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Cipla: Plant observation may trigger delays in launches

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Cipla had a weak start last week when it corrected by 6 per cent on Monday (February 20), and has not recovered since. This was following news that its Pithampur facility received 8 Form 483 observations in an US FDA audit conducted in February 2023. .

The price correction is in anticipation of a delay in product launches, led by gAdvair (used in treatment of pulmonary disease), and remediation costs due to the observations. The facility awaits classification from US FDA. Cipla’s Goa plant, which was under a warning letter since February 2020, was classified as OAI (Offcial Action Indicated) in November 2022, following inspections conducted in August.

The company expects further inspections in the Goa plant as well. Another major product launch, gAbraxane (used in treatment of lung cancer) has been delayed and the company is in the process of de-risking the launch, whichwas anticipated towards the end of FY24, prior to this inspection. Pithampur and Goa are amongst Cipla’s largest plants.

While new launches will be hampered, affecting sales growth in the US, any possible delay in gAdvair timelines on account of the inspection and classification, will impact Cipla. The company anticipates a target action date in the first week of April, when the product approval status would have been resolved. gAdvair is a $700 million market with limited competition. Besides the first Advair generic launched by Mylan in January 2019, there are only two more listed generics in the US, owing to the complexity of the inhalation product. Cipla went through multiple rounds of queries with US FDA on the product before the plant inspection.

Also read: Cipla invests in Germany’s Ethris for mRNA-based therapies

Cipla posted its highest quarterly run rate in the US, of $195 million in Q3FY23 results, a strong growth from U$133 million in Q3FY20 before the pandemic. This was driven by similar high-value launches, including Albuterol, Revlimid and Brovana, where Cipla was amongst the earliest filers for those products. Further, besides the gAdvair and gAbraxane launches, the company is developing, independently or in partnerships, several other respiratory products.

Cipla was amongst the companies that reported strong growth in US markets in the recent third quarter pharma results. The company reported 6 per cent YoY growth in overall sales (11 per cent adjusted Covid base) in Q3FY23 . Adjusted EBITDA margins were at 21.7 per cent despite a 40 per cent growth in R&D expenses compared to 4 per cent YoY growth in all other expenses in Q3FY23. The company’s One India initiative where trade generics to formulations sales across the country are strategically managed, has delivered strong results, despite loss of Covid sales and is expected to drive strong growth for the company.

After the recent correction, Cipla is now trading at 20.5 times FY24 earnings, which is a 15 per cent discount to the average of the last two years’ forward earnings multiples. Owing to a strong pipeline in development and a strong portfolio on the ground, Cipla commanded a 10-20 per cent premium to its peers in the last two years. A possible delay in new product launches in the US warrants stock trading at a discount, in line with current valuations.



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