Event update: Cipla (Outperformer) - gTruvada launch confirmed for Sept-2020

Event

Gilead has confirmed that Teva will be launching gTruvada in Sept-2020. We understand Cipla will likely be partnering with Teva on this launch

Key highlights

• Gilead shared in its latest SEC filing that Teva will be launching gTruvada in Sept’20 as per its settlement; Gilead had not confirmed the launch timelines earlier. This is about an year earlier than expected 
• Truvada is an anti-HIV drug with brand sales of ~$2.2bn
• Teva is the FTF on Truvada and we understand that Cipla is likely partnering with Teva on this drug.
• In a broadly similar partnership on another anti-HIV drug gViread, Cipla had supplied the API to Teva where Teva had ~45 day exclusivity starting Dec17, 2017; we est Cipla had booked ~$10m revs in Q2FY18 on gViread API sales.
• Given these timelines, we anticipate Cipla to book revenues on gTruvada API / formulation exclusivity supplies in H1FY21
• Notably, Truvada is >3x of Viread in size. The quantum of Teva’s exclusivity period, as per the settlement, is not known at this point. Overall, this could be a fairly meaningful H1FY21 opportunity for Cipla.

Valuations & view

Cipla’s FY19 performance, albeit a bit subdued due to pressure in its global tender business and supply challenges in 9mFY19, builds on the turnaround visible in the business from FY18 onwards. Sharp sequential pick-up in US sales ($118m for Q3FY19 vs $108m in Q2) and guidance for $120-125m Q4 sales mitigates concerns on Cipla’s ability to grow the US business. With a steady pace of new ANDA approvals / launches, we expect the run-rate to steadily improve going forward. Initiation of gTruvada supplies will add to the US sales momentum in FY21. The expected pickup in high margin US sales will help to effectively fund the desired R&D investments across generics and speciality and also improve the overall profitability of the business. This will complement the steady profitability growth in Cipla’s sturdy domestic formulations franchise. Likely bottoming of the EM and South African business by H2FY19 will act as further tailwinds to Cipla’s profitability going forward. We expect earnings to grow at 23% CAGR over FY19-21e. Maintain Outperformer.