Cadila best placed to join $1-bn US sales club by FY20

Cipla, Glenmark Pharma could follow by FY21-22

For top Indian drug makers, the US market is the largest geography by sales, at 20-50 per cent of their consolidated revenues. Recently, Cadila Healthcare announced it was looking at doubling its sales over the next three years to reach the $1- billion mark in US sales from the current $553 million. Cadila has to grow this business at nearly 22 per cent annually to join the likes of Sun Pharmaceutical, Lupin, Dr Reddy’s and Aurobindo Pharma.

From 24 per cent of overall sales in FY15, the US accounted for 40 per cent of Cadila’s sales in FY17. Kunal Randeria of Antique Stock Broking believes the company is in a good position to double its US business in the next three years, on the back of 40 new launches in FY18, highest among peers. Further, with nearly 200 Abbreviated New Drug Applications (ANDAs) pending with the US sector regulator, the FDA, it is in a position to launch up to 30 drugs annually over the next three years. In addition to bigger launches such as the generics of anti-inflammatory drug Lialda and Toprol (blood pressure) and gastric drug Prevacid, it has complex generics in the form of trans-dermals and speciality business.

The biggest advantage Cadila has over its rivals which are looking at expanding their presence in the US market is the regulatory compliance at its manufacturing facilities. It is the only large-cap generic player whose three key units have been approved by the FDA in the past few months. Most analysts are bullish on the company’s US prospects but given the sharp re-rating it has seen over the past six months, its current valuations are at an over 20 per cent premium to its larger peers. Investors should take an exposure to the stock on dips.

On Cadila's heels is Glenmark, which has similar sales from the US market, thanks to a first-to-file opportunity, and Cipla, which gets about $400 million in revenues from the US region. They, too, will depend on product approvals and niche opportunities to run past the $1-bn mark.

The US market for Cipla, prior to its acquisition of Invagen last year, was contributing less than 10 per cent to overall revenues. At US revenues of $392 million in FY17, that country's share in overall revenues has doubled to 20 per cent. For Cipla, a late entrant to the US market, it is all about the portfolio and the ability to set up its own network and marketing presence.

While it has about 95 pending ANDAs with the FDA, of the 45 drugs in the US market, it has leadership in 10 and is in the top three in 25. The company filed 32 ANDAs in FY17 and will be filing over 20 each year. The key is that most of the drugs it will be filing are in the complex generics space, such as respiratory and oncology, and are among the fastest growing therapies. Its revenues are expected to top $700 mn by FY20, growing at 21 per cent annually in FY17-20. If it continues at that pace, it should gross $1 bn in revenues by FY22. Investors should await progress on the inhalation portfolio in various markets before taking an exposure to the stock.

Glenmark’s US sales were driven in recent months from the first-to-file opportunity in the form of cholesterol lowering generic Zetia. Glenmark has said it expects sales of $200 mn from this drug. On the back of 15 new launches in FY18 and its existing product portfolio, Glenmark has forecast 12-15 per cent growth in FY18, higher than in FY17. Analysts at Spark Capital believe a re-rating in the stock is imminent, given the expectation of strong operating profit growth, free cash flow generation and attractive valuations. They estimate Glenmark’s US business to expand from $450 mn (excluding sales from Zetia, a one-off exclusive opportunity) in FY17 to $650 mn in FY19, led by multiple interesting launches in dermatology. Further, the company’s compliance record is a key differentiator versus peers and should support medium-term growth in the US, they add.

If the 20 per cent annual growth beyond FY19 is maintained, it could be within touching distance of the $1-bn mark in FY21. US sales and execution are key and investors should await clarity on US sales momentum before considering the stock.