Cipla May Find Right Rx for Success
Cipla May Find Right Rx for Success --- Indian
Drug Firm Partners With Peers in U.S. to Crack No. 1 Market for Generics
By Rasul Bailay
988 words
20 October 2003
The Wall Street Journal
A15
English
(Copyright (c) 2003, Dow Jones & Company, Inc.)
NEW DELHI -- With an aggressive plan to target the U.S. and European drug
markets, analysts believe Bombay-based Cipla, India's third-largest
pharmaceutical concern by revenue, has found the right prescription for success.
Cipla last hit headlines two years ago with a controversial offer to provide
inexpensive anti-AIDS drugs to developing countries, despite opposition from
major Western pharmaceutical firms. Now it's forging alliances with U.S. drug
makers to crack the world's biggest generics market.
"We are very bullish about Cipla's prospects," says Bhavin Chheda, an analyst
who tracks the pharmaceutical sector at Bombay brokerage firm Pioneer
Intermediaries. Mr. Chheda believes that in the next year, Cipla's stock will
outperform those of other companies in the industry.
Cipla is working on 90 generic products with U.S. drug firms such as Watson
Pharmaceuticals, Ivax and Eon Labs. Cipla and its U.S. partners have filed
applications for 11 generic medications and the company plans to file 40 more
applications in the next year. In September, Cipla announced plans to team up
with two more U.S. generic firms. The company also is expected to get German
regulatory approval to sell environmentally friendly chlorofluorocarbon-free
inhalers for asthma treatment, analysts say.
With the patents on a plethora of treatments with estimated annual sales of $40
billion set to expire in the next five years, the U.S. market is a huge
opportunity for Indian businesses, which long ago mastered the art of making
inexpensive knockoffs under India's relaxed patent regime.
That regime is due to end in 2005, when India will begin to abide by
international patent laws. This means that Indian pharmaceutical firms can't
reverse-engineer medicines developed elsewhere and sell them as generics. That
means they need to carve out new avenues for growth.
Two other top-rung Indian drug firms, Ranbaxy Laboratories and Dr. Reddy's
Laboratories, have followed an aggressive route into the U.S. market. They are
challenging patents using lawsuits and marketing their own versions of the
medicines in the U.S. Cipla, however, preferred to forge alliances with generic
firms in the U.S. and act as their supplier.
That more-cautious approach, together with several commercial setbacks in the
past year, caused Cipla's stock to underperform the benchmark Bombay Sensitive
Index by more than a third during the past 12 months, according to Bombay
investment firm ASK-Raymond James. Still, some believe the company's strategy
soon could begin to pay off.
"The market is waiting for some good news from Cipla," says Ashit Kothari, an
analyst at ASK-Raymond James. "They are working on so many products, and some
will materialize in the near future."
Investors share that opinion. In the past three months, the stock has surged
about 36%, partly because of the current bull run on the Bombay Stock Exchange,
and partly because of the company's announcement of its new tie-ups with U.S.
generic firms. In September, Cipla announced that it had formed two more
alliances with U.S. drug concerns, though it wouldn't name them, in addition to
its existing partnerships with Watson, Eon Labs and Ivax.
Y.K. Hamied, Cipla's chairman and managing director, also said the company was
preparing to file a total of 90 drug master files, the applications that allow a
pharmaceutical firm to sell bulk ingredients for medications in the U.S. The
company is tight-lipped about the kind of products they are looking at for the
U.S. market.
Cipla suffered a major setback in its plans for the U.S. market last October
when its partner, the U.S. pharmaceuticals concern Andrx lost a lawsuit against
London-based AstraZeneca, Europe's second-largest drug maker, challenging the
patent on the antiulcer treatment Prilosec. Had Andrx won the case, Cipla would
have acted as the supplier for a huge quantity of the generic equivalent of the
drug.
"Rulings in several patent litigations went against some of our customers in the
U.S.A., Europe and Canada," Mr. Hamied said, addressing the annual shareholders
meeting last month. "This had a negative impact on our business."
The company also has had a tough time getting its asthma inhalers into the
German market, though analysts believe regulatory approval will come through in
the next six months. Such a move "would be a big upside for the stock," says
Shahina Mukadam, pharmaceutical analyst at Motilal Oswal Securities in Bombay.
Cipla, the second-largest maker of aerosol inhalers after 3M of the U.S., has
tied up with three pharmaceutical firms in Germany to sell its CFC-free inhaler
in that country on a profit-sharing basis. Because CFC damages the ozone layer,
many European nations are eager to switch to products that use other substances
as a propellant. Rajesh Vora of ICICI Securities in Bombay says Cipla could
increase sales of $10 million in its first year of offering the inhaler in
Germany alone, where the annual market for the product is about $200 million.
The company also has nine different versions of CFC-free inhalers in the
pipeline for use in other European markets.
Cipla is "working on so many products, and it cannot fail on all fronts," Mr.
Chheda of Pioneer Intermediaries says. "Some of them have to click." ASK-Raymond
James says Cipla stands to benefit from its U.S. initiatives during the next 12
months.
Most of the brokerage firms surveyed for this article had a "buy" rating on
Cipla. ICICI Securities is projecting the company's stock to jump 30% in the
next 12 months from its current level of 1,150 rupees ($25.39). Pioneer
Intermediaries expects the stock to climb 20% in the next 12 months.
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