MOSL: SHILPA MEDICARE (Buy)-EIR lowers regulatory risk over medium term; Focus to shift to product approvals

Shilpa Medicare: EIR lowers regulatory risk over medium term; Focus to shift to product approvals

(SLPA IN, Mkt Cap USD0.6b, CMP INR489, TP INR749, 53% Upside, Buy)

• The receipt of establishment inspection report (EIR), with unchanged status – voluntary action initiated (VAI) – for the Jadcherla formulations facility from the USFDA is a positive. It minimizes regulatory risk over the medium term.
• SLPA’s ANDA pipeline remains robust. We expect 16% CAGR in sales to INR12b and 35% CAGR in PAT to INR2.7b over FY17-20.
• Our price target of INR749 implies 53% upside. We re-iterate Buy.

•  Issuance of EIR by USFDA comforting: The USFDA had inspected SLPA’s formulations facility at Jadcherla over 20-30 November 2017. It had issued a form 483, with 10 observations. The observations were related to media fill, out of specification (OOS), and stability program. SLPA has only one formulation and resolution of the issues highlighted in the 483 was critical for continuation of its existing business and for future ANDA approvals. The issuance of EIR and status remaining unchanged at VAI implies that the inspection is closed successfully and will not be a show stopper for SLPA’s future approvals. This was the fourth USFDA inspection for SLPA in the last three years.
•  Strong oncology ANDA pipeline pending for approval: Currently, SLPA has two ANDAs approved and 31 pending for approvals. It has a healthy portfolio of oncology drugs and approval followed by commercialization would result in strong growth in revenue over the next 2-3 years. We expect US sales to ramp up from INR250m in FY17 to INR3.6b by FY20. Multiple inspections and equipment-related issues had affected SLPA’s 3QFY18 US sales. We expect US sales to revive in the coming quarters on new approvals and increased traction from existing products.