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ICIC

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Monthly

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January 14, 2020

Health Check

India growth likely to persist but US may drag Q3…

The I-direct healthcare universe is expected to register ~6% YoY growth to

| 35025 crore. While domestic formulations are likely to maintain growth

tempo on the back of extension of acute season and price hikes, the US pack

is likely to drag numbers, due to a higher base. On the companies front, only

four out of 10 companies are likely to report double digit growth. Owing to

the higher base, the EBITDA of the I-direct healthcare universe is expected

to de-grow at 6.6% YoY to | 7099.3 crore. EBITDA margins are likely to

decline 277 bps to 20.3%. However, improved operational leverage, better

product mix and efficient cost control measures is likely to restrict a further

fall in margins. Adjusted net profit is expected to fall 10% YoY to | 3826

crore mainly due to a weak operational performance and impact of Ind-AS.

In a negative development, Dr Reddy’s has lost first mover advantage for

gNuvaRing in the US. US based Amneal has launched the first generic

version of NuvaRing (gynaecology). NuvaRing has US sales of ~US$976

million. We expect gNuvaRing to remain a limited competition market, at

least in the near to medium term.

Lupin has completed the divestiture of its Japanese subsidiary, Kyowa

Pharma, to Unison Capital for ~| 3700 crore. This deal generates net tax

cash inflow of ~| 2158 crore. Post the deal, Lupin's net debt will come down

to ~| 1075 crore from ~| 4362 crore earlier.

On regulatory front, HDFC has completed the acquisition of 50.8% stake of

Apollo Hospital Group in Apollo Munich Health Insurance. This transaction

will give ~| 300 crore to Apollo Hospitals and likely reduce pledged shares

to ~46% from current ~67%. Sun Pharma's Halol facility, Gujarat has got

eight observations after USFDA inspection conducted in December 3-13.

In another major development, PE fund True North is set to acquire 2.44%

stake in Biocon Biologics (post-merger with Biocon Research), for | 536.25

crore. The acquisition values the subsidiary at ~| 21450 crore (US$3 billion).

The fair value is below our implied valuation for the biologics business.

The Indian pharmaceutical market (IPM) grew 8.8% YoY to | 12024 crore in

December 2019. The growth was majorly attributable to a price hike of 5.3%,

new launches: 2.7% and volume growth of mere 0.7%. On a MAT basis, IPM

growth was 9.8% YoY to | 140223 crore.

Stock specific approach best way to play in healthcare…

Q3 numbers are expected to be driven by decent growth in domestic

formulations. However, overall growth is likely to be dragged by the US

owing to a higher base. Holistically, though, the US generics narrative, in the

last few quarters, is reflecting some sort of normalcy on the back of a stability

in the base business performance and new launches besides rationalisation

of unviable products. However, a sudden increase in USFDA scrutiny has

once again put US-heavy companies under pressure. Profitability is likely to

improve as the management commentary continues to suggest

rationalisation of R&D and other related expenses, MR optimisation and

concentrated focus on marketing costs for specialty and biosimilars.

Chinese raw material sourcing, besides improving operating leverage, are

also likely to contribute to margin expansion. Similarly, the companies are

moderating their capex plans to focus on better RoCE. Financially, things are

looking much stable. However, resurfacing of regulatory issues raised by the

USFDA (19 warning letters for Indian players in 2019) would continue to play

as overhang for players having higher US generic exposure. In this

backdrop, we continue to maintain a stock specific approach. MNCs, CRAMs

and hospitals are our preferred sub-segments for bargain hunting.

Stock Performance

Mcap

Company 1M 3M YTD 1Y 13-Jan

Sun Pharma.Inds. 1 15 3 0 106804

Divi's Lab. 2 11 2 25 49775

Dr Reddy's Labs 5 12 3 14 49160

Cipla 4 8 0 -6 38538

Biocon -3 15 -3 -12 34056

Lupin -1 6 -2 -11 33742

Torrent Pharma. 2 16 3 1 32152

Cadila Health. -2 12 1 -26 26279

Abbott -3 14 -4 55 26652

Aurobindo Pharma 3 5 1 -40 27026

Pfizer -8 28 -5 45 18301

Apollo Hospitals 10 3 3 15 20682

Sanofi -3 15 -4 8 15547

Ipca Labs. 5 38 4 52 14973

Syngene Int. 4 1 -2 15 12518

Natco Pharma 7 12 5 -9 11386

Alembic Pharma 1 2 -2 -5 10535

Fortis Health 4 3 8 2 10720

Glenmark Pharma. 1 20 -1 -47 9709

Ajanta Pharma 6 7 7 -10 9084

Jubilant Life 6 18 4 -24 8858

Aster DM 5 35 -1 -3 8076

Narayana Hrudayalaya11 46 12 69 7040

FDC Ltd 10 37 5 29 3814

Suven Life 12 20 1 38 3933

Indoco Remedies 35 47 4 -10 1833

Hester Bio -7 -15 0 26 1228

Hikal 11 -16 5 -24 1485

Shalby Ltd 3 17 5 -34 1053

Healthcare Global 15 1 2 -45 945

NGL Fine-Chem 9 -11 9 0 285

Return (%)

Source: Bloomberg

Global indices performance

Company 1M 3M YTD 1Y 3Y 5Y

S&P 500 Pharm Index (US)3 13 1 16 12 7

NASDAQ Biotechnology (US)0 20 0 11 9 3

S&P Pharmaceuticals (US)9 28 0 16 6 -2

DJ Pharma and Biotech (US)3 16 1 14 11 6

DJ STOXX Healthcare (EU)4 12 2 31 12 8

MSCI World Pharm & Biotech3 15 1 19 13 6

NSE Pharma 0 11 0 -9 -8 -5

Return (%)

Source: Bloomberg

Research Analyst

Siddhant Khandekar

[email protected]

MItesh Shah, CFA

[email protected]

Sudarshan Agarwal

[email protected]

ICICI Securities | Retail Research 2

ICICI Direct Research

Monthly Sector Update | Health Check

Healthcare Q3FY20 Results Preview

The I-direct healthcare universe is expected to register ~6% YoY growth to

| 35098 crore. While domestic formulations are likely to maintain growth

tempo on the back of extension of acute season and price hikes, the US pack

is likely to drag numbers due to higher base.

Domestic formulations (select pack) are expected to grow 12.6% YoY to

| 5881 crore mainly due to extension of the acute season and price hikes

across portfolio to adjust for higher raw material prices. The US (select pack)

portfolio is expected to decline 1.3% YoY to | 10232 crore due to 1) base

effect mainly in Cadila and Sun Pharma, 2) strengthening of rupee vs. US$

and 3) sharp decline in Sartan portfolio. The decline in the US could have

been sharper but for a strong ramp-up in gTamiflu and steady base business

performance in some US focused players. Europe is expected to grow 12%

YoY. Growth in other emerging markets and Europe is likely to be driven by

new launches. However, due to high base effect, APIs segment growth is

expected to remain muted. For Q3FY20, average YoY rupee appreciation

vis-à-vis US$ was 1.2%. In case of Apollo Hospitals, growth is likely to be

driven by newly commissioned hospitals and pharmacy additions.

On the companies front, only four out of 10 companies are likely to report

double digit growth. Among key outliers, Ipca (strong domestic formulations

and APIs), Biocon (biologics traction) and Apollo Hospitals (ramp up in new

hospitals and addition of new pharmacies) are likely to register above 15%

growth in revenues.

EBITDA to decline 7% YoY; margins likely to contract 285 bps

Owing to a higher base, the EBITDA of the I-direct healthcare universe is

expected to de-grow 6.8% YoY to | 7085.3 crore. EBITDA margins are likely

to decline 285 bps to 20.2%. However, improved operational leverage,

improvement in product mix and efficient cost control measures are likely

to restrict a further fall in margins.

Adjusted net profit to de-grow 11%

Adjusted net profit is expected to decline 11% YoY to | 3816 crore mainly

due to a weak operational performance and impact of Ind-AS.

Exhibit 1: Estimates for Q3FY20E (| crore)

Source: Company, ICICI Direct Research, *Lupin’s reported PAT is expected to be ~|2360.3 crore due to Kyowa divestment

proceeds

Revenue EBITDA PAT

Q3FY20E YoY QoQ Q3FY20E YoY QoQ Q3FY20E YoY QoQ

Aurobindo Pharma 5,876.3 11.5 4.9 1,162.9 6.8 2.0 667.8 -9.4 2.3

Biocon 1,774.4 15.2 12.9 446.0 17.2 10.7 211.1 -0.6 11.7

Cadila Healthcare 3,439.7 -3.9 2.2 646.7 -23.0 3.4 331.4 -35.1 4.5

Divi's Lab 1,466.6 9.2 1.5 491.6 -6.1 0.2 360.5 -5.0 1.1

Dr. Reddys 4,194.5 8.5 -12.8 849.2 5.5 -20.2 466.6 -6.7 -57.8

IPCA Labs 1,127.8 19.0 -7.0 248.1 7.1 -5.1 174.1 8.7 -11.2

Lupin 4,256.6 -5.5 -2.4 660.1 -12.4 -9.8 202.7* 4.4 -51.7

Sunpharma 8,386.3 8 3.2 1,627.9 -24 -9.0 1,045.6 -16 -1.7

Torrent Pharma 2,074.9 1.2 3.5 574.1 2.3 6.1 255.6 3.9 4.7

Apollo Hospitals 2,501.3 15.3 1.5 378.7 41.4 3.9 100.6 15.7 11.0

Total 35,098.4 6.3 0.4 7,085.3 -6.8 -4.4 3,815.9 -10.6 -17.7

Change (%) Change (%) Change (%)

Company

Expected growth in domestic formulations

(| cr) Q3FY20E Q3FY19 % Q2FY20 %

Biocon 138 212 -35.0 128 7.4

Cadila 947 846 12.0 978 -3.1

Ipca 489 422 16.0 543 -10.0

Lupin 1,345 1,190 13.0 1,342 0.2

Dr Reddy's 755 674 12.0 751 0.5

Sun Pharma2,634 2,235 17.8 2,515 4.7

Torrent 919 835 10.0 899 2.2

Total 5881 5224 12.6 10369 -43.3

Expected growth in US formulations

(| cr) Q3FY20E Q3FY19 % Q2FY20 %

Aurobindo 2,890 2,433 18.8 2,836 1.9

Cadila 1,564 1,934 -19.1 1,448 8.0

Lupin 1,413 1,417 -0.3 1,324 6.7

Dr Reddy's 1,518 1,483 2.3 1,427 6.4

Sun Pharma2,476 2,606 -5.0 2,390 3.6

Torrent 372 490 -24.1 380 -2.2

Total 10232 10364 -1.3 9805 4.4

Expected growth in Europe formulations

(| cr) Q3FY20E Q3FY19 % Q2FY20 %

Aurobindo 1,454 1,293 12.4 1,401 3.7

Cadila 47 60 -21.0 41 15.5

Dr Reddy's 274 203 35.0 276 -0.9

Lupin 159 142 12.0 172 -7.4

Torrent 264 267 -1.0 250 5.7

Total 2198 1965 11.9 2141 2.7

Expected growth in API segment

(| cr) Q3FY20E Q3FY19 % Q2FY20 %

Aurobindo 830 922 -10.0 806 3.0

Cadila 104 130 -20.0 105 -0.9

Divi's Lab 712 678 5.0 701 1.6

Ipca Labs 304 230 31.9 314 -3.4

Lupin 326 362 -10.0 305 6.9

Dr Reddy's 683 594 15.0 711 -3.9

Sun Pharma 447 426 5.0 468 -4.4

Total 2693 2664 1.1 2709 -0.57




IPM grows ~9% YoY in December…


December 2019. The growth was majorly attributable to price hike: 5.3%,

new product launches: 2.7% and volume growth of mere 0.7%.

Drugs under NLEM list grew 9.2% YoY while non-NLEM drugs grew 8.8%.

The fixed dosage combination (FDCs) related market showed a decline of

45%, approved FDC market grew 9.5% while single molecules grew 8.6%.

Among companies under I-direct coverage, eight companies (Ipca, P&G

Health, Cadila, FDC, Glenmark, Torrent, Pfizer and Dr Reddy’s) have

outperformed industry growth rate.

Therapy wise, nine major therapies have registered faster than industry

growth. Notable among them with growth rates: respiratory - 16.9%, anti-

infective – 11.8%, anti-Malarials – 10.7% and vitamins – 9%.

Domestic companies have grown at 9.7% YoY while MNC companies have

grown at 5.2%.

On a MAT basis, IPM growth was 9.8% YoY to | 140223 crore.

Exhibit 2: Domestic formulations - Growth trend

Source: ICICI Direct Research; AIOCD

Exhibit 3: Companies growth in domestic market in December 2019

Source: ICICI Direct Research, AIOCD

9.7 1

0.8

9.9

8.9

10.5

7.2

6.9

13.3

9.6

12.0

5.3

14.6

8.8

0.0

5.0

10.0

15.0

20.0

Dec-18

Jan-19

Feb-19

Mar-19

Apr-19

May-19

Jun-19

Jul-19

Aug-19

Sep-19

Oct-19

Nov-19

Dec-19

(%

)

Indian Pharma Market

6.14.3 4.5

-8.4

10.4

6.7

22.8

12.8

6.65.7

9.3 8.5

-11.7

15.6

-2.9

8.8

14.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

Abbott

Aja

nta

Ale

mbic

Bio

con

Cadila

Cip

la

Dr R

eddys

Gle

nm

ark

GS

K P

harm

a

Indoco

Ipca L

abs

Lupin

Natco

Pfiz

er

Sanofi

Sun P

harm

a

Torrent

(%

)

Therapy wise performance (| crore)

Therapy Dec'19 Dec'18 %Nov'19 %

Anti-Infectives 1620 1449 11.8 1790 -9.5

Cardiac 1544 1412 9.3 1542 0.1

GI 1239 1180 5.1 1342 -7.6

Anti Diabetic 1174 1111 5.7 1191 -1.4

Respiratory 1068 913 16.9 1080 -1.1

Vitamins 995 914 9.0 1063 -6.3

Derma 815 772 5.6 873 -6.6

Pain 799 737 8.4 872 -8.4

Neuro 726 675 7.5 750 -3.2

Gynaecological 566 533 6.1 587 -3.5

Anti-Neoplastics 253 243 4.3 263 -3.8

Hormones 228 206 10.6 236 -3.5

Ophthal 213 200 6.1 226 -5.8

Vaccines 196 182 7.4 200 -2.4

Urology 161 146 10.4 163 -1.5

Blood Related 134 115 16.8 151 -11.5

Others 119 101 17.8 117 1.3

Sex Stimulants 69 65 5.0 66 4.4

Stomatologicals 63 56 12.9 66 -3.9

Anti Malarials 43 38 10.7 58 -26.9


Top brands in IPM (MAT; | crore)


Acute vs. chronic vs. sub chronic

Source: ICICI Direct Research; AIOCD; As per AIOCD MAT Dec 2019

Acute

47%

Chronic

33%

Sub

Chronic

20%

Brand Company Therapy Dec'19YoY %

Mixtard Abbott Anti Diabetic 546 7.7

Glycomet GpUSV Anti Diabetic 489 7.4

Lantus Sanofi IndiaAnti Diabetic 487 5.9

Janumet MSD Anti Diabetic 478 13.3

Augmentin GSK Anti-Infectives443 19.5

Galvus Met Novartis Anti Diabetic 411 -6.0

Liv 52 Himalaya GI 405 5.1

Duphaston Abbott Hormones 390 16.3

Clavam Alkem Anti-Infectives379 14.0

Monocef Aristo Anti-Infectives363 21.9




Exhibit 4: Domestic formulations – market share (MAT value December 2019)


Exhibit 5: Acute vs. chronic vs. sub chronic (MAT value December 2019)


8%

6%

5%

4%4%

3%

2% 2% 2% 2%

1%1%

1% 1% 1% 1%0%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

Sun

Abbott

Cip

la

Cadila

Lupin

Torrent

Pfiz

er

Dr.

Reddys

Sanofi

Gle

nm

ark

Ipca

Ale

mbic

FD

C

Natco

Indoco

Aja

nta

Bio

con

39 40

57

3042

52

77

40

82

65

27

88

42

60

44 41

27

54

3950

24

6145 28

9

42

527

57

1

53 17 52

45

52

30

2210

199 13

2013 19 13

716 11

5

23

415

2115

0

20

40

60

80

100

120

Abbott

Aja

nta

Ale

mbic

Bio

con

Cip

la

Dr.

Reddys

FD

C

Gle

nm

ark

Indoco

IPC

A

Lupin

Sun

Novartis

Pfiz

er*

Sanofi

Sun

Torrent

Cadila

%

Acute Chronic Sub Chronic




IPM grew ~10% YoY in Q3FY20…


Q3FY20. The growth was attributable to price hike: 5.4%, new product

launches: 2.7% and volumes growth: 1.4%.


53.3% while the approved FDC market grew 9.8% and single product market

grew 9.6%.

Drugs under the NLEM list grew 10.1% YoY while non-NLEM drugs grew

9.5%. Growth was mainly driven by price hikes.

Among companies under I-direct coverage, eight companies (Dr Reddy’s,

Pfizer, Glenmark, Cadila, FDC, Torrent, Lupin, Sun Pharma) have

outperformed industry growth rate.

Therapy wise, nine major therapies have registered faster than industry

growth. Notable among them with growth rates- respiratory – 13.9%,

urology – 12.2%, cardiac – 10.3%, anti-infective – 10.2% and derma – 9.7%.


grown at 7.7%

Exhibit 6: Domestic formulations - growth trend


Exhibit 7: Companies growth in domestic market in Q3FY20


5.37.0 7.3

1.9 2.3 2.5

0.1

3.2

1.4

-1.6 -1.1 -0.9

5.0 4.9 4.9

5.1

5.5

5.4

2.7

2.7 2.7 2.7 2.7 2.5

2.9

2.8

2.76.4

8.6

9.0 9.79.8

9.9

8.1

11.5

9.5

-4

-2

0

2

4

6

8

10

12

14

3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20

Volumes Price Increases New Products

8.3 4.9

3.2

(1.6)

7.0

22.7

12.0 13.9

7.5 7.1

10.9

(10.5)

18.9

1.9

10.0 11.9 12.1

(15.0)

(10.0)

(5.0)

-

5.0

10.0

15.0

20.0

25.0

Abbott

Aja

nta

Ale

mbic

Bio

con

Cip

la

Dr R

eddys

FD

C

Gle

nm

ark

Indoco

IPC

A

Lupin

Natco

Pfiz

er

Sanofi

Sun

Torrent

Cadila

(%

)


Therapy Q3FY20 Q3FY19 % Q2FY20 %

Anti-Infectives5218 4732 10.3 5356 -2.6

Cardiac 4577 4149 10.3 4427 3.4

GI 3903 3612 8.1 4220 -7.5

Anti Diabetic 3530 3270 8.0 3499 0.9

Respiratory 3138 2756 13.9 2592 21.1

Vitamins 3095 2856 8.4 3266 -5.3

Pain 2523 2300 9.7 2563 -1.6

Derma 2511 2336 7.5 2470 1.6

Neuro 2199 2018 9.0 2150 2.3

Gynaecological1724 1612 7.0 1775 -2.9

Anti-Neoplastics769 719 6.8 750 2.6

Hormones 688 624 10.2 660 4.1

Ophthal 656 610 7.6 660 -0.6

Vaccines 591 552 7.1 582 1.5

Urology 487 434 12.2 493 -1.2

Blood Related 441 373 18.3 438 0.7

Others 347 298 16.3 335 3.6

Sex Stimulants 194 174 11.8 187 3.9

Stomatologicals191 168 13.4 195 -1.8

Anti Malarials 169 158 7.0 183 -8.1





IPM grows ~10% YoY in CY19; price-led growth…

The Indian pharmaceutical market (IPM) grew 9.8% YoY to | 140223 crore

in CY19. The growth was attributable to price hike: 5.3%, new product

launches: 2.5% and volumes growth: 2.0%.


59.6% while the approved FDC market grew 10.4% and single product

market grew 10.1%.

Drugs under NLEM list grew 9.1% YoY while non-NLEM drugs grew 9.9%.

Growth was mainly driven by price hikes.

Among companies under I-direct coverage, eight companies (Glenmark,

GSK, Torrent, Cadila, Ipca, Indoco remedies, Lupin, Dr Reddy’s) have

outperformed industry growth rates.

Therapy wise, seven major therapies have registered faster than industry

growth. Notable among them with growth rates- urology – 14.6%, anti-

diabetic – 12.6%, cardiac – 11.7% and hormones – 9.9%.


grown at 9.3%.

Exhibit 8: Domestic formulations - growth trend


Exhibit 9: Companies growth in domestic market in CY19


6.4

7.0 2.84.6

1.8

4.9

3.4

-0.2

2.0

5.2

3.4

3.7

2.9

2.72.7

14.7

10.7

5.5

9.39.8

(0.5)

1.5

3.5

5.5

7.5

9.5

11.5

13.5

15.5

CY15 CY16 CY17 CY18 CY19

Volumes Price Increases New Products

9.5

6.3

5.1

8.5 8.5

16.6

5.9

9.9

13.0 12.7

14.5

1.7

9.2 9.7

8.4

11.7 11.7

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

Abbott

Aja

nta

Ale

mbic

Bio

con

Cip

la

Dr R

eddys

FD

C

Gle

nm

ark

Indoco

IPC

A

Lupin

Natco

Pfiz

er

Sanofi

Sun

Torrent

Cadila

(%

)



Therapy CY19 CY18 YoY (%)

Anti-Infectives 19087 17479 9.2

Cardiac 17577 15738 11.7

GI 15632 14417 8.4

Anti Diabetic 13648 12116 12.6

Vitamins 12149 11131 9.1

Respiratory 10519 9601 9.6

Pain 9549 8697 9.8

Derma 9455 8749 8.1

Neuro 8441 7693 9.7

Gynaecological 6909 6395 8.0

Anti-Neoplastics 3015 2768 8.9

Hormones 2564 2333 9.9

Ophthal 2562 2353 8.8

Vaccines 2246 2133 5.3

Urology 1880 1641 14.6

Blood Related 1634 1440 13.4

Others 1298 1174 10.6

Sex Stimulants 763 680 12.2

Stomatologicals 739 632 16.9

Anti Malarials 556 523 6.4




Exhibit 10: Top five brands in value terms (MAT value December 2019)

Sun Brand Therapy Sales

1 Rosuvas Cardiac 275

2 Levipil Neuro 274

3 Volini Pain 258

4 Istamet Anti Diabetic 256

5 Gemer Anti Diabetic 204

Cipla Brand Therapy Sales

1 Foracort Respiratory 325

2 Budecort Respiratory 238

3 Duolin Respiratory 220

4 Seroflo Respiratory 191

5 Asthalin Respiratory 174

Cadila Brand Therapy Sales

1 Skinlite Derma 168

2 Deriphyllin Respiratory 167

3 Atorva Cardiac 137

4 Mifegest Kit Gynaecological 129

5 Pantodac GI 126

Lupin Brand Therapy Sales

1 Gluconorm-G Anti Diabetic 254

2 Huminsulin Anti Diabetic 183

3 Budamate Respiratory 130

4 Gibtulio Anti Diabetic 125

5 Ondero Anti Diabetic 110

Torrent Brand Therapy Sales

1 Shelcal Vitamins 220

2 Chymoral FortePain 156

3 Nikoran Cardiac 110

4 Azulix-Mf Anti Diabetic 103

5 Nexpro Rd GI 97

Dr. Reddys Brand Therapy Sales

1 Omez GI 153

2 Omez D GI 130

3 Econorm GI 127

4 Atarax Derma 111

5 Razo D GI 89

Glenmark Brand Therapy Sales

1 Telma Cardiac 272

2 Telma H Cardiac 215

3 Telma Am Cardiac 135

4 Candid Derma 120

5 Ascoril Plus Respiratory 113

IPCA Brand Therapy Sales

1 Zerodol Sp Pain 193

2 Zerodol P Pain 125

3 Hcqs Anti Malarials 117

4 Folitrax Anti-Neoplastics 65

5 Zerodol Th Pain 52

Alembic Brand Therapy Sales

1 Azithral Anti-Infectives 164

2 Althrocin Anti-Infectives 83

3 Wikoryl Respiratory 72

4 Roxid Anti-Infectives 53

5 Gestofit Gynaecological 47

Natco Brand Therapy Sales

1 Velpanat Anti-Infectives 171

2 Hepcinat Anti-Infectives 158

3 Geftinat Anti-Neoplastics 121

4 Erlonat Anti-Neoplastics 103

5 Natdac Anti-Infectives 93

Indoco Brand Therapy Sales

1 Febrex Plus Respiratory 90

2 Cyclopam GI 55

3 Oxipod Anti-Infectives 52

4 Sensodent-K Stomatologicals 51

5 Atm Anti-Infectives 48

Ajanta Brand Therapy Sales

1 Met Xl Cardiac 107

2 Atorfit Cv Cardiac 52

3 Melacare Derma 50

4 Feburic Pain 35

5 Rosutor Gold Cardiac 26

Biocon Brand Therapy Sales

1 Insugen Anti Diabetic 112

2 Basalog Anti Diabetic 86

3 Canmab Anti-Neoplastics 69

4 Erypro Blood Related 29

5 Insugen R Anti Diabetic 25

Abbott Brand Therapy Sales

1 Mixtard Anti Diabetic 546

2 Duphaston Gynaecological 390

3 Thyronorm Hormones 352

4 Novomix Anti Diabetic 304

5 Phensedyl Cough LinctusRespiratory 290

Sanofi Brand Therapy Sales

1 Lantus Anti Diabetic 487

2 Combiflam Pain 189

3 Allegra Respiratory 189

4 Amaryl M Anti Diabetic 160

5 Hexaxim Vaccines 154

Source: ICICI Direct Research; AIOCD; Sanofi includes Sanofi India and Sanofi Pasteur (Vaccine)




Exhibit 11: Top five therapies in value term (MAT value December 2019)

Sun Therapy Sales (|cr)

1 Cardiac 2009

2 Neuro 1911

3 GI 1389

4 Anti-Infectives 1183

5 Anti Diabetic 1051

Cipla Therapy Sales (|cr)

1 Respiratory 2242


3 Cardiac 859

4 GI 411

5 Urology 374

Cadila Therapy Sales (|cr)


2 Cardiac 796

3 Respiratory 636

4 GI 623

5 Pain 559

Lupin Therapy Sales (|cr)

1 Cardiac 1267



4 Respiratory 662

5 GI 386

Torrent Therapy Sales (|cr)

1 Cardiac 1319

2 GI 697

3 Neuro 637

4 Vitamins 547

5 Anti Diabetic 352

Dr. Reddys Therapy Sales (|cr)

1 GI 762

2 Cardiac 444

3 Derma 367

4 Respiratory 272

5 Anti Diabetic 246

Glenmark Therapy Sales (|cr)

1 Derma 880

2 Cardiac 866

3 Respiratory 570


5 Anti Diabetic 278

IPCA Therapy Sales (|cr)

1 Pain 572

2 Cardiac 325

3 Anti Malarials 305


5 GI 134

Alembic Therapy Sales (|cr)


2 Cardiac 261

3 Respiratory 224

4 GI 199

5 Gynaecological 189

Natco Therapy Sales (|cr)


2 Anti-Neoplastics 507

3 Pain 32

4 Cardiac 4

5 Others 2

Indoco Therapy Sales (|cr)

1 Stomatologicals 167

2 Respiratory 161


4 GI 126

5 Vitamins 78

Ajanta Therapy Sales (|cr)

1 Cardiac 344

2 Ophthal 201

3 Derma 135

4 Pain 50

5 Vitamins 29

Biocon Therapy Sales (|cr)

1 Anti Diabetic 257

2 Anti-Neoplastics 130

3 Blood Related 32


5 Derma 17

Abbott Therapy Sales (|cr)


2 GI 1500

3 Vitamins 910

4 Neuro 733


Sanofi Therapy Sales (|cr)

1 Anti Diabetic 936

2 Cardiac 487

3 Vaccines 405

4 Respiratory 328

5 Pain 272

Source: ICICI Direct Research, AIOCD; Sanofi includes Sanofi India and Sanofi Pasteur (Vaccine)




Monthly Sector News

Price hikes, new launches, recalls, approvals

Cadila launches anti-diabetic tablets (Vildagliptin) in India

Cadila has launched oral anti-diabetic drug formulations, Vinglyn

(Vildagliptin) and Vinglyn M (Vildagliptin + Metformin) tablets in India. The

drug (Vinglyn), a DPP4 (Dipeptidyl peptidase-4) inhibitor used to control

type-2 diabetes, is affordably priced at | 4.95/tablet.

Amneal beats Dr Reddy's in launching NuvaRing generic

In a negative turn of events for Dr Reddy’s, Amneal Pharma has received

USFDA approval for EluRyng (etonogestrel/ethinyl estradiol vaginal ring),

making it the first generic version of NuvaRing. As per the press release,

Amneal has also initiated commercialisation activities for EluRyng.

NuvaRing had US annual sales of ~US$976 million as per IQVIA MAT

October 2019. Dr Reddy’s has lost first mover advantage for gNuvaring in

the US. However, we believe gNuvaring will remain a four generic players

market (Amneal, Dr Reddy’s, Mayne and Teva), at least in the near term.

Aurobindo recalls 59,500 vials of its antipsychotic drug in US

As per media reports, Aurobindo Pharma (AuroMedics) has issued a

voluntary class-II recall of ~59,500 vials of its antipsychotic drug,

Fluphenazine Decanoate injection, 125 mg/5 ml (multiple dose vial) from US

due to discoloration (hazy solution) found in one vial.

NPPA increases 21 NLEM drug prices by 50%

NPPA has invoked paragraph 19 of the Drug Price Control Order (DPCO),

2013, to increase ceiling prices of 21 formulations under price control by

50%.

Glenmark recalls ranitidine tablets from US

As per USFDA disclosures, Glenmark Pharma has issued a voluntary recall

of 928 lots of Ranitidine tablets, 150/300 mg in the US due to

presence/possible presence of N-nitrosodimethylamine (NDMA) impurity, a

known probable human carcinogen.

Glenmark receives approval for Ryaltris in Australia

Glenmark partner Seqirus has received marketing approval for Ryaltris

(olopatadine hydrochloride, 665 mcg & mometasone furoate, 25 mcg) from

Therapeutic Goods Administration, Australia. The drug, a new fixed‐dose

combination nasal spray of an antihistamine and a steroid is indicated for

treatment of symptoms associated with allergic rhinitis and rhino

conjunctivitis. The company will be responsible for the product supply and

receive milestone payments from Seqirus. The drug will be manufactured at

Glenmark's Baddi, Himachal Pradesh facility.

Natco launches oncology drug 'Ibrutinib' in India

As per media reports, Natco Pharma has launched an equivalent of

Pharmacyclics' oncology drug Imbruvica (Ibrutinib) in India under its brand

'Ibrunat'. In India, the patent for the drug is held by Pharmacyclics for three

to four more years and the marketing rights by Johnson & Johnson. The

company's version is expected to cost ~| 38,000 per month against

| 400,000 course of the innovator

Aurobindo recalls Mirtazapine tablets in US

Aurobindo Pharma has issued a voluntary recall of Mirtazapine tablets, used

for the treatment of major depressive disorder, due to a label error. As per

USFDA disclosures, the bottles labelled as Mirtazapine 7.5 mg may

potentially contain 15 mg tablets.




Lawsuits, court rulings, settlements, regulatory issues

Sun Pharma's Halol facility receives eight observations from the USFDA

Sun Pharma's Halol facility in Gujarat has received Form 483 with eight

observations from the USFDA after the good manufacturing practices (GMP)

inspection conducted in December 3-13. As per the press release, the

company expects to file a response to USFDA for the observations within 15

days. We are awaiting details of these observations. However, due to this,

the stock is likely to remain under pressure, at least in the near term.

USFDA classifies Lupin’s Tarapur Unit as OAI

Lupin’s API facility at Tarapur has been classified as official action indicated

(OAI) by USFDA. The facility had received three observations after the

USFDA inspection carried out earlier from September 16-20, 2019.

We expect no significant financial impact on existing revenues. However,

the stock will likely remain under pressure due to pending cGMP issues.

Lupin's Nagpur facility receives two observations from USFDA

Lupin's oral solid dosage facility at Nagpur received two Form 483

observations from the prior approval inspection (PAI) conducted by USFDA

from January 6-10, 2020.

Delhi HC bars Cipla, Torrent, 2 others from selling Bristol-Myers anti-

coagulant copy

As per media reports, the Delhi High Court has passed an injunction

restraining Cipla, Torrent, Emcure and Alkem from selling the generic

version of Bristol-Myers' (BMS) patented anti-coagulant, Apixaban. BMS and

partner Pfizer have been selling the drug under the brand name Eliquis.

Cipla's associate files NDA for intravenous pain drug

Avenue Therapeutics (Cipla's associate) has submitted a new drug

application (NDA) to USFDA for intravenous (IV) tramadol to manage

moderate/moderately severe pain in adults in a medically supervised

healthcare setting.

Hikal's Panoli plant receives EIR from USFDA

Hikal's manufacturing facility at Panoli, Gujarat has received establishment

inspection report (EIR) from USFDA classifying the site as no action

indicated (NAI). The cGMP inspection was carried out in September 9-13

with no observations (Form 483) being issued by USFDA.

Glenmark's Baddi receives compliance certificate from European regulator

Glenmark's Baddi unit has received certificate of compliance (for good

manufacturing practices) from the European regulator (State Institute for

Drug Control, Czech Republic) for the inspection conducted in October this

year.

Indoco's sterile facility gets UK MHRA's FMP certificate

Indoco Remedies' sterile manufacturing facility at Verna, Goa (Plant II) has

got UK MHRA’s GMP certification for the inspection conducted from

September 16-20, 2019.

Alembic's Aleor JV receives EIR from USFDA for Gujarat formulation facility

Alembic Pharma’s (Aleor Derma JV) formulation manufacturing facility at

Karkhadi, Gujarat has received an establishment inspection report (EIR) from

USFDA. The facility had received one observation at the end of USFDA

inspection carried out in September 16-20, 2019

Suven's Pashamylaram plant receives EIR from USFDA

Suven's manufacturing facility at Pashamylaram, Hyderabad has received

establishment inspection report (EIR) from USFDA indicating inspection

closure and classifying the site as voluntary action indicated (VAI). USFDA

had carried out renewal inspection of the site between October 21 and

November 1, 2019.




Cadila's Hyderabad topical facility clears USFDA inspection

No Form 483 observations were issued to Cadila Healthcare's topical

manufacturing facility in Hyderabad at the end of USFDA inspection

conducted from December 16-20, 2019.

NPPA fixes price of seven drug formulations

The national pharmaceutical pricing authority (NPPA) has fixed the retail

price of seven drug formulations under drug price control order (DPCO).

Clobazam tablet (Sun Pharma), Darunavir + Ritonavir tablets (Aurobindo)

are some of the formulations affected.

FDC's Goa plants get UK regulator's GMP certificate

FDC has received GMP certificate from UK Medicines and Healthcare

Products Regulatory Agency (MHRA), for two of its oral solid dosage form

facilities situated at L-56/57 & L-121 in Verna, Goa.

Alembic Pharma's Karkhadi facility clears USFDA inspection

Alembic Pharma's (Aleor JV) formulation facility at Karkhadi, Gujarat has

completed USFDA inspection without any Form 483 observations. The

inspection was carried out in January 6-8, 2020.

M&As, demergers, tie-ups, JVs

Biocon, Equillium extend Itolizumab licensing pact

Biocon and Equillium have extended their exclusive licensing agreement for

plaque psoriasis drug (Itolizumab) to include Australia and New Zealand.

Earlier in May, 2017 Equillium had secured exclusive rights to develop and

commercialise Biocon’s novel biologic, itolizumab, for US and Canada.

Aster DM to close all clinics in Philippines

Aster DM has announced plans to shut all of its three clinics in Philippines

by December 31 as they were loss making units. The management has

already inked a pact for asset sale of two of the clinics with Aventus Medical

Care Inc. Revenue of the subsidiary was | 5.27 crore (0.07% of total revenue)

in FY19. Net loss was | 8.18 crore with net worth: ~| (18) crore.

Lupin completes Kyowa divestment in Japan

Lupin has completed the divestiture of its Japanese subsidiary, Kyowa

Pharma to Unison Capital for a consideration of ~| 3700 crore (enterprise

value). This deal generates post tax net cash inflow of ~| 2158 crore. Post

the deal, Lupin's net debt will come down to ~| 1075 crore against ~| 4362

crore earlier.

Ipca, MMV ink pact to co-develop affordable antimalarial

Ipca Labs, Medicines for Malaria Venture (MMV) have inked a pact to co-

develop a novel affordable antimalarial 'Atoguanil' (Atovaquone + Proguanil

APIs) for use in malaria-endemic countries.

Mankind, Glenmark ink pact to co-market anti-diabetic drug Remogliflozin

Mankind Pharma and Glenmark have inked a sub-licensing agreement to co-

market anti-diabetes drug Remogliflozin Etabonate in India. Under the

agreement, Mankind will market the SGLT2 inhibitor under its own

trademark while Glenmark will manufacture and supply it to the company.

Aster DM to acquire Wahat Al Aman Home Healthcare in Abu Dhabi

Aster DM has inked a pact through its subsidiary (Healthcare FZC) to acquire

a 100% stake in Wahat Al Aman Home Healthcare, Abu Dhabi for a cash

consideration of ~ | 204 crore. The acquisition is expected to be completed

by January 31, 2020.

HDFC completes acquisition of controlling stake in Apollo Munich

HDFC has completed acquisition of 50.8% stake of Apollo Hospital Group in

Apollo Munich Health Insurance. This transaction will give ~| 300 crore to

Apollo Hospitals and likely reduce pledged shares to ~46% from the current

~63%.




Dr Reddy's to merge with Dr Reddy’s Holding

Dr Reddy's (DRL) has got shareholder approval for amalgamation of Dr

Reddy's Holdings (DRHL) into DRL.

Suven gets NCLT nod for Suven Pharma demerger

Suven Life (SLSL) has got NCLT approval for scheme of arrangement

between SLSL and Suven Pharmaceuticals (SPL). Under the scheme, the

contract research and manufacturing services division of the company will

be transferred to SPL by way of demerger.

True North to acquire 2.44% stake in Biocon Biologics

PE fund True North will acquire 5,025,463 shares (2.44% stake) of Biocon

Biologics (post-merger with Biocon research), a wholly owned subsidiary of

Biocon for ~| 536 crore (| 1067/share). The acquisition values the subsidiary

at ~| 21450 crore (US$3 billion).

Others

Aster DM board approves share buyback programme

The Aster DM board has approved share buyback of ~57 lakh shares at

| 210 per share for an aggregate amount not exceeding | 120 crore.

Torrent Pharma partially redeems its NCDs

Torrent Pharma has announced partial early redemption of its secured

redeemable non-convertible debentures (NCDs) worth | 100 crore (total -

| 500 crore) and | 142.86 crore (total - | 1000 crore).

Cipla acquires trademark, brand name for anti-diabetic drug in India

Cipla has acquired the brand name & trademark rights for Vysov

(Vildagliptin) & Vysov M (Vildagliptin + Metformin), anti-diabetic drug from

Novartis. The current market size of the drug, a DPP4 (Dipeptidyl peptidase-

4) inhibitor used to control type-2 diabetes in adults, is ~| 818 crore as per

IQVIA MAT November 2019 in India.

Hester Board approves fundraising through equity

Hester Biosciences' board has approved raising funds up to | 150 crore via

issue of equity shares, and/or equity linked securities and/or securities

convertible into equity shares through qualified institutional placement (QIP)

or preferential allotment.

Biocon incorporates Biocon biosphere

Biocon has incorporated a wholly-owned subsidiary 'Biocon Biosphere' on

December 24, 2019. The entity, with paid up capital of | 5 lakh at | 10 per

share, is yet to commence business operations.

Torrent Pharma partially redeems its NCDs

Torrent Pharma has announced partial early redemption of its secured

redeemable non-convertible debentures (NCDs) worth | 167 crore out of

| 500 crore total NCDs.

NCLT rejects Sun Pharma's scheme of arrangement

NCLT has rejected Sun Pharma’s scheme of arrangement between the

company, its Netherlands, US units on the grounds that an outbound

demerger is not envisaged under Section 234 of Companies Act, 2013.

Jubilant Life approves early redemption of NCDs

Jubilant Life's board has approved early redemption of NCDs worth | 745

crore to be paid on January 7, 2020.

ANDA Approvals/Launches

Alembic Pharma has received USFDA approval for the generic version of

Allergan Sales' Viibryd (Vilazodone Hydrochloride) tablets, 10/20/40 mg in

US. The drug, indicated for the treatment of major depressive disorder, has

an estimated market size of US$469 million as per IQVIA MAT September

2019. As per the press release, the company was one of the first ANDA filers

with a Para IV certification and is therefore eligible for 180 days of shared

exclusivity.




Lupin's partner Concord Biotech has got USFDA approval to market a

generic version of Novartis' Myfortic (Mycophenolic Acid) delayed-release

tablets, 180/360 mg in US. The drug, indicated for prevention of organ

rejection post kidney transplant, had annual sales of ~US$174 million in the

US (IQVIA MAT September 2019).

Lupin has launched the generic equivalent of Sanofi Genzyme's, Hectorol

(Doxercalciferol) injection multiple dose vials, 4 mcg/2 ml in the US. The

drug, indicated for the treatment of secondary hyperparathyroidism (SHPT)

in adult patients with chronic kidney disease on dialysis, had annual sales of

~US$ 132 million in US (IQVIA MAT October 2019).

Lupin has got USFDA approval for the generic version of Merck's Diprolene

(Betamethasone Dipropionate) ointment, 0.05% in US. The drug, a

corticosteroid indicated for relief from certain skin conditions, had annual

sales of ~US$22 million in the US (IQVIA MAT September 2019). The drug

will be manufactured from the company's Pithampur (Unit 3) facility.

Alembic Pharma has got USFDA approval for the generic version of Alcon

Pharma's Travatan (Travoprost) ophthalmic solution, 0.004% in US. The

drug is indicated to reduce high pressure inside the eye resulting from open

angle glaucoma or ocular hypertension.

Dr Reddy's has launched the generic equivalent of Hospira's Nitropress

(sodium nitroprusside) injection, 50 mg/2 ml single dose vials in US. The

drug, used to reduce blood pressure, had annual sales of ~US$8 million in

the US (IQVIA MAT October 2019).

Indoco Remedies has received USFDA approval for the generic version of

Takeda Pharma's Uloric (Febuxostat) tablets 40/80 mg in the US. As per the

press release, the market size of the drug, used for the treatment of gout

caused due to hyperuricemia, is ~US$500 million in US.

Natco has filed a para IV ANDA for the generic version of Taiho oncology's

Lonsurf (Trifluridine/ Tipiracil) tablets. As per the press release, the product

could receive 180 days exclusivity under certain circumstances. The drug,

indicated for certain forms of colorectal and gastric cancer, had sales of

~US$150 million as per IQVIA MAT December 2018.

Glenmark has got USFDA approval for generic version of Novartis' Exjade

(Deferasirox) tablets for oral suspension, 125/250/500 mg in US. The drugs,

used in treatment of chronic iron overload due to blood transfusions, had

US sales of ~US$106 million (Exjade) as per IQVIA MAT November 2019.

Exhibit 12: One-year forward PE

Source: ICICI Direct Research, Bloomberg

0.0

10.0

20.0

30.0

40.0

Jan-16

Jul-16

Jan-17

Jul-17

Jan-18

Jul-18

Jan-19

Jul-19

Jan-20

x

NSE500 Index NSE Pharma

27% Premium




Exhibit 13: ICICI Direct coverage universe (Healthcare)

Company I-Direct CMP TP Rating M Cap

Code (|) (|) (| cr) FY19 FY20E FY21E FY22E FY19 FY20E FY21E FY22E FY19 FY20E FY21E FY22E FY19FY20EFY21EFY22E

Ajanta Pharma AJAPHA 1060 1,180 Buy 9249 43.5 43.5 52.3 64.4 24.3 24.3 20.3 16.5 21.8 21.8 20.8 21.9 17.1 17.1 16.0 17.2

Alembic PharmaALEMPHA 561 540 Hold 10580 31.4 31.4 28.2 33.3 17.8 17.8 19.9 16.9 19.6 19.6 15.8 17.5 21.8 21.8 13.9 14.5

Apollo HospitalsAPOHOS 1496 1,800 Buy 20817 17.0 17.0 43.7 68.1 88.2 88.2 34.2 22.0 8.8 8.8 14.8 17.5 7.1 7.1 14.9 19.6

Aurobindo PharmaAURPHA 477 475 Hold 27958 42.1 42.1 55.4 59.5 11.3 11.3 8.6 8.0 15.9 15.9 15.7 16.1 17.7 17.7 16.7 15.4

Biocon BIOCON 282 310 Buy 33822 6.2 6.2 10.6 15.6 45.4 45.4 26.6 18.1 10.9 10.9 16.7 20.9 12.2 12.2 15.7 19.1

Cadila HealthcareCADHEA 258 260 Hold 26382 18.1 18.1 16.6 18.7 14.3 14.3 15.6 13.8 13.0 13.0 11.7 12.4 17.8 17.8 13.5 13.6

Cipla CIPLA 484 520 Hold 39038 18.6 18.6 25.3 30.0 26.1 26.1 19.1 16.2 10.9 10.9 13.6 14.8 10.0 10.0 11.2 11.9

Divi's Lab DIVLAB 1882 1,850 Hold 49960 51.0 51.0 59.1 71.2 36.9 36.9 31.9 26.4 25.5 25.5 22.1 22.8 19.4 19.4 17.0 17.6

Dr Reddy's LabsDRREDD 2938 3,000 Hold 48805 114.8 114.8 140.0 166.7 25.6 25.6 21.0 17.6 11.1 11.1 13.9 16.9 13.6 13.6 12.7 13.5

Glenmark PharmaGLEPHA 342 410 Hold 9663 26.9 26.9 36.7 46.1 12.7 12.7 9.3 7.4 15.3 15.3 15.0 17.0 13.5 13.5 14.0 15.1

Hikal HIKCHE 131 140 Buy 1255 6.3 8.4 9.7 11.7 20.9 15.6 13.5 11.2 12.2 14.3 13.0 14.2 11.5 13.6 14.2 14.8

Ipca Laboratories IPCLAB 1223 1,355 Buy 15448 35.1 35.1 60.7 75.3 34.9 34.9 20.1 16.2 15.0 15.0 19.9 21.2 14.2 14.2 18.0 18.9

Lupin LUPIN 757 810 Hold 34267 16.5 16.5 35.0 37.1 45.7 45.7 21.6 20.4 9.4 9.4 9.9 12.1 5.4 5.4 8.4 8.3

Narayana HrudalayaNARHRU 343 360 Buy 7005 2.9 2.9 9.8 13.3 118.1 118.1 35.1 25.7 7.7 7.7 13.9 16.5 5.5 5.5 14.5 16.7

Natco Pharma NATPHA 626 595 Hold 11388 34.9 34.9 23.7 22.0 17.9 17.9 26.4 28.4 21.3 21.3 12.2 10.5 18.5 18.5 10.0 8.6

Sun Pharma SUNPHA 448 470 Hold 107476 15.9 15.9 20.2 24.7 28.3 28.3 22.2 18.1 10.3 10.3 11.3 12.5 9.2 9.2 9.9 11.3

Syngene Int. SYNINT 314 385 Buy 12562 8.3 8.3 10.0 12.8 38.0 38.0 31.4 24.6 14.8 14.8 13.5 15.8 16.8 16.8 14.4 15.7

Torrent Pharma TORPHA 1899 2,020 Buy 32140 48.9 48.9 74.0 91.8 38.8 38.8 25.7 20.7 14.2 14.2 18.7 21.2 17.5 17.5 19.6 20.6

RoE (%)EPS (|) PE(x) RoCE (%)

Source: ICICI Direct Research, Bloomberg




RATING RATIONALE

ICICI Direct endeavours to provide objective opinions and recommendations. ICICI Direct assigns ratings to its

stocks according to their notional target price vs. current market price and then categorises them as Buy, Hold,

Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined as

the analysts' valuation for a stock

Buy: >15%;

Hold: -5% to 15%;

Reduce: -5% to -15%;

Sell: <-15%

Pankaj Pandey Head – Research [email protected]

ICICI Direct Research Desk,

ICICI Securities Limited,

1st Floor, Akruti Trade Centre,

Road No 7, MIDC,

Andheri (East)

Mumbai – 400 093

[email protected]




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