03 Nov 2011 - 10:17:45 PM IST
Global Markets Research
INDUSTRY ALERT Industry Update
Health Care Shrinking opportunities with rising concerns in US generics
Focus stocks Key takeaways from conference call of Teva (world's largest generic com‐
pany) and Hospira (world's largest generic injectible company) post their 3Q
Sell, Price Target INR225.00 interims for India Pharma:
Dr Reddy's Labs
(REDY.BO),INR1,638.70 Sell, Price Positives for India Pharma (IP) - Teva: (a) Average price drop across Eu‐
Target INR1,265.00 rope generics continues at ~5% (b) Teva may be inward looking in near‐
Sun Pharma (SUN.BO),INR503.80 term as it integrates its recent large acquisitions.
Hold, Price Target INR465.00
Lupin (LUPN.BO),INR474.70 Hold, Negatives for IP - (i) Teva: (a) Of the target branded small molecules of
Price Target INR450.00
USD 210bn in US (USD 300bn less USD 50bn for generics & USD 40bn for
biologics), Teva has Para IV on USD 117bn with ftf on USD 55bn. We believe
~25% of mkt would be recently launched molecules with no para IVs. Thus
Teva: Trend in interims even Teva states that it is difficult to file exclusive ftf para IVs (b) Advent of
para IVs since late 1990s resulted in innovators tightening patents (including
secondary). Hence falling success rates in litigations for generics (c) Teva
prefers to do “at‐risk" launches only with ftf exclusivity. Thus “piggy riding"
on Teva's “at‐risk" launch for shared ftfs for risk‐averse India Pharma may
be difficult (d) Hence Teva focuses on differentiated generics. Quicker
genericisation driven by insurance only partly neutralises faster commodi‐
Source: Company, Deutsche Bank tization (with more competition) making it tougher to create sustainable
value (e) Despite current peaking of patent expiration in US and its large
pipeline, flat gross profits and a fall in net profits in current ytd indicates
that even Teva's pipeline has not matured (f) Recent re‐approval of Teva's
Jerusalem & Irvine plants will aggravate competition.
(ii) Hospira: (a) Rocky Mount (RM) plant in US (~25% of Hospira's rev)
received a Warning Letter (WL) in Apr'10 followed by 483s in Jun & Aug'11.
It believes this conveys unsatisfactory remediation progress. Despite its
size, it is not clear on the reasons for the approval delay for ANDAs at its
plants at Austin (with only 483 in Apr'11) & Chennai (India) (with no violation).
Hence it announced production slowdown, inventory write‐downs and high
remediation costs with ~23% cut in guidance. Thus a WL at a unit may
aggravate approvals at all units (b) While issues at RM & Clayton seem sim‐
ilar, the same set of US FDA inspectors, who reapproved Clayton gave 483
to RM. Hence RM's size (10x of Clayton) seems to complicate issues (c) It
is unable to give clarity on timelines for re‐approvals. Production bottomed
at 60% and with improving signs, is getting ramped up.
Abhay Shanbhag Mayank Kankaria
Research Analyst Research Associate
(+91) 22 6658 4035 (+91) 22 6658 4358
Deutsche Bank AG/Hong Kong
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