IGI Logo

Yet another Revlimid settlement

* Sun Pharma announced the settlement of its gRevlimid patent litigation with Celgene in the US. While the settlement terms are confidential, Sun Pharma will be able to sell limited quantities of gRevlimid beginning from a confidential date sometime after Mar’22.

* This is a modest positive development for Sun Pharma, and we estimate gRevlimid NPV of Rs10/share for the company, assuming settlement terms similar to that of Alvogen. Accordingly, we raise our Sun Pharma TP to Rs730 from Rs720. Maintain Hold.

* Among the 11 Para IV filers for gRevlimid, 7 have settled with the innovator. The best settlement agreement is of Natco which starts at mid-single digit volumes in Mar’22, and then gradually increase to no more than one-third of total volumes by Mar’25.

* Sun Pharma’s settlement is a modest negative for other filers such as Dr. Reddy’s, Cipla and Cadila who have already settled. We lower gRevlimid NPV estimate for Dr. Reddy’s to Rs200/share from Rs330, Cipla to Rs20 from Rs40, and Cadila to Rs20 from Rs40.

Marginally increase Sun Pharma TP to Rs730: We increase our TP for Sun Pharma to Rs730 to include gRevlimid NPV of Rs10/share. Our base-case NPV calculation assumes: 1) settlement terms in line with Alvogen, 2) all the 11 para IV filers launching by FY24 though in a staggered manner, 3) 15% incremental price erosion per generic in FY23, and 4) WACC of 10%. (See Exhibits 1-3)

Sun’s settlement incrementally negative for DRL, Cipla and Cadila: Of the 11 filers for Revlimid, the innovator has already settled with 7 filers. With each additional player, price erosion is expected to be steeper. We now expect price erosion of ~50% in FY23 itself vs. our earlier expectation of 35%. As a result, we lower our gRevlimid NPV estimate for Dr. Reddy’s to Rs200/share from Rs330, Cipla to Rs20/share from Rs40, and Cadila to Rs20/share. However, we maintain our TP for Dr. Reddy’s at Rs5,700 as we roll forward to Jun’23E. Similarly, our TP for Cipla is revised to Rs1,020 due to roll forward to Jun’23E.

While we estimate potential gRevlimid upside for Cadila at Rs20 per share, we do not include it in our TP due to a lack of clarity on the launch date/year. (See Exhibits 4-6) Earnings estimate revision for DRL and Cipla: We cut our FY23/24 headline earnings estimates for DRL by 7%/15% to reflect the higher price erosion in gRevlimid. Similarly, our FY23/24 headline earnings estimates for Cipla are reduced by 6%/8%. Excluding gRevlimid, our core earnings estimates are maintained.

Further settlement could lend downside to our estimates: With increasing number of settlements, we cannot rule out settlement for the remaining four Para IV filers as well. Currently, our calculations assume seven generics entering by FY23 and rest in FY24. However, accelerated settlements might lead to all generics entering the market in FY23, in turn leading to significant price erosion in the first year itself. This can shrink the opportunity for all the generics and represents a downside risk to our gRevlimid NPV estimates. (See Exhibits 7-8)

Risk from FTC persists: While all such settlement agreements need to be submitted to the FTC at the time of entering, it does not preclude any company from the regulator’s scrutiny in the future. Hence, if the price erosion in gRevlimid does not behave like normal generics market, the FTC can open a probe anytime and recoup excess profits from the participants.

To Read Complete Report & Disclaimer Click Here

For More  Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354

Above views are of the author and not of the website kindly read disclaimer