Cipla: The right prescription

The stock of leading drug maker Cipla has lost nearly 15 per cent in less than three months.

But the company’s growth prospects are expected to remain healthy — aided by a pick-up in product launches in the US, launch of combination inhalers in the European Union region and steady growth in the domestic market.

At ₹623, the stock trades at about 21 times its estimated 2016-17 earnings, in line with its historical average. Investors with a three-year investment horizon can consider buying the stock. Cipla’s performance is expected to improve over the next few years on five counts.

One, the company’s efforts to build its own marketing set up in key markets is progressing well, with network established in 17 countries.

Though the investment on building a marketing franchise could temper Cipla’s profitability in the near few quarters, it should improve thereafter.

Also, the company has initiated backward integration efforts for key therapies, such as respiratory. Its recent acquisition of the Mumbai-based respiratory devices maker Jay Precision is a case in point.

Two, the company’s business in the US market is gaining momentum. Cipla filed 12 products in 2014-15 and is focussing on niche, higher-margin respiratory and oncology drugs.

The company has filed over 147 products of which 68 are pending approval. A pick-up in the share of products sold through Cipla’s own network in the US should aid margin improvement over the next two-three years.

Three, Cipla’s combination inhaler launches in the EU market is picking up. It has already launched salmeterol and fluticasone combination inhaler in seven EU markets; market share in some markets has gone up to 15 per cent. The company expects approval from other EU nations in the near future.

Besides, Cipla has also filed for generic versions of over 10 other combination inhalers. Approvals, when they come, should add to Cipla’s revenue and profits.

Four, Cipla is the sole supplier of the generic version of AstraZeneca’s heart burn drug Nexium to Teva which was approved in January 2015. With no other generic competition yet, Cipla should get a boost on this front over the next few months.

Five, the company’s growth pace in the domestic market has improved in the last three years. From low teen levels in the early part of the decade, Cipla’s domestic market growth has improved to the high-teens now — in 2014-15, the India business grew 18 per cent.

This was helped by new launches and improvement in the field force productivity. According to market research firm IMS, Cipla held a healthy 5.57 per cent share in the market as of April 2015.

Launch of in-licensed drugs such as the hepatitis drug Hepcvir under a non-exclusive licensing agreement with Gilead Sciences improved performance.

Such tie-ups should help the company sustain growth. However, delay in approvals and appreciation of the rupee against the dollar may hamper the company’s growth prospects.

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