on March 15, 2017
Return (%) 1M 3M YTD 1Y
CNX 500 4 13 13 27
Nifty 4 12 12 22
NSE Pharma 3 1 4 -6
Return (%)
Stocks Performance Mcap
Company 1M 3M YTD 1Y 15-Mar
Sun Pharma.Inds. 9 10 13 -15 170345
Lupin 1 -1 -2 -17 65551
Cipla 3 6 6 13 48429
Dr Reddy's Labs -6 -11 -10 -13 45697
Cadila Health. 3 18 24 31 45398
Aurobindo Pharma 4 -1 3 -5 40175
Glenmark Pharma. -3 -3 1 9 25385
Torrent Pharma. 9 5 4 9 23160
Glaxosmit Pharma 1 0 -1 -19 22904
Biocon 2 14 18 137 22420
Divi's Lab. 6 -33 -1 -20 20599
Apollo Hospitals -2 1 4 -10 17050
Ajanta Pharma 0 -3 -1 27 15524
Natco Pharma 3 33 37 66 13816
Jubilant Life 15 27 27 113 12755
Alembic Pharma 12 -2 3 -1 11596
Strides Arcolab -4 4 8 8 10251
Syngene Int. 3 -13 -9 30 10227
Wockhardt 10 10 14 -22 8325
Pfizer -1 -7 -6 2 7873
Ipca Labs. 6 2 4 4 7015
Unichem Labs. 5 6 11 30 2583
Indoco Remedies -2 -2 -1 -6 2368
Return (%)
Market cap in | crore
Global Index Performance
Company 1M 3M YTD 1Y 3Y 5Y
S&P 500 Pharm Index (US) 4 9 10 14 9 16
NASDAQ Biotechnology (US) 3 11 14 21 6 21
S&P Pharmaceuticals (US) 0 6 8 9 -1 13
DJ Pharma and Biotech (US) 4 10 11 17 8 17
DJ STOXX Healthcare (EU) 3 8 7 10 11 15
TOPIX Pharma Index (Japan) 1 5 3 3 16 18
MSCI World Pharm & Biotech 3 10 10 10 5 14
Bl World Pharma index 3 9 9 8 4 12
BI Global Spectalty-Generic Pharm -10 -6 -7 -32 -12 4
Exhibit 1: Summary of USFDA approvals for Feb, 2017 [5
Company Drug Name Therapeutic Area Innovator company Generic Version of Market SizeLupin Triamcinolone Acetonide Derma Mylan NA US$ 55.7 millionAurobindo Pharma Pravastatin Sodium CVS Bristol Myers Squibb Pravachol NAAurobindo Pharma Nexesta Fe (norethindrone and ethinyl estradiol) OC APIL Femcon FE NACipla Oxaliplatin injection Anti-Cancer Sanofi Eloxatin NALupin Moxifloxacin Hydrochloride Anti-Infective Bayer Avelox NALupin Hydrocodone Bitartrate and Homatropine Methylbromide Respiratory Endo Pharma Hycodan NACadila Healthcare Clobetasol Propionate Spray Dermatology Galderma labs Clobex NACadila Healthcare Fluconazole Tablets Anti-Infective Pfizer Diflucan NAAurobindo Pharma Fesoterodine Fumarate Urology Pfizer Toviaz NAAurobindo Pharma Rabeprazole Sodium tablets Anti-ulcerant J&J Aciphex NACadila Healthcare Linezolid Anti-Bacterial Harmacia Zyvox NALupin Sodium Sulfate, Potassium Sulfate, and Magnesium Sulfate GI Braintree Lab Suprep Bowel Prep Kit US$ 207.2 millionJubilant life Itraconazole Anti- fungal Janssen Pharma Sporanox US$ 42 millionLupin Oxycodone and Acetaminophen Tablets Pain Management Vintage Pharma Percocet US$ 838.7 millionAurobindo Pharma Etomidate Injection Anesthesia Hospira Amidate NATaro Brompheniramine; Dextromethorphan; Pseudoephedrine Cough Syrup Wockhardt Bromfed DM NAAurobindo Pharma Nevirapine Anti-retroviral Boehringer Ingelheim Viramune NADr Reddy's Lab Progesterone OC Virtus Pharma Prometrium NA
Tentative ApprovalsCompany Drug Name Therapeutic Area Innovator company Generic Version of Market SizeTaro Pharma Diclofenac Sodium 2% Anti-Inflammatory Nuvo Res Pennsaid US$ 13.3 millionAurobindo Pharma Tadalafil CVS Eli Lilly Adcirca NATaro Pharma Clobetasol Propionate Spray Dermatology Galderma labs Clobex NA
Final Approvals
CNS: Central Nervous System; CVS: Cardiovascular, GI: Gastro Intestinal, OC: Oral Contraceptive, NA: Not available; Source: USFDA, ICICIdirect.com Research
M&As, demergers, tie-ups and JVs
Dr Reddy’s acquires Kolkata based NBFC Dr Reddy's has completed the acquisition of 100% stake in Imperial Credit Pvt Ltd, a non-banking finance company, based in Kolkata for a consideration of | 2.05 crore. The acquisition was consummated on receipt of regulatory approvals. The company has proposed to undertake the group's captive financial activities through this entity. Cipla divests animal health business in South Africa Cipla has entered into agreements for divesting its animal health business in South Africa and Sub-Saharan Africa (subject to CCI SA approval) for ZAR 375 million (~| 192 crore) with potential revision linked to FY17 performance along with customary adjustment. Price cuts, new launches, recalls, approvals
NPPA caps prices of 18 drugs National Pharmaceutical Pricing Authority (NPPA) has capped the prices of four essential drugs and revised 14 more, including ones used for treatment of fungal infections and hypertension.
NPPA lowers prices of cancer drugs NPPA has slashed prices of some cancer drugs by up to 86%. From the I-direct coverage universe perspective, the list includes two drugs of Dr Reddy’s (Grafeel and Levin) and Natco Pharma (Veenat). Lawsuits, court rulings, settlements, regulatory issues
USFDA clears Alembic Pharma Baroda facility USFDA has cleared the Alembic Pharma bioequivalence facility at Baroda without any observations. The USFDA inspected this facility from March 6 to March 10, 2017.
ICICI Securities Ltd. | Retail Equity Research
Page 3
Glenmark’s Ankaleshwar plant receives EIR from USFDA Glenmark’s Ankaleshwar API facility has received an Establishment inspection report (EIR) from USFDA. The USFDA had issued four form 483 observations after the inspection of the facility in December 2016. Mylan, Biocon settle Herceptin patent challenge with Roche Biocon’s partner Mylan has settled its Herceptin patent dispute with Roche. As per the terms, Roche will grant the partners a global license (excluding Japan, Brazil and Mexico) for Herceptin in return for Mylan's promise to back off of two challenges pending at the US Patent and Trademark Office. Dr Reddy’s receives 13 observations for Duvvada formulation unit Dr Reddy’s Labs has got 13 observations from USFDA for Duvvada oncology formulation unit. The company has to respond with a corrective action plan and implement it quickly Cadila Healthcare gets marketing rights for Trokendi XR Cadila Healthcare has finalised an agreement with Supernus Pharma to settle all outstanding patent litigation related to Trokendi XR (extended-release capsules) and granted Cadila a license to market the drug from 2023. Lupin to acquire Pulmojet As per media sources, Lupin is in talks with Sanofi arm Zentiva to acquire Pulmojet, its dry powder inhalation brand. Pulmojet was acquired by Zentiva from Siegfried in 2010 Unichem gets two observations for its Ghaziabad facility Unichem Lab’s formulation manufacturing facility in Ghaziabad has received two form 483 observations USFDA. USFDA has inspected this facility between February 24, 2016 and March 3, 2016. Syngene enters into R&D partnership with Herbalife Syngene has tied up with HerbalLife Nutrition, to develop nutrition based products that can be sold by the company in India. This is the fifth dedicated centre and second for nutrition research by Syngene. USFDA to lift import ban on Sun’s Mohali plant USFDA has lifted the import alert from Sun’s Mohali facility (erstwhile Ranbaxy facility) and removed the facility from the Official Action Initiated (OAI) status. This proposed action will clear the path for Sun Pharma to supply approved products from the Mohali facility to the US market, subject to normal USFDA regulatory requirements. The Mohali facility was inherited by Sun as part of its acquisition of Ranbaxy in 2015. The USFDA had taken action against the Mohali facility in 2013 when it ordered the facility to be fully subject to Ranbaxy’s consent decree of permanent injunction. However, certain conditions of the consent decree will continue to be applicable to the Mohali facility. This development illustrates Sun Pharma’s commitment to work closely with the USFDA and strive for 100% cGMP compliance at its manufacturing facilities.
Others
Glenmark clears phase 2 trials for its NCE Glenmark has received USFDA clearance of IND for GSP 304. It plans to initiate clinical development with a Phase 2 study of GSP 304 in subjects with mild to moderate COPD.
IPM grows 7% YoY in February as NLEM, DEMO weigh • The Indian pharmaceutical market (IPM) grew 7.1% YoY to | 8980 crore
for February. IPM growth was mainly driven by volumes increase – 2.1%, new product launches – 3.3% and price hikes- 1.4%
• The fixed dosage combination (FDCs) related market de-grew 34.9% resulting in a 1.3% squeeze to overall growth
• Drugs under NLEM list declined 8% to | 942 crore while non-NLEM drugs posted growth of 9.6% to | 7637 crore. Volume growth in NLEM and non-NLEM was 1.8% and -0.3%, respectively
• Among companies under I-direct coverage, Ajanta Pharma, Cadila, Glenmark, Natco, Torrent Pharma, Unichem and Sun have registered higher than industry growth
• Therapy wise, 13 therapies have outpaced IPM growth. Notable among them with growth rates- anti-diabetic – 16.1%, gynaecology – 9.7% and derma – 12.0%. On the other hand, anti-Infectives declined 4.2% YoY and anti-malarials declined 18.2% YoY
• In all, 180 new brands were launched in February 2017 • On a MAT basis, IPM growth was at 10.2% YoY to | 110149 crore • Domestic and MNC companies have grown 7.1%in February 2017 Exhibit 3: Domestic formulations - growth trend [
13.5
8.1
5.5 7.
8
7.7
9.7 11
.0
17.4
13.5
20
15.7
10.1
7.1
-5
0
5
10
15
20
25
Feb-
16
Mar
-16
Apr-1
6
May
-16
Jun-
16
Jul-1
6
Aug-
16
Sep-
16
Oct-1
6
Nov
-16
Dec-
16
Jan-
17
Feb-
17
(%)
Indian Pharma Market
Source: AIOCD data base, ICICIdirect.com Research
Exhibit 4: Companies growth in domestic market in February, 2017
Top brands in Indian pharma market Brand Company Therapy Feb' 17 YoY (%)Mixtard Abbott Anti Diabetic 508.0 -1.4Glycomet Gp USV Anti Diabetic 402.0 22.2Spasmo ProxyvoWockhardt GI 369.0 16.3Lantus Sanofi India Anti Diabetic 337.0 27.1Galvus Met Novartis Anti Diabetic 319.0 21.4Liv 52 Himalaya GI 293.0 13.0Augmentin GSK Anti-Infectives 283.0 -12.3Monocef Aristo Anti-Infectives 278.0 -2.6Janumet Msd Anti Diabetic 276.0 15.3Clavam Alkem Anti-Infectives 275.0 13.6
Source: AIOCD data base Industry acute to chronic therapy ratio percentage…
Acute, 52850, 48.0%
Chronic, 34815, 31.6%
Sub-Chronic, 22484, 20.4%
Source: AIOCD data base; As per AIOCD MAT Feb 2017
ICICI Securities Ltd. | Retail Equity Research
Page 6
Sun Pharmaceuticals
507090
110130150
Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17
CNX Pharma Sun Pharma
Source: NSE, ICICIdirect.com Research Exhibit 5: Company growth vis-à-vis Indian pharma market growth
13.5
8.1
5.5
9.7
7.8
11.0
17.4
13.5
9.1
15.7
7.7 10
.1
7.1
20.7
12.4
5.4
5.3
3.3 7.
7
20.5
17.3
13.8
20.5
9.5
9.5
8.1
0
5
10
15
20
25
Feb-
16
Mar
-16
Apr
-16
May
-16
Jun-
16
Jul-1
6
Aug
-16
Sep-
16
Oct-1
6
Nov
-16
Dec-
16
Jan-
17
Feb-
17
(%)
Indian Pharma Market Sun Pharma
Source: AIOCD data base, ICICIdirect.com Research
Exhibit 6: Market share in Indian formulations market
8.6 8.7 8.6 8.6 8.6 8.5 8.4 8.4 8.58.8 8.6 8.68.7
6.06.57.07.58.08.59.09.5
10.0
Feb-
16
Mar
-16
Apr
-16
May
-16
Jun-
16
Jul-1
6
Aug
-16
Sep-
16
Oct-1
6
Nov
-16
Dec-
16
Jan-
17
Feb-
17
(%)
Sun Pharma
Source: AIOCD data base, ICICIdirect.com Research
Exhibit 7: Top 10 brands performance (| crore) Brand Therapy Feb' 17 Feb' 16 Var. (%) Jan' 17 Var. (%)
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