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Cipla plans to get more aggressive in US, UK

Aneesh Phadnis / Mumbai 17 Nov 16 | 01:53 AM

Over the next six months, dug maker Cipla plans to increase its product filings in the US and launch the generic version of GlaxoSmithKline's (GSK) blockbuster inhaler Seretide in the UK market. These moves can boost the prospects for Cipla, which has been facing growth and profitability issues.

The UK is an important market for respiratory products as some five million of its residents are affected with asthma and Seretide is among the top-selling prescription drugs in that country. 

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Cipla introduced the generic version of Seretide inhaler and other inhalation products in Germany, Sweden and a few other European countries in 2014. However, the launch of Seretide inhaler in the UK remained stuck due to lack of approval. In the meantime, rival drug maker Mylan pipped Cipla to launch the first generic Seretide inhaler in the UK last June. Despite the setbacks, the Cipla management is confident about its prospects. 

Cipla’s chief executive officer Umang Vohra said the company was awaiting regulatory clearance and hopes to launch the inhaler in the UK by the end of FY17. Although Cipla has lost out on the first-mover advantage in the generic space in the UK, Vohra said the opportunity for the product was still attractive.

The market for Seretide, for instance, was worth $400 million in 2015, say analysts. Although the entry of Cipla could intensify competition leading to some price correction, even a 10-20 per cent market share could mean huge revenues for the company.

Vohra is confident about the company’s production capabilities. “Cipla has enough experience of making these products in the domestic market and several other markets. Compared to other generic drug companies, we have lot more experience of producing it."

The respiratory segment – which contributes $400 million or about 25 per cent of its revenue, according to its latest annual report for 2015-16 – is crucial to Cipla. It has three dedicated manufacturing sites for respiratory products and is among the largest manufacturers of metered dose inhalers. The approval and launch of generic Seretide inhaler in the UK will, thus, boost its business and will also be a positive for its European business, which was restructured earlier this year. Currently, Europe (including the UK) contributes 3-4 per cent to Cipla’s revenue. India (40 per cent) followed by North and South Africa accounted for nearly 70 per cent of the company’s Rs 3,752 crore revenue in the quarter ending September 2016. 

While a break-through in the UK’s Seretide inhaler market could prove to be a game-changer, the company’s focus on the world’s largest healthcare market, the US, is also crucial. Cipla has been a late entrant in the market and it accounts for only 18 per cent of its revenue but now it ranks as a key market alongside India and South Africa. 

In the second quarter of FY17, Cipla launched six products in the US and some of them have acquired double-digit market shares in their respective segments. “Our business base in the US has grown 34 per cent (year-on-year). We have stepped up our filings in the US. We filed 12 products in H1 (first half) of FY17 and the filing rate is likely to increase in the second half in line with our strategy," said the company's chief financial officer Kedar Upadhye.

“Cipla’s increasing filing intensity will increase R&D (research and development) expenses. Hence, margin improvements could be delayed if the US business picks up only gradually. However, there could be positive triggers in the form of much-delayed and anticipated UK inhaler approval finally coming through in second half of FY17," IIFL research analysts Abhishek Sharma and Rahul Jeewani wrote in their note to investors.

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