Cipla claims it has settled its dispute with Bristol Myers-owned Celgene over the drug, revlimid. Following the deal, which analysts had not accounted for, price targets for the stock rose to factor in the development.
Details of the dispute settlement are still confidential. What is known is that Cipla will launch the generic drug and will have a volume-limited licence to sell it sometime after March, 2022, and can launch unlimited quantities after January, 2026.
“We welcome the dispute settlement, as it provides visibility to the revenues expected in FY23 and FY24. While a rising number of settlements crowd this lucrative market, we do not foresee any impact to our base case at this stage,” said Kunal Randeria, analyst at Edelweiss Securities.
He sees Rs 35 per share gain from this settlement and hence raised the price target to Rs 945, suggesting a 20 per cent upside from current levels. Cipla shares have already surged over 120 per cent from March lows.
Revlimid is a lucrative drug and Bristol Myers, which invented it, generates $7.8 billion annually from it. Cipla has become the fourth player to settle the dispute after Natco Pharma, Alvogen and Dr Reddy’s Labs. Six more drug firms are still in dispute, awaiting settlement.
“The key point is there are volume market share constraints in all settlements, which would help limit the impact of growing competition. However, price erosion could be higher than prior estimates,” said Sriraam Rathi, analyst at ICICI Securities.
At this stage, there is no clarity on the eventual number of competitors. If it gets bigger, then that could be a risk. Besides, lower-than-expected growth in India, slower ramp-up in Albuterol, delay in resolution of the warning letter over Goa facility, higher price erosion in the US market are other key risks for Cipla.
Kunal Dhamesha of Emkay Global raised his price target for the stock to Rs 1,000 and sees potential gain of Rs 45 per share from the settlement. His assessment is based on the assumption that Cipla’s settlement terms are in line with those of Alvogen.
“Cipla is in a sweet spot with key businesses witnessing strong growth momentum. While Covid drug sales could normalise in India, recovery in ex-Covid prescription business, structural cost savings and rampup in gAlbuterol share in the US are likely to drive earnings growth of about 28 per cent CAGR over FY20-23,” said Bansi Desai of HDFC Securities.
However, the deal may prove negative to other pharma firms, which have the same product. Hence, brokerages have adjusted price targets for Cipla’s competitors.
ICICI Securities downgraded Natco Pharma to ‘hold’ from ‘add’ earlier and reduced price target to Rs 974 from Rs 998. Similarly, it has revised the target for Dr Reddy’s Labs to Rs 5,412 from Rs 5,485 earlier, though it maintained an ‘add’ rating on that stock.
