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25 June 2014
Asia Pacific/India
Equity Research
Specialty Pharmaceuticals (Healthcare IN (Asia))
India Pharma Sector THEME
Pharma reflection #4: What's your FDA score?
Figure 1: 30% of sector profit comes from single facilities supplying to the US
0%
5%
10%
15%
20%
25%
30%
35%
40%
Cadila Glenmark Lupin Torrent DRL Sun IPCA Cipla
FY14A FY17E
High contribution of largest plant = high FDA risk
Largest US facility as % of consol profits
Source: Company data, Credit Suisse estimates
All large-caps are due for a US FDA inspection in the next six months at their
largest facility. Large-caps have been reducing plant concentration risk but the
exposure is high at 30% of profits. FDA risk at mid-caps is under-appreciated,
with 80-100% of US sales contributed by a single facility.
■ Diversification into complex generics is reducing plant concentration
risk. Large-caps now supply to the US through 4-5 plants vs. 2-3 about
three years ago. The diversification was driven by (1) shifting oral solids
from the largest plant, and (2) supply of new forms (injectables, ophthalmic,
oral contraceptives, etc.) from a new facility. Among large-caps, Cadila has
the highest exposure to its largest plant at 38% of profits while Cipla has the
lowest at 6%. We expect FDA risk to reduce the most for Cadila and Sun
over the next three years as (1) Cadila launches transdermals from new
facility, and (2) the Ranbaxy integration and a speciality acquisition reduce
exposure for Sun.
■ US FDA risk under-appreciated for mid-caps. Mid-caps have re-rated
recently with the expectation of strong growth from the US. However, the
FDA risk is under-appreciated, with 80-100% of US sales contributed by a
single facility. The risk should not reduce over the next few years as mid-caps
are yet to build scale and only a few firms are diversified to different forms.
■ Prefer Sun, Lupin and Cadila. We are positive on US generics' upside but
prefer large-caps over mid-caps: (1) FDA risk is lower in large-caps, and (2) we
prefer stocks with high exposure to complex generics (refer to Entering the
Major League in the US). Sun and Lupin remain our top picks with the strongest
US pipeline and Cadila is expected to be the fastest growing in our coverage.
Research Analysts
Anubhav Aggarwal
91 22 6777 3808
Chunky Shah
91 22 6777 3872
25 June 2014
India Pharma Sector 2
Focus table and charts Figure 2: Exposure of the largest facility supplying to the US to consolidated profits
Company Key facility Contribution of largest
facility to EPS
How exposure to the largest facility being reduced?
FY14 FY17
Cadila Moraiya,
Ahmedabad
38% 26% Reducing exposure to Moraiya through (1) shifting orals from Moraiya to Baddi, (2) new orals and
transdermal filings from SEZ, and (3) a new facility for topical filings
Glenmark Goa 30% 27% Reducing exposure to Goa through (1) transfer of derma products to Baddi, (2) new filings of oral solids from the Indore SEZ, and (3) oncology injectable filings from Argentina
Lupin Goa 30% 25% Goa is only an oral solid plant and as proportion of oral contraceptives, ophthalmic, injectables and
derma increases for Lupin, contribution of Goa facility should reduce
Torrent Indrad, Gujarat 25% 23% Dahej Phase I work is on and should get the US FDA approval in a couple of years
DRL Bachupally,
Hyderabad
25% 20% Reducing exposure to Bachupally through (1) transfer of some oral products to other facilities, (2) new
filings of oral solids from Vizag SEZ or Srikakulam SEZ, (3) increasing contribution from injectables
Sun Halol, Gujarat 25% 19% Sun's exposure to Halol should reduce due to the Ranbaxy integration (brings in more non-US
revenues) and a possible speciality acquisition in the developed markets
IPCA Indore SEZ 8% 9% Silvassa is a key facility currently but is fully utilised and incremental launches are from the Indore SEZ.
Indore will remain a key facility for IPCA for the next few years where IPCA is doubling its capacity
Cipla Goa 6% 8% Overall contribution of US is low at 7% of sales. The Indore SEZ was approved in FY13 and
therefore, increasingly, sales should diversify for Cipla
Source: Company data, Credit Suisse estimates
Figure 3: Mid-caps re-rating driven by scale-up in the US Figure 4: Single facility risk is higher at mid-caps
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14
Midcap PE discount to large cap pharma
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
% US sales from largest facility
Mid Caps Large Caps
Large-caps = Sun, Lupin, DRL, Cipla, Cadila and Glenmark; Mid cap=
Torrent, IPCA, Strides, Alembic, Ajanta and Indoco; Source: IBES
Source: Company data, Credit Suisse estimates
Figure 5: Mid-caps have 1-2 plants vs. 4-5 at large-caps Figure 6: Lupin & Cipla better placed on FDA inspections
0
1
2
3
4
5
6
7
8
9
10
Number of facilities supplying to US
Mid Caps Large Caps
0%
10%
20%
30%
40%
50%
60%
70%
Lupin Cipla DRL IPCA Torrent Cadila Glenmark Sun
In last 5 formulation inspections In all formulation inspections
% of "NO 483 inspections"
Source: Company data, Credit Suisse estimates Source: FDAzilla, Company data, Credit Suisse estimates
25 June 2014
India Pharma Sector 3
What’s your FDA score? Profit loss or growth loss are the key risks from an adverse FDA inspection which
investors cannot hedge against but can only attempt to reduce. We attempt to quantify the
exposure of pharma companies to their largest facility supplying to the US. We note that
most of the large-caps have never received warning letters on their key facilities (except
Cadila receiving a warning letter on its Moraiya facility) but with the FDA becoming more
stringent, that risk cannot be ruled out. We present a detailed analysis of facility wise
capabilities, how firms are diversifying their exposures to new facilities and the inspection
history.
Plant concentration risk reducing for large-caps
About 50-75% of a large cap's US sales come from their largest facility. The reason large-
caps are highly exposed to a single facility is the high gestation period for a facility
supplying to the US. Typically, it takes two years to construct the facility and file ANDAs
from the facility which triggers an FDA inspection. ANDA approval takes on an average
three years. Therefore, a new facility for the US, does not get its first stream of revenue for
the first five years and then takes another 3-5 years for the pay-back period. Most of the
large-caps began operations in the US in early 2000s and therefore started diversifying
into alternate sites only in late 2000s, especially when filings of non-oral solid forms
(injectables, ophthalmic, oral contraceptives, transdermals, etc.) began. Therefore,
although the current exposure to a single facility is high, it should progressively reduce.
Among the large-caps, Cadila gets 38% of its consolidated profits from the Moraiya facility.
Cipla is at the other extreme with only 6% profits from its Goa plant. Over the next three
years, the FDA risk should reduce the most for Cadila and Sun as (1) Cadila launches
transdermals from the new Pharma SEZ, and (2) the Ranbaxy integration and a speciality
acquisition reduce exposure of Halol facility for Sun Pharma. In terms of inspection track-
record, we note that Lupin and Cipla stand out among peers with 60% of their last five
formulation inspections going without 483s vs. 33% for the sector.
FDA risk at mid-caps under-appreciated
Mid-caps have re-rated recently with the expectation of strong growth from the US. The
discount of mid-caps vs. large-caps has reduced from 40% earlier to 20% now. However,
the FDA risk is underappreciated, with 80-100% of US sales contributed by a single facility.
Mid-caps typically supply from 1-2 facilities to the US vs. 4-5 for the large-caps.
FDA risk for mid-caps should not reduce over the next few years as well, as (1) mid-caps
are yet to build scale from the current facility (most of mid-caps have US sales just
<=$100mn or less), and (2) only a few firms have diversified to different forms and have
relatively lower exposure (Strides and Indoco). Additionally, with the FDA now starting
surprise inspections, the risk is higher for mid-caps vs. large-caps.
Prefer Sun, Lupin and Cadila in the sector
We are positive on US generics upside but prefer large-caps over mid-caps: (1) FDA risk is
lower with large-caps, and (2) we prefer stocks with high exposure to complex generics
(refer to Entering the Major League in the US). Sun stays as our top pick as (1) growth
visibility has increased post the Ranbaxy acquisition and the Gleevec settlement, and (2) the
recent US$400 mn deal suggests Sun is already preparing for another acquisition. Lupin has
one of the strongest US pipelines in our coverage and we expect margins to expand with
higher mix of complex generics as oral contraceptives and ophthalmics ramp-up in the next
three years. Lupin is also working on derma, nasals, injectables and controlled substances.
Cadila is the fastest growing in our coverage (expect 28% EPS CAGR over FY14-16) and
it could have a further 15% EPS upside if it wins the litigation on Prevacid solutab. 30% of
Cadila's filings are non-oral-solids with filings in transdermals, nasals, injectables, topicals.
Higher plant concentration
risk = higher FDA risk
Large-caps started
diversifying from their
largest plant in late 2000s
as they filed for complex
generics
Lupin and Cipla stand out
among peers in terms of
inspection track-record
Mid-caps typically supply
from 1-2 facilities to the US
vs. 4-5 for the large-caps
Risk at mid-caps to stay
high for few years as current
scale is low at <$100mn
We are positive on US
generics upside but prefer
large-caps over mid-caps
25 J
un
e 2
014
Ind
ia P
harm
a S
ec
tor
4
Sector valuation
Figure 7: Global valuation table for generic companies
25-Jun-14 Mcap Rating TP Upside /
Sales ($mn) EBITDA margin
(%)
EPS growth
(%)
P/E
(x)
P/B
(x)
RoE
(%)
EV/EBITDA
(x)
($ mn) (Rs) (Down-
side)
(%)
FY14 FY15 FY16 FY14 FY15 FY16 FY14 FY15 FY16 FY14 FY15 FY16 FY14 FY15 FY16 FY14 FY15 FY16 FY14 FY15 FY16
India
Sun 21,619 O 715 14 2,672 3,057 3,552 44 42 42 47 10 16 23.7 21.6 18.6 7.6 5.9 4.7 32 28 26 17.5 15.8 13.3
Lupin 7,485 O 1,025 2 1,836 2,176 2,501 24 24 23 40 14 14 24.3 21.6 18.9 6.7 5.4 4.2 28 25 22 16.0 13.7 12.0
Dr. Reddy's 6,914 O 3,050 24 2,214 2,457 2,776 24 23 23 39 6 16 19.9 18.7 16.1 4.6 3.8 3.2 23 20 20 13.8 12.2 10.6
IPCA 1,729 O 980 18 533 609 757 20 19 19 39 11 22 19.5 17.7 14.5 5.3 4.2 3.4 27 24 23 13.5 12.0 10.3
Glenmark 2,623 O 640 10 993 1,170 1,365 22 22 21 31 14 18 21.0 18.4 15.5 5.4 4.2 3.4 26 23 22 14.2 12.4 10.3
Cipla 5,692 N 415 -3 1,673 1,914 2,178 21 20 21 7 8 20 23.7 22.0 18.4 3.4 3.0 2.6 14 14 14 15.5 15.2 12.8
Cadila 3,416 O 1,100 10 1,549 1,713 1,758 15 17 18 13 27 30 27.1 21.4 16.4 6.0 4.9 4.0 22 23 24 21.2 16.4 12.0
Torrent 1,961 N 500 -28 682 754 868 20 18 18 10 34 12 24.6 18.3 16.4 6.2 5.1 4.2 25 28 26 14.8 14.1 10.8
Source: Company data, IBES, Credit Suisse estimates;
25 June 2014
India Pharma Sector 5
Plant concentration risk reducing for large-caps About 50-75% of a large cap's US sales come from their largest facility. The reason large-
caps are highly exposed to a single facility is the high gestation period for a facility
supplying to the US. Typically, it takes two years to construct the facility and file ANDAs
from the facility which triggers an FDA inspection. ANDA approval takes on an average
three years. Therefore, a new facility for the US, does not get its first stream of revenue for
the first five years and then takes another 3-5 years for the pay-back period. Most of the
large-caps began operations in the US in early 2000s and therefore started diversifying
into alternate sites only in late 2000s, especially when filings of non-oral solid forms
(injectables, ophthalmic, oral contraceptives, transdermals, etc.) began. Therefore,
although the current exposure to a single facility is high, it should progressively reduce.
We note that most of the large-caps have never received warning letters on their key
facilities (except Cadila receiving a warning letter on its Moraiya facility) but with the FDA
becoming more stringent, that risk cannot be ruled out.
Figure 8: Exposure of the largest facility supplying to the US to consolidated profits
Company FY14A FY17E Reason for exposure change
Cadila 38% 26% Transdermals and oral solids at SEZ resulting in sharp reduction
Glenmark 30% 27% Reduction low as ramp-up at the Indore SEZ or Argentina injectables to take time
Lupin 30% 25% Ophthalmic and oral contraceptive ramping up
Torrent 25% 23% Dahej facility to start in FY17 and should reduce exposure
DRL 25% 20% Copaxone and other injectables should reduce exposure
Sun 25% 19% Contribution coming down due to the Ranbaxy merger
IPCA 8% 9% Key facility shifts from Silvassa to the Indore SEZ
Cipla 6% 8% US sales as a percentage of total sales to ramp-up
Source: Company data, Credit Suisse estimates
Among the large-caps, Cadila gets ~38% of its consolidated profits from the Moraiya
facility. Cipla is at the other extreme with only 6% profits from its Goa plant. The FDA risk
should reduce across most firms as diversification to new forms is mostly from a new
facility. Over the next three years, the FDA risk should reduce the most for Cadila and Sun
as (1) Cadila launches transdermals from its new Pharma SEZ, and (2) the Ranbaxy
integration and a speciality acquisition reduce exposure of Halol facility for Sun Pharma.
Figure 9: How large-caps are diversifying risk to the largest facility supplying to the US
Company # of formulation
facilities for US
Key facility How exposure to largest facility being reduced?
Cadila 5 Moraiya,
Ahmedabad
Reducing exposure to Moraiya through (1) shifting orals from Moraiya to Baddi, (2) new
orals and transdermal filings from SEZ, and (3) a new facility for topical filings Glenmark 4 Goa Reducing exposure to Goa through (1) transfer of derma products to Baddi, (2) new filings
of oral solids from the Indore SEZ, and (3) oncology injectable filings from Argentina
Lupin 4 Goa Goa is only an oral solid plant and as proportion of oral contraceptives, ophthalmic,
injectables and derma increases for Lupin, contribution of Goa facility should reduce
Torrent 1 Indrad, Gujarat Dahej Phase I work is on and should get the US FDA approval in a couple of years
DRL 5 Bachupally,
Hyderabad
Reducing exposure to Bachupally through (1) transfer of some oral products to other
facilities, (2) new filings of oral solids from the Vizag SEZ or Srikakulam SEZ, and (3)
increasing contribution from injectables
Sun 9 Halol, Gujarat Sun's exposure to Halol should reduce due to the Ranbaxy integration (brings in more
non-US revenues) and a possible speciality acquisition in the developed markets
IPCA 2 Indore SEZ Silvassa is a key facility currently but is fully utilised and incremental launches are from
the Indore SEZ. Indore will remain a key facility for IPCA for the next few years where
IPCA is doubling its capacity
Cipla 4 Goa Overall contribution of US is low at 7% of sales. The Indore SEZ was approved in FY13
and therefore, increasingly, sales should diversify for Cipla
Source: Company data, Credit Suisse estimates
Large-caps started
diversifying from their
largest plant in late 2000s
as they filed for complex
generics
25 June 2014
India Pharma Sector 6
FDA risk at mid-caps is under-appreciated
Mid-caps have re-rated recently on expectations of strong growth from the US. Mid-caps'
discount vs. large-caps has reduced from 40% earlier to 20% now (Figure 11). However,
the FDA risk is underappreciated, with 80-100% of US sales being contributed by a single
facility. The risk should not reduce over the next few years as mid-caps are yet to build
scale from the current facility (most of the mid-caps have US sales of just about US$100
mn or less). Only a few firms are diversified to different forms and have relatively lower
exposure (Strides and Indoco). Additionally, with the FDA now starting surprise
inspections, the risk is higher for mid-caps vs. large-caps.
Figure 10: Facility details of Mid-caps supplying to the US market
# facilities
supplying to US
Details Remarks
IPCA 2 Silvassa, Indore SEZ (main facility) Key ramp-up in the US is dependent on the Indore SEZ
Torrent 1 Indrad, Gujarat Torrent working on the Dahej facility but it will take 2-3
years
Alembic 1 Halol, Gujarat
Ajanta 1 Aurangabad, Maharashtra
Indoco 2 Both in Goa (oral solid and
ophthalmic)
Ophthalmic facility is key for Indoco
Unichem 2 Oral solids - Uttar Pradesh and Goa Goa is a small facility and ramp-up dependent on the
Goa facility
Strides 2 Bangalore (oral solid), Italy (derma) Ramp-up largely dependent on the Bangalore facility
Claris 1 Ahmedabad Injectable facility in Ahmedabad
Source: Company data, Credit Suisse research
Figure 11: Mid-caps re-rating driven by scale-up in the US Figure 12: Mid-caps have 1-2 plants vs. 4-5 at large-caps
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14
Midcap PE discount to large cap pharma
0
1
2
3
4
5
6
7
8
9
10
Number of facilities supplying to US
Mid Caps Large Caps
Large-caps = Sun, Lupin, DRL, Cipla, Cadila and Glenmark; Mid-
caps= Torrent, IPCA, Strides, Alembic, Ajanta and Indoco;
Source: IBES
Source: Company data, Credit Suisse research
Figure 13 shows that mid-caps have significantly high exposure to single facilities and
many have 100% of US sales contributed by single facilities.
25 June 2014
India Pharma Sector 7
Figure 13: Single facility risk is higher at mid-caps vs. large-caps
0
1
2
3
4
5
6
7
8
9
10
Torrent Alembic Ajanta Claris Indoco Strides Unichem IPCA Cadila Glenmark DRL Lupin Cipla Sun
Number of facilities supplying to US
Mid Caps Large Caps
Source: Company data, Credit Suisse estimates
Figure 15 shows that high exposure to a single facility should sustain for mid-caps for the
next few years as US sales currently are low at about US$100 mn or lower.
Figure 14: US contribution is high for large-caps… Figure 15: …but US sales for mid-caps are currently low
0%
10%
20%
30%
40%
50%
60%
70%
-
200
400
600
800
1,000
1,200
1,400
1,600
1,800 Large Caps
US revenues ($mn) US as % of revenues (RHS)
0%
10%
20%
30%
40%
50%
60%
70%
-
20
40
60
80
100
120
140 Mid Caps
US revenues ($mn) US as % of revenues (RHS)
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
No. of "No 483 inspections": Lupin and Cipla better
placed than others
It's common to receive 483s during FDA inspections. However, we note that Lupin and
Cipla stand out among peers with 60% of their last five formulation inspections going
without 483s. For the sector as a whole, about one-third of inspections went without 483s.
25 June 2014
India Pharma Sector 8
Figure 16: Lupin and Cipla better placed than peers on "NO 483 inspections"
0%
10%
20%
30%
40%
50%
60%
70%
Lupin Cipla DRL IPCA Torrent Cadila Glenmark Sun
In last 5 formulation inspections In all formulation inspections
% of "NO 483s inspections"
Source: US FDA, Credit Suisse estimates
When is the next inspection due on a key facility
We expect an FDA inspection for all the large-caps in the next six months on their key
facilities with the exception of IPCA (Indore SEZ) and Torrent Pharma.
Figure 17: When is the next inspection due on the largest facility supplying to the US?
Company Date of last inspection of key
facility
Average frequency of last 3
inspections (months)
Due in the next six
months?
Cadila Aug-13 14 Yes
Glenmark Sep-13 15 Yes
Lupin May-13 17 Yes
Torrent Jul-13 25 No
DRL Apr-13 20 Yes
Sun Sep-12 18 Yes
IPCA Apr-13 24 No
Cipla Sep-13 10 Yes
Source: Company data, Credit Suisse estimates
25 June 2014
India Pharma Sector 9
Sun: Halol is the key facility ■ Key facilities for the US – Halol is the largest facility for Sun and accounts for about
40% of US sales. Halol has capability on oral solids, injectables, and Nasals. Besides
Halol, Taro facilities in Canada and Israel are two key contributors.
■ How exposure to Halol should reduce – Sun's exposure to Halol should reduce due
to the Ranbaxy integration (brings in more non-US revenues) and a possible speciality
acquisition in the developed markets. Sun has been consolidating its plants supplying
to the US – recently, Sun shut down its Caraco (Michigan) facility. We are not aware of
Sun starting any greenfield plant in India to supply to the US.
■ When is the next inspection due? Halol was last inspected in Sep-12 with an
average inspection frequency of 18 months. Therefore, we expect Halol to be
inspected this year. We also expect inspection of Taro's Israel facility and URL's
Philadelphia facility in FY15.
■ Track-record from previous inspections – Among the formulation facilities, Sun has
received warning letter on Caraco, Cranbury and Karkhadi facilities. In terms of
inspections without 483s, only 20% of the last five inspections (formulations) and 30%
of all formulation inspections were without 483s.
Figure 18: Sun’s formulations and API facilities supplying to the US
State
Sun Formulation facilities
Halol Gujarat
Karkhadi Vadodara
Dadra Dadra and Nagar Haveli
API facilities
Ahmednagar Maharashtra
Bharuch (Panoli) Gujarat
Karkhadi Vadodara
Caraco Formulation facilities
Mulberry, Bryan, OH US
Cranbury US
Taro Formulation facilities
Bramptan Canada
Haifa Bay Israel
API facilities
Haifa Bay Israel
URL Formulation facilities
Aurora, Illinois US
Philadelphia US
Source: Company data, Credit Suisse
25 June 2014
India Pharma Sector 10
Figure 19: Map of Sun’s formulation facilities supplying to the US
API and Formulations
Formulations
Taro - Canada
URL, Illinois
URL, Philadelphia
Caraco, Bryan
Taro - Israel
Sun - Halol
Sun - Dadra
Sun - karkhadi (F+A)
Source: Company data, Credit Suisse
Figure 20: 483 inspection results for Sun's facilities for the US
Period Facility Result
Sun
Nov-13 Karkhadi 483 issued
Mar-07 Karkhadi Clean
May-13 Dadra Clean
Jun-11 Dadra Clean
Apr-08 Dadra Clean
Sep-12 Halol 483 issued
Jun-12 Halol 483 issued
Apr-11 Halol Clean
May-08 Halol 483 issued
Oct-05 Halol 483 issued
May-04 Halol Clean
Caraco
Jan-14 Detroit, MI Clean
May-13 Detroit, MI 483 issued
Jan-13 Detroit, MI 483 issued
Jul-12 Detroit, MI 483 issued
Dec-11 Detroit, MI 483 issued
Sep-11 Detroit, MI Clean
May-09 Detroit, MI 483 issued
Jun-08 Detroit, MI 483 issued
Mar-08 Detroit, MI 483 issued
Jun-13 Mulberry, Bryan, OH 483 issued
Jul-11 Mulberry, Bryan, OH 483 issued
Jul-10 Mulberry, Bryan, OH 483 issued
25 June 2014
India Pharma Sector 11
Figure 20: 483 inspection results for Sun's facilities for the US (cont'd)
Period Facility Result
Mar-08 Mulberry, Bryan, OH 483 issued
Apr-07 Mulberry, Bryan, OH 483 issued
Jan-05 Mulberry, Bryan, OH Clean
Dec-01 Mulberry, Bryan, OH 483 issued
Jun-13 Cranbury 483 issued
Nov-11 Cranbury Clean
Jun-11 Cranbury 483 issued
Apr-10 Cranbury 483 issued
Apr-09 Cranbury Clean
May-08 Cranbury Clean
Taro
Feb-14 Brampton, Canada - Formulation 483 issued
Feb-11 Brampton, Canada - Formulation 483 issued
Jul-08 Brampton, Canada - Formulation 483 issued
Jan-05 Brampton, Canada - Formulation Clean
Sep-01 Brampton, Canada - Formulation Clean
Dec-12 Haifa bay, Israel - Formulation + API Clean
May-10 Haifa bay, Israel - Formulation + API 483 issued
Sep-09 Haifa bay, Israel - Formulation + API 483 issued
Mar-06 Haifa bay, Israel - Formulation + API Clean
Oct-02 Haifa bay, Israel - Formulation + API 483 issued
URL
Jan-12 Philadelphia 483 issued
Apr-11 Philadelphia 483 issued
Jun-09 Philadelphia Clean
Dec-08 Philadelphia Clean
Mar-08 Philadelphia Clean
Aug-07 Philadelphia Clean
Nov-06 Philadelphia Clean
Feb-13 Illinois Clean
Aug-11 Illinois Clean
Dec-09 Illinois Clean
Source: FDA Zilla, Company data, Credit Suisse
Figure 21: Timeline of key US facilities and US sales Figure 22: Split of US sales (FY14)
-
500
1,000
1,500
2,000
2,500
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16
Sun US sales ($mn)
Caraco - acquired in 1997Caraco - Bryan: Acquired in 2005Halol - 2004
Karkhadi -Acquired in 2004; approved in 2007
Dadra
Taro acquisitionCanada + Israel
URL:Philadelphia
Sun47%
Taro41%
URL9%
Dusa3%
Source: FDA, Company data, Credit Suisse estimates Source: IMS health, Company data, Credit Suisse
25 June 2014
India Pharma Sector 12
Lupin: Goa is the key facility ■ Key facilities for the US. Goa plant is the key facility and accounts for ~50% of US
sales for Lupin. Majority of non-Cephalosporin oral solids are made at the Goa plant
while the Mandideep facility is for Cephalosporins and Prils. The Indore SEZ has
capability on oral contraceptives, ophthalmic and derma products.
■ Efforts to diversify exposure to Goa plant. Besides oral solids, key areas of future
growth for Lupin are ramp-up of oral contraceptives basket and launch of more
ophthalmic products and, therefore, contribution of Goa plant for Lupin should
gradually reduce.
■ When is the next inspection due? The Goa plant has been inspected at an interval
of 1-2 years in the past with the latest inspection being in May-13. Therefore there is a
good probability of another inspection in the next six months. Mandideep and Indore
SEZ should also get inspected as the last inspection in in Sep-11 and Jun-12,
respectively.
■ Track-record from previous inspections. Post the warning letter at Mandideep in
2009, Lupin's track-record has been clean on FDA inspections. In fact, the last two
inspections at its Goa plant went without any 483s. In terms of inspections without
483s, 60% of the last five inspections (formulations) and 40% of all formulation
inspections were without 483s.
Figure 23: Lupin's formulations and API facilities supplying to the US
States Capability
Formulation facilities
Mandideep Madhya Pradesh Cephalosporins, prils
Verna Goa Non-Cephalosproins oral solids
Chikalthana Maharashtra Oral solids – smaller facility
Indore SEZ Madhya Pradesh Oral contraceptives, ophthalmic, derma and oral solids
API facilities
Mandideep Madhya Pradesh
Tarapur Maharashtra
Dabhasa Gujarat
Indore SEZ Madhya Pradesh
Source: Company data, Credit Suisse
Figure 24: Timeline of key US facilities and US sales Figure 25: Split of US sales (FY14)
0
200
400
600
800
1,000
1,200
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16
Lupin US sales ($mn)
Mandideep- pre 2000
Goa
Indore SEZ
Chikalthana - 2004
Oral contraceptives
11%
Opthalmics5%
Cephs + Prils30%
Orals54%
Source: FDA, Company data, Credit Suisse estimates Source: IMS health, Company data, Credit Suisse
25 June 2014
India Pharma Sector 13
Figure 26: 483 inspection results for facilities supplying to the US
Period Facility Result
May-13 Goa, Formulations Clean
Sep-11 Goa, Formulations Clean
Feb-10 Goa, Formulations 483 issued
Mar-09 Goa, Formulations 483 issued
Jun-05 Goa, Formulations Clean
Jul-12 Chikalthana, Formulations Clean
Nov-09 Chikalthana, Formulations Clean
Jun-12 Indore SEZ, Formulations + API 483 issued
Nov-09 Indore SEZ, Formulations + API 483 issued
Sep-11 Mandideep, Formulations + API 483 issued
Nov-09 Mandideep, Formulations + API 483 issued
Nov-08 Mandideep, Formulations + API 483 issued
May-06 Mandideep, Formulations + API Clean
Mar-03 Mandideep, Formulations + API 483 issued
Feb-00 Mandideep, Formulations + API 483 issued
Jan-13 Dabhasa, API Clean
Jun-12 Tarapur, API Clean
Feb-09 Tarapur, API 483 issued
Feb-05 Tarapur, API Clean
Source: FDA Zilla, Company data, Credit Suisse
Figure 27: Map of Lupin’s facilities supplying to the US
API and Formulations
API
Formulations
Mandideep, MP
Indore SEZ, MP
Verna, Goa
Chikalthana, AurangabadTarapur
Dhabasa, Gujarat
Source: Company data, Credit Suisse
25 June 2014
India Pharma Sector 14
Cadila: Moraiya is the key facility ■ Key facility for the US. Moraiya is the key facility and accounts for ~75% of US sales
for Cadila. Capability wise the Moraiya facility can manufacture oral solids, Nasal,
Transdermals and Injectables. Moraiya is an integrated unit with API manufacturing.
■ Efforts to diversify exposure to Moraiya. (1) Cadila has shifted some of the oral
solid filings from Moraiya to Baddi, (2) future oral solid and transdermal filings are
being made from the SEZ in Ahmedabad, and (3) for topicals, Cadila has another
facility where filings have already been made for Ointments and an inspection is
awaited. We believe the diversification process should be visible by FY17 for Cadila
(as transdermals and oral solids from the SEZ are launched).
■ When is the next inspection due? The Moraiya plant has been inspected more
frequently than the norm of once in two years. The last inspection was in Aug-2013
and the average inspection time has been 14 months. Therefore, an inspection in the
next six months cannot be ruled out.
■ Track-record from previous inspections. Cadila did get a warning letter for Moraiya
plant in FY12 (for the injectable unit) but the same was resolved within a year. Post
the warning letter resolution, Cadila did get a 483 in the Aug-13 inspection at Moraiya.
In terms of inspections without 483s, 20% of the last five inspections (formulations)
and 30% of all formulation inspections have been without 483s.
Figure 28: Cadila's formulations and API facilities supplying to the US
Plant State Capability
Formulations
Moraiya Ahmedabad Oral solid, nasal, transdermal, injectables
Baddi Himachal Pradesh Oral solid facility where few products were transferred from Moraiya plant
Topical plant Ahmedabad 10 ANDAs for ointments filed and waiting for FDA visit
PharmEZ, SEZ Ahmedabad Oral solid, transdermal (five ANDAs filed), BSV, Hospira
Nesher United States Controlled substance
APIs
Moraiya Ahmedabad
Ankleshwar (Plot 291) Gujarat
Ankleshwar (Plot 294) Gujarat
Dabhasa Gujarat
Source: Company data, Credit Suisse
Figure 29: Timeline of key US plants and US sales Figure 30: Split of US sales (FY14)
-
100
200
300
400
500
600
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16
Cadila US sales ($mn)
Moraiya plant- FY05
Baddi;Nesher acquisition
Orals75%
AG25%
Source: FDA, Company data, Credit Suisse estimates Source: IMS health, Company data, Credit Suisse
25 June 2014
India Pharma Sector 15
Figure 31: Map of Cadila's US FDA approved formulation facilities
API and Formulations
Formulations
Ahmedabad - 1) Trasad
Road 2) PharmaEZ SEZ
Moraiya, Ahmedabad (F + A)
Baddi, HP
Source: Company data, Credit Suisse
Figure 32: 483 inspection results for Cadila's facilities
Inspection period Facility Inspection result
Aug-13 Moraiya 483 issued
Feb-12 Moraiya 483 issued
Feb-11 Moraiya 483 issued
Feb-09 Moraiya Clean
Apr-07 Moraiya Clean
May-04 Moraiya 483 issued
Mar-13 Dabhasa, API 483 issued
Dec-09 Dabhasa, API 483 issued
May-04 Dabhasa, API Clean
Feb-11 Ankleshwar (Plot 291), API 483 issued
Nov-08 Ankleshwar (Plot 291), API 483 issued
Mar-05 Ankleshwar (Plot 291), API 483 issued
Dec-09 Ankleshwar (Plot 294), API 483 issued
Nov-05 Ankleshwar (Plot 294), API Clean
Nov-00 Ankleshwar (Plot 294), API Clean
Sep-13 Zydus Technologies (Transdermal) 483 issued
Jul-12 Zydus Hospira Clean
Nov-09 Zydus Hospira 483 issued
Source: FDAZilla, Company data, Credit Suisse
25 June 2014
India Pharma Sector 16
Dr. Reddy's: Bachupally is the key facility ■ Key facilities for the US. Bachupally is the key facility and accounts for ~60% of US
sales. Bachupally is mainly an oral solid facility. Injectables for Dr. Reddy's are made
at the Vizag SEZ or are sourced externally. In the US, the Shreveport facility services
Veteran contracts and the Bristol facility which supplies Amoxicillin/Clavunic and
Amoxil was bought from GSK.
■ Efforts to diversify exposure to Bachupally facility. Dr. Reddy's is reducing its
exposure to Bachupally through (1) transfer of some oral products to other facilities,
(2) new filings of oral solids from the Vizag SEZ or Srikakulam SEZ, and (3) increasing
contribution from injectables. The Vizag SEZ has already been commercialised while
the Srikakulam SEZ is yet to be commercialised.
■ When is the next inspection due? Bachupally has been inspected with a frequency
of two years and the last inspection was in Apr-13 (without any 483s). Therefore, the
next inspection could be in the next six months. The Vizag SEZ was last inspected in
Jan-2013 and is due for inspection this year.
■ Track-record from previous inspections. Dr. Reddy's has a clean track-record on
its formulation facilities (received an import alert on its Mexico API plant though). In
terms of inspections without 483s, 40% of the last five inspections (formulations) and
45% of all formulation inspections were without 483s.
Figure 33: Dr. Reddy’s formulations and API facilities supplying to the US
State Capability
Formulation facilities
Bachupally (Hyderabad) Andhra Pradesh Oral solid
Vizag SEZ Andhra Pradesh Injectables+ Oral solids
Srikakulam SEZ Andhra Pradesh Oral solids
Shreveport (Veteran contract) USA Oral solids
Bristol (acquired from GSK) USA Oral solids
API facilities
Srikakulam SEZ Andhra Pradesh
Srikakulam Andhra Pradesh
Nalgonda Andhra Pradesh
Hyderabad 1 (Plot 137/138) Andhra Pradesh
Hyderabad 2 (Plot 110 &111) Andhra Pradesh
Hyderabad 3 (Plot 116) Andhra Pradesh
Hyderabad 4 (Plot 9A) Andhra Pradesh
Cuernavaca Mexico
Mirfield UK
Middleburgh USA
Source: Company data, Credit Suisse
25 June 2014
India Pharma Sector 17
Figure 34: Timeline of key US facilities and US sales Figure 35: Split of US sales (FY14)
0
200
400
600
800
1,000
1,200
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16
DRL US sales ($ mn)
Bachupally - pre 2000
Vizag SEZ
Srikakulam SEZ
Injectibles29%
Oral solids -India58%
Bristol6%
Shevreport7%
Source: FDA, Company data, Credit Suisse estimates Source: IMS health, Company data, Credit Suisse
Figure 36: Map of Dr. Reddy’s formulation facilities supplying to the US
API and Formulations
Formulations
Srikakulam
Shreveport
Bachupally (Hyderabad)Vizag
Hyderabad, API
Bristol
API
Source: Company data, Credit Suisse
25 June 2014
India Pharma Sector 18
Figure 37: 483 inspection results for Dr. Reddy's facilities for the US
Period Facility Result
Sep-13 Shreveport 483 issued
Sep-12 Shreveport 483 issued
Feb-12 Shreveport 483 issued
Oct-10 Shreveport Clean
Mar-10 Shreveport Clean
Nov-07 Shreveport Clean
Mar-07 Shreveport Clean
Dec-06 Shreveport 483 issued
Jun-05 Shreveport Clean
Apr-13 Bachupally Clean
Nov-11 Bachupally 483 issued
Nov-09 Bachupally 483 issued
Mar-07 Bachupally 483 issued
Mar-02 Bachupally 483 issued
Feb-00 Bachupally 483 issued
May-12 Nalgonda, API 483 issued
Feb-09 Nalgonda, API 483 issued
Mar-05 Nalgonda, API Clean
Nov-00 Nalgonda, API 483 issued
Oct-12 Middleburgh Clean
Oct-12 Bristol Clean
Mar-11 Bristol Clean
Nov-07 Bristol Clean
Jan-13 Vizag SEZ, Formulations Clean
Nov-09 Vizag SEZ, Formulations Clean
Feb-08 Vizag SEZ, Formulations 483 issued
Jun-12 Hyderabad 1 (Plot 137/138), API 483 issued
Feb-09 Hyderabad 1 (Plot 137/138), API 483 issued
Nov-05 Hyderabad 1 (Plot 137/138), API Clean
Feb-02 Hyderabad 1 (Plot 137/138), API Clean
Sep-10 Hyderabad 3 (Plot 116), API 483 issued
Mar-07 Hyderabad 3 (Plot 116), API 483 issued
Mar-03 Hyderabad 3 (Plot 116), API Clean
Feb-00 Hyderabad 3 (Plot 116), API 483 issued
Sep-11 Srikakulam, API Clean
Apr-08 Srikakulam, API Clean
May-04 Srikakulam, API Clean
Feb-00 Srikakulam, API 483 issued
Apr-12 Hyderabad 4 (Plot 9A), API 483 issued
Mar-07 Hyderabad 4 (Plot 9A), API Clean
Source: FDA Zilla, Company data, Credit Suisse
25 June 2014
India Pharma Sector 19
Cipla: Goa is the key facility ■ Key facilities for the US. Goa is the largest facility for Cipla with capability across oral
solids, injectables, aerosols, creams and liquids. Other two operational facilities are
oral solids facilities at Kurkumbh and Patalganga, with the former being the larger of
the two. Cipla has also received US approval for the Indore SEZ which has capability
across aerosols, liquids, injectables, nasals, and ophthalmics.
■ Efforts to reduce exposure to the largest plant. The Indore SEZ was approved in
FY13 (Nov 2012) by the US FDA and therefore dependency on Goa should reduce.
Moreover, the tax rate on the Indore SEZ is lower (equal to MAT).
■ When is the next inspection due? Both Kurkumbh and Patalganga are due for
inspection this year. The Goa plant was last inspected in Sep-13 (no 483s) but the
average inspection frequency has been once a year and therefore the Goa plant could
be inspected in FY15. The Indore SEZ could be inspected in FY15 as the last
inspection was in Mar-13.
■ Track-record from previous inspections. Cipla has a clean track-record of no
warning letter so far. In terms of inspections without 483s, 60% of the last five
inspections (formulations) and 30% of all formulation inspections have been without
483s.
Figure 38: Cipla's formulations and API facilities supplying to the US
State Capability
Formulation facilities
Kurkumbh Maharashtra Oral solid
Verna Goa Aerosols, injections, creams, liquids, oral solid
Patalganga Maharashtra Tablets + Aerosol
Indore SEZ Madhya Pradesh Aerosols, liquids, injectables, nasals, Ophthalmic
API facilities
Kurkumbh Maharashtra
Bangalore (Virgonagar) Karnataka
Patalganga Maharashtra
Bangalore (Bommasandra) Karnataka
Source: Company data, Credit Suisse
Figure 39: Timeline of key US facilities Figure 40: Split of overall sales (FY14)
Pre-FY'04
FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13
Goa Indore SEZ
Kurkumbh and Patalganga -older facilities
Cipla Facilities - US FDA approval timeline
India40%
US7%
EU6%
Africa25%
ROW14%
API8%
Source: FDA, Company data, Credit Suisse estimates Source: IMS health, Company data, Credit Suisse
25 June 2014
India Pharma Sector 20
Figure 41: Map of Cipla's US FDA approved formulation facilities
API and Formulations
Formulations
Kurkumbh, Maharashtra
Verna, Goa
Patalganga, Maharashtra
Indore SEZ, MP
Source: Company data, Credit Suisse
Figure 42: 483 inspection results for Cipla’s facilities supplying to the US
Period Facility Result
Sep-13 Goa , Formulations Clean
May-13 Goa , Formulations 483 issued
Nov-11 Goa , Formulations 483 issued
Feb-11 Goa , Formulations 483 issued
Apr-09 Goa , Formulations 483 issued
Apr-06 Goa , Formulations Clean
May-04 Goa , Formulations 483 issued
Mar-13 Indore SEZ, Formulations 483 issued
Nov-12 Indore SEZ, Formulations Clean
Jun-12 Patalganga, Formulations + API Clean
Feb-09 Patalganga, Formulations + API 483 issued
Jun-04 Patalganga, Formulations + API Clean
Sep-01 Patalganga, Formulations + API 483 issued
Dec-11 Kurkumbh, Formulations + API 483 issued
Mar-09 Kurkumbh, Formulations + API 483 issued
Jun-07 Kurkumbh, Formulations + API 483 issued
Apr-06 Kurkumbh, Formulations + API Clean
Nov-02 Kurkumbh, Formulations + API 483 issued
Aug-00 Kurkumbh, Formulations + API 483 issued
Jun-12 Bangalore, API (Virgonagar) 483 issued
Apr-09 Bangalore, API (Virgonagar) 483 issued
Oct-05 Bangalore, API (Virgonagar) 483 issued
Nov-02 Bangalore, API (Virgonagar) Clean
Aug-00 Bangalore, API (Virgonagar) 483 issued
Nov-11 Bangalore, API Clean
Source: FDA Zilla, Company data, Credit Suisse
25 June 2014
India Pharma Sector 21
Glenmark: Goa is the key facility ■ Key facilities supplying to the US. Goa is the key facility and accounts for ~80% of
US sales for Glenmark (adjusted for supplies such as controlled substance, etc., from
third parties). The Goa facility has different units for hormones, dermatology and oral
solids. If we leave out the hormone unit, then sales contributed from the Goa plant
should be ~65% of US sales. Ankleshwar is the main API facility for the US and
Glenmark is also developing a new site at Dahej for US APIs. The Shendra API facility
is dedicated for Crofemeler supply.
■ Efforts to diversify exposure to Goa. Glenmark has been reducing exposure to the
Goa facility by (1) site transfer of some derma products to the Baddi facility, (2) new
filings from Indore SEZ for oral solids (and complex injectables and immuno
suppresants are also from Indore SEZ), and (3) oncology injectable filings are from the
Argentina facility. Therefore, although the exposure to Goa facility is high at present, it
should progressively reduce as contribution from Indore and Argentina facilities
increases (expected from FY16-FY17 onwards). The Indore plant has already
undergone its first inspection in Oct-13 and was subsequently cleared.
■ When is the next inspection due? The Goa plant has been inspected more
frequently for Glenmark than the norm of once in two years. The last inspection was in
Sep-2013 and the average inspection time has been 15 months. Therefore, an
inspection in the next six months cannot be ruled out for the Goa plant.
■ Track-record from previous inspections. Glenmark maintains a clean track-record
on FDA inspections with no warning letter so far. However, only 20% of the last five
and 30% of all formulation inspections have been without 483s.
Figure 43: Glenmark's formulations and API facilities supplying to the US
State Capability
Formulation plant
Goa Goa Hormones, Dermatology and Oral solids
Indore Madhya Pradesh Oral solid, Complex Injectables and Immuno Suppressants
Baddi Himachal Pradesh Dermatology
Buenos Aires Argentina Injectables
API facilities
Ankleshwar Gujarat Oral solids
Dahej Gujarat Work in Progress
Shendra Maharashtra Crofemeler API
Source: US FDA, Credit Suisse
Figure 44: Timeline of key US plants and US sales Figure 45: Split of US sales (FY14)
-
50
100
150
200
250
300
350
400
450
500
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16
Glenmark US sales ($mn)
Goa plant - 2005
Baddi started
Indore SEZ
Oral Contraceptives
12%
Derma20%
Orals68%
Source: FDA, Company data, Credit Suisse estimates Source: IMS health, Company data, Credit Suisse
25 June 2014
India Pharma Sector 22
Figure 46: Map of Glenmark's US FDA approved formulation facilities
API and Formulations
Formulations
Goa
Baddi, HP
Indore
Buenos Aires, Argentina
Source: Company data, Credit Suisse
Figure 47: 483 inspection results for Glenmark's facilities
Inspection Period Facility Inspection Result
Sep-13 Goa formulations 483 issued
Jul-13 Goa formulations 483 issued
Oct-11 Goa formulations 483 issued
Nov-09 Goa formulations 483 issued
May-08 Goa formulations 483 issued
Jun-05 Goa formulations Clean
Oct-13 Indore SEZ formulations 483 issued
Aug-12 Baddi formulations Clean
Nov-09 Baddi formulations 483 issued
Sep-07 Baddi formulations Clean
Oct-11 Ankleshwar, API 483 issued
May-08 Ankleshwar, API 483 issued
May-04 Ankleshwar, API 483 issued
Source: FDA Zilla, Credit Suisse
25 June 2014
India Pharma Sector 23
Torrent: Only one facility for US ■ Key facilities supplying to the US. Torrent currently has one integrated plant in
Gujarat supplying to the US. The capability is mainly on oral solids.
■ How are sales diversifying for future pipeline. Torrent has been investing in Dahej
SEZ where the Phase I is expected to get completed this year. Torrent has started
manufacturing exhibit batches to trigger regulatory approval for the European market.
However, US approval for the plant should at least take couple of more years.
Therefore, the Indrad plant should remain the key plant for the next three years.
■ When is the next inspection due? Torrent's Indrad facility has been inspected once
every two years and the last inspection was in Jul-13. Therefore, we do not expect an
inspection in FY15.
■ Track-record from previous inspections. Torrent has maintained a clean track-
record so far, but in the last four inspections, it was only once that Torrent cleared the
inspection without any 483.
Figure 48: Torrent's facilities supplying to the US
Formulation facilities State Capability
Indrad Gujarat Oral solid
API facilities
Indrad Gujarat Oral solid
Source: Company data, Credit Suisse
Figure 49: Torrent's Gujarat plant getting inspected once every two years
Period Facility Result
Jul-13 Indrad, Gujarat 483 issued
Mar-11 Indrad, Gujarat Clean
Apr-08 Indrad, Gujarat 483 issued
Apr-06 Indrad, Gujarat 483 issued
Source: FDA Zilla, Credit Suisse
Figure 50: Map of Torrent’s facilities supplying to the US
API and Formulations
Formulations
Indrad, Gujarat
Source: Company data, Credit Suisse
25 June 2014
India Pharma Sector 24
IPCA Labs: Indore is the key facility ■ Key facilities for the US. IPCA has been supplying to the US through the Silvassa
facility until now. However, it has already achieved 100% utilisation at the facility and
has been transferring products to the Indore SEZ which got approval from the FDA in
Sep-2013.
■ How are sales diversifying for the future pipeline? All of the incremental US sales
for IPCA will come from the Indore SEZ and in fact IPCA has already started
expanding the Indore facility to double its production capacity which is expected to get
completed in the next two years.
■ When is the next inspection due? Both Ratlam (API unit) and Silvassa units are due
for inspection this year while inspection of Indore SEZ is not expected in the near
term.
■ Track-record from previous inspections. IPCA has maintained a clean track-record
so far although the Indore SEZ approval took longer than expected. In terms of
inspections without 483s, 40% of formulation inspections were without 483s.
Figure 51: IPCA's facilities supplying to the US
States Capability
Formulations
Silvasa Dadra & Nagar Haveli Oral solids
Indore SEZ Madhya Pradesh Oral solids
API Facilities
Waluj, Aurangabad Maharashtra Oral solids
Ratlam Madhya Pradesh Oral solids
Source: Company data, Credit Suisse
Figure 52: 483 inspection results for IPCA's facilities for the US
Period Facility Inspection Result
Jul-12 Silvassa 483 issued
May-10 Silvassa 483 issued
Apr-08 Silvassa Clean
Apr-13 Indore SEZ 483 issued
Jan-12 Indore SEZ Clean
Sep-11 Ratlam 483 issued
Apr-08 Ratlam Clean
May-04 Ratlam Clean
Mar-00 Ratlam Clean
Source: FDA Zilla, Credit Suisse
25 June 2014
India Pharma Sector 25
Companies Mentioned (Price as of 25-Jun-2014)
Ajanta Pharma (AJPH.BO, Rs1438.9) Alembic Pharma (ALEM.BO, Rs277.55) Cadila Healthcare (CADI.BO, Rs1002.3, OUTPERFORM, TP Rs1100.0) Cipla Limited (CIPL.BO, Rs426.35, NEUTRAL, TP Rs415.0) Claris Life (CLAI.BO, Rs146.3) Dr. Reddy's Laboratories Limited (REDY.BO, Rs2460.85, OUTPERFORM, TP Rs3050.0) Glenmark Pharmaceuticals (GLEN.BO, Rs584.35, OUTPERFORM, TP Rs640.0) IPCA Laboratories Limited (IPCA.BO, Rs828.0, OUTPERFORM, TP Rs980.0) Indoco Remedies (INRM.NS, Rs167.1) Lupin Ltd (LUPN.BO, Rs1009.45, OUTPERFORM, TP Rs1025.0) Strides Arco (STAR.BO, Rs603.85) Sun Pharmaceuticals Industries Limited (SUN.BO, Rs627.6, OUTPERFORM, TP Rs715.0) Taro Pharmaceutical Industries Ltd (TARO.N, $112.14, OUTPERFORM, TP $85.0) Torrent Pharma (TORP.BO, Rs694.0, NEUTRAL, TP Rs500.0) Unichem (UNLB.NS, Rs206.4)
Disclosure Appendix
Important Global Disclosures
I, Anubhav Aggarwal, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
3-Year Price and Rating History for Cadila Healthcare (CADI.BO)
CADI.BO Closing Price Target Price
Date (Rs) (Rs) Rating
17-Jul-12 844.05 970.00 O *
18-Jul-12 877.70 *
06-Aug-12 907.50 970.00 O
07-Nov-12 854.00 955.00
12-Dec-12 842.00 1000.00
10-Feb-13 791.35 800.00 N
05-Sep-13 641.50 760.00 O
07-Feb-14 904.00 1075.00
19-May-14 899.00 1100.00
* Asterisk signifies initiation or assumption of coverage.
O U T PERFO RM
N EU T RA L
3-Year Price and Rating History for Cipla Limited (CIPL.BO)
CIPL.BO Closing Price Target Price
Date (Rs) (Rs) Rating
08-Aug-11 303.50 355.00 O
19-Oct-11 289.15 330.00
09-Jan-12 344.20 360.00
31-Jul-12 338.55 390.00
12-Dec-12 415.40 475.00
29-May-13 401.55 415.00 N
* Asterisk signifies initiation or assumption of coverage.
O U T PERFO RM
N EU T RA L
25 June 2014
India Pharma Sector 26
3-Year Price and Rating History for Dr. Reddy's Laboratories Limited (REDY.BO)
REDY.BO Closing Price Target Price
Date (Rs) (Rs) Rating
21-Jul-11 1543.00 1750.00 O
19-Oct-11 1516.55 1670.00
07-Feb-12 1634.25 1670.00 N
19-Jul-12 1655.60 1640.00
30-Sep-12 1647.40 1810.00
30-Oct-12 1723.00 1900.00
12-Dec-12 1874.20 2150.00 O
29-Mar-13 1766.30 2180.00
30-Jul-13 2179.40 2420.00
01-Nov-13 2470.65 2850.00
11-Feb-14 2658.95 3150.00
13-May-14 2610.70 3050.00
* Asterisk signifies initiation or assumption of coverage.
O U T PERFO RM
N EU T RA L
3-Year Price and Rating History for Glenmark Pharmaceuticals (GLEN.BO)
GLEN.BO Closing Price Target Price
Date (Rs) (Rs) Rating
19-Oct-11 285.60 340.00 O
09-Jan-12 295.00 350.00
19-Apr-12 321.90 375.00
08-Jul-12 377.05 430.00
12-Dec-12 449.00 545.00
08-Jul-13 577.50 680.00
01-Nov-13 539.30 640.00
* Asterisk signifies initiation or assumption of coverage.
O U T PERFO RM
3-Year Price and Rating History for IPCA Laboratories Limited (IPCA.BO)
IPCA.BO Closing Price Target Price
Date (Rs) (Rs) Rating
21-Feb-14 888.00 1030.00 O *
02-Jun-14 788.25 980.00
* Asterisk signifies initiation or assumption of coverage.
O U T PERFO RM
25 June 2014
India Pharma Sector 27
3-Year Price and Rating History for Lupin Ltd (LUPN.BO)
LUPN.BO Closing Price Target Price
Date (Rs) (Rs) Rating
29-Jul-11 454.60 500.00 O
20-Oct-11 469.40 530.00
24-Jan-12 445.55 510.00
15-Mar-12 504.35 580.00
13-Sep-12 599.20 640.00
23-Oct-12 562.70 615.00
12-Dec-12 606.65 710.00
20-May-13 768.05 755.00 N
08-Aug-13 801.15 830.00
31-Oct-13 887.15 950.00
10-Dec-13 872.45 1025.00 O
* Asterisk signifies initiation or assumption of coverage.
O U T PERFO RM
N EU T RA L
3-Year Price and Rating History for Sun Pharmaceuticals Industries Limited (SUN.BO)
SUN.BO Closing Price Target Price
Date (Rs) (Rs) Rating
19-Oct-11 241.00 267.50 O
21-Nov-11 249.18 288.00
04-Jan-12 250.68 297.50
29-Mar-12 285.40 312.50
31-May-12 283.75 325.00
12-Aug-12 337.80 370.00
13-Sep-12 338.42 387.50
12-Dec-12 362.35 410.00
05-Feb-13 373.65 420.00
21-Feb-13 397.85 450.00
28-May-13 497.78 560.00
12-Jun-13 490.50 545.00
09-Aug-13 507.10 585.00
10-Dec-13 587.25 685.00
14-Feb-14 608.95 715.00
* Asterisk signifies initiation or assumption of coverage.
O U T PERFO RM
3-Year Price and Rating History for Taro Pharmaceutical Industries Ltd (TARO.N)
TARO.N Closing Price Target Price
Date (US$) (US$) Rating
25-Sep-13 69.66 85.00 O *
* Asterisk signifies initiation or assumption of coverage.
O U T PERFO RM
25 June 2014
India Pharma Sector 28
3-Year Price and Rating History for Torrent Pharma (TORP.BO)
TORP.BO Closing Price Target Price
Date (Rs) (Rs) Rating
28-Jun-12 297.50 372.50 O
29-Jun-12 300.08 *
12-Sep-12 351.55 372.50 O
12-Dec-12 333.25 407.50
31-May-13 393.38 407.50 N
21-Jan-14 479.95 500.00
* Asterisk signifies initiation or assumption of coverage.
O U T PERFO RM
N EU T RA L
The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities
As of December 10, 2012 Analysts’ stock rating are defined as follows:
Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months.
Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.
Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.
*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total retu rn relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12 -month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10 -15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark.
Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.
Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.
Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:
Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.
Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.
Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.
*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.
Credit Suisse's distribution of stock ratings (and banking clients) is:
Global Ratings Distribution
Rating Versus universe (%) Of which banking clients (%)
Outperform/Buy* 44% (54% banking clients)
Neutral/Hold* 40% (49% banking clients)
Underperform/Sell* 13% (46% banking clients)
Restricted 3%
*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.
25 June 2014
India Pharma Sector 29
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Price Target: (12 months) for Cadila Healthcare (CADI.BO)
Method: Our target price of Rs 1100 for Cadila Healthcare is based on 18x financial year 2016 core earnings forecasts. Our target multiple of 18x for Cadila is at 10% discount to the large cap peers (in line with the historical trend).
Risk: Risks that could impede achievement of our target price of Rs 1100 for Cadila Healthcare include: (1) sustenance of cash flows from Divalproex ER; (2) Delay in approval of low competition products: Our estimates assume Cadila getting clearance of low competition products in oral solids in 2nd half of Financial year 2015 and Nasal spray and Injectable products in FY15. However, delay in Consent Decree procedures at Nesher or approval delays impacts our estimates adversely. (3) Delay in recovery of India growth post pricing policy.
Price Target: (12 months) for Cipla Limited (CIPL.BO)
Method: Our target price of Rs415 for Cipla Limited is based on 18x FY16E EPS (earnings per share). We value Cipla at 10% discount to our sector average multiple of 20x due to the current phase of change at Cipla.
Risk: In our view, there are three key risks to our Rs415 target price for Cipla. 1) Since CY03, Cipla has been involved in a lawsuit with the National Pharmaceutical Pricing Authority in India. If Cipla loses the lawsuit (the company believes it is likely to win), there could be downside on earnings. 2) slow ramp up in exports from Indore SEZ 3) delay in inhalers launch in Europe
Price Target: (12 months) for Glenmark Pharmaceuticals (GLEN.BO)
Method: Our target price of Rs640 for Glenmark Pharmaceuticals is based on 11x EV/EBITDA FY16. Our target multiple is at 10% discount to industry average due to higher leverage at Glenmark.
Risk: Downside risks to our Rs640 target price for Glenmark pharmaceuticals include the following: (1) delays in FDA approvals which impacts growth for US generic business (2) Glenmark's domestic market growth slowing down - till now it has been growing above the industry average and our target price assumes that trend continues. (3) Glenmark has high financial leverage and its foreign currency loan is priced on LIBOR and therefore if interest rates pick up in the US, our estimates have downside.
Price Target: (12 months) for Lupin Ltd (LUPN.BO)
Method: Our Rs1,025 target price for Lupin is arrived at by applying 20x price to earnings multiple to Lupin's profits for CY2015. The price to earnings multiple used for Lupin is in line with the sector average multiple.
Risk: Downside risks to our Rs1,025 target price for Lupin include: (1) slowdown in domestic sales growth; (2) slowdown in new product approvals in the United States (3) a sharp decline in Suprax sales due to increasing competition; (4) higher than expected competiton and oral contraceptives leading to faster price erosion.
Price Target: (12 months) for Dr. Reddy's Laboratories Limited (REDY.BO)
Method: Our target price for Dr. Reddy's is Rs3,050. This is based on a price-to-earnings multiple of 20x on FY2016E EPS . We value Dr. Reddy's in-line with peers.
Risk: Risks that could impede achievement of our Rs3,050 target price for Dr Reddy's include the following: Downside risks: 1) higher than expected price erosion in key US products like Vidaza, Dacogen; 2) intensifying competition in India; 3) Adverse result from US FDA inspection 4) Delay in copaxone
Price Target: (12 months) for Sun Pharmaceuticals Industries Limited (SUN.BO)
Method: Our target price for Sun Pharmaceuticals Industries Limited is Rs715. This is based at 21x our earnings estimate for FY2016, at a 5% premium to the sector average, due to superior returns and a strong balance sheet of Sun Pharma. Sun Pharma has traded at a premium of 10-15% to large cap pharma peers over the last five years.
Risk: Downside risks to our Rs715 target price for Sun Pharmaceuticals include the following: (1) Price increase taken at Taro not sustaining; (2) competition becoming more intense in the chronic segment in India; and (3) expensive acquisition with the use of cash.
25 June 2014
India Pharma Sector 30
Price Target: (12 months) for Taro Pharmaceutical Industries Ltd (TARO.N)
Method: Our target price of USD85 is based on DCF methodology assuming 10% WACC, 5% sales CAGR for the next 4 years and 1% terminal growth. Our target price implies one year EV/EBITDA multiple of 9x
Risk: Risks to our target price of USD 85 are 1) Price erosion on top 7 products. In our view, top 7 products for Taro account for 50% of its gross profit. Our target price assumes that follow on competition impacts market share but does not result in significant price erosion as the competition in these products will remain limited. However, if competition increases to more than five players in dermatology products, our estimates have downside. 2) Delay in new approvals. Our estimates assume market share loss on existing products to be offset by sales from new launches. Timing mismatch between the two is a risk to our estimate 3) Approvals/ sales impacted by FDA action. Taro currently supplies to the US market through two facilities loacted in Israel and Canada. If any of the two facilities deviate from GMP requirements, supply or new approvals could be impacted.
Price Target: (12 months) for Torrent Pharma (TORP.BO)
Method: Our target price of Rs 500 for Torrent Pharma is based on 13x financial year 2016 earnings forecast (at a 35% discount to sector average which is in line with historical discount for Torrent) less EPS (earnings per share) dilution of 4% from Elder acquisition.
Risk: Risk to our target price of Rs 500 for Torrent Pharma include: (1) New pharma pricing policy in India - 30% of Torrent's India sales are exposed to pharma pricing policy (2) risk of Brazil shifting from branded generic market to generic-generic market - however doctors are still the key decision makers and can forbid substitution of branded medicines by generic-generic medicines 3) ramp-up delays for contract manufacturing partnership with Astrazeneca and other MNCs.
Price Target: (12 months) for IPCA Laboratories Limited (IPCA.BO)
Method: Our Rs980 target price for IPCA is arrived at by applying 17x price to earnings multiple to IPCA's forecasted profits for FY2016. The price to earnings multiple used for IPCA is at a 15% discount to the sector multiple, given the company's lower scale and higher proportion of APIs.
Risk: Downside risks to our Rs980 target price for IPCA include: (1) slowdown in domestic sales growth; (2) increasing competition in Institutional business in Africa; (3) Partnership model not yielding desired results in US. In addition antimalarial sales are susceptible to seasonal variations.
Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections.
See the Companies Mentioned section for full company names
Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (CIPL.BO, LUPN.BO, SUN.BO) within the next 3 months.
As of the date of this report, Credit Suisse makes a market in the following subject companies (TARO.N).
Important Regional Disclosures
Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.
The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (CADI.BO, CIPL.BO, GLEN.BO, LUPN.BO, REDY.BO, SUN.BO, TARO.N, TORP.BO, IPCA.BO) within the past 12 months
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To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
Credit Suisse Securities (India) Private Limited ................................................................................................ Anubhav Aggarwal ; Chunky Shah
25 June 2014
India Pharma Sector 31
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25 June 2014
India Pharma Sector 32
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