Cipla Strategica_MDI Gurgaon_Fire in the Belly

8/10/2019 Cipla Strategica_MDI Gurgaon_Fire in the Belly

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Established in 1983, it is a multinational pharmaceutical company

The Company is vertically integrated with a presence across the pharmaceutical val

It manufactures and sells pharmaceutical formulations and active pharmaceutical in

India and the United States.

Offers formulations in various therapeutic areas, such as cardiology, psychiatry, neu

diabetology

In-licensing Strategy

Sun Pharma is sharpening its focus on building brands and strengthening customer

It continues to strengthen its product portfolio and increase more in-licensing produ

Going ahead, the company will continue to concentrate on the chronic segments, wensure competitive long-term stability.

They aim at extensive chronic area coveragefrom older molecules to the latest m

segments wherein the top 10 brands contribute about 20% of the sales in India

Sun is the first Indian drug firm to adopt this strategy of inlicensing experimental dr

commercialisation

It plans to invest more than $280 million in the experimental psoriasis drug that it in

Sharp& Dohme (MSD) last month and hopes to commercialise globally by 2018, said

knowledge of the matter.

Sun is scripting a shift in strategy for Indian generic companies, which have typically

an early development stage Acquiring an R&D asset for clinical development is always a bold move. Hitherto, all

license out their R&D pipeline. These companies were comfortable becoming a licen

development. Sun Pharma is reversing that process by becoming a licensee.

Out-licensing Strategy

Sun Pharma is sharpening its focus on building brands and strengthening customer r

strengthen its product portfolio

It is market leader in chronic segments. These segments are expected to grow faste

the changing life-style of the Indian population.

Top 10 brands contribute about 20% of the sales in India

Product StrategyOrganicgrowth

International

presence

Merger and

Acquisition

Strategy

Licencing

Strategy

Product

Portfolio


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India Branded Generics

Sun Pharma is an international, integrated, speciality pharmac

brands and branded generics in US, India and over forty marke

A comprehensive product offering with technology-based diff

highlight of the portfolio

Sun Pharma is the largest specialty pharmaceutical company i

brands across niche therapies such as psychiatry, neurology, ca

gastroenterology, orthopedics and ophthalmology

In the United States of America, Sun Pharma is an integrated g

with several complex products approved for sale.

US Generics

International Branded

Generics

Active Pharmaceutical

Ingredients (API)

Organic

growth

International

presence

Merger and

Acquisition

Strategy

Licencing

Strategy

Product

Portfolio

Sun Pharma, along with its subsidiaries, currently has 12 US FD

facilities6 in the US, 3 in India and one facility each in Canada

This is one of the largest US FDA approved manufacturing infra

Indian companies.

International

Strategy


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Organic

growth

International

presence

Merger and

Acquisition

Strategy

Licencing

Strategy

Product

Portfolio

M&A Strategy

Create sustainable revenue and cash flow streamThe Company strive

through its focus on commercializing differentiated products in key mar

chronic therapies in India and other emerging markets and ensuring tim

Balance profitability and future investmentsThe Company strives to st

between current profitability and investments needed for future. This is

on complex and differentiated products coupled with a conservative ap

initiatives. Acquisitions yield high ROI.

Cost leadershipThe Company seeks to achieve this through its vertica

and focus on optimizing operational expenses.

Successful acquisition of DUSA: Acquired DUSA Pharmaceuticals, with a

approximately US$ 230 million. DUSA provides access to Levulan (amino

photodynamic therapy for the treatment of non-hyperkeratotic actinic k

or scalp.

Successful acquisition of URL: Caraco entered into a definitive agreemen

pharmaceuticals Inc to buy URL Pharmas non-colcrys business. URL was

Philadelphia-based pharmaceutical company which was acquired by Ta

(TAH) in June, 2012. This acquisition expands Sun Pharmas product bas

market.

Annual price increments : An automatic annual price adjustment, linked

Index, will be allowed for the products under price control. The CP will g

five years and as and when there is a revision in the NLEM.

Existing DPCO drugs: The existing DPCO products which are also a part o

provisions of the NPPP after completing one year from the date on whic

notified under the existing policy. The existing DPCO products which are

attract price controls

Organic Growth


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Key Points of Industry

Supply

Demand

Barriers to Entry

Bargaining Power of

Suppliers

Bargaining Power of

Buyers

Competition

Higher for traditional therapeutic segments, lower fo

High for certain therapeutic segments

Licensing, distribution network, patents, pl

regulatory authority

High. Fragmented industry with the top 300 (of 24,00

units) players accounting for large chunk of sales. Top

account for 60% of the IPM sales

High, a fragmented industry has ensured th

widespread competition in almost all prod

Distributors are increasingly pushin

a bid to earn higher margins


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Pharmaceutical Sector Analysis

The Indian Pharmaceutical industry is highly fragmented with about 24,000 players (330 in the organised sector). The t

make up for more than a third of the market. Globally, the Indian pharma market (IPM) is ranked 3rd largest in volume

largest in value terms.

The domestic market grew by 14% YoY for the 12 months period ended in Dec 2012 to Rs 690 bn. In the last five years,

witnessed compounded annual growth of 12.5%. The pharmaceutical sector meets around 70% of the country's dematypes of formulations and active pharmaceutical ingredients (APIs).

Besides the domestic market, Indian pharma companies also have a large chunk of their revenues coming from export

focusing on the generics market in the US, Europe and semi-regulated markets, others are focusing on custom manufac

innovator companies. Biopharmaceuticals is also increasingly becoming an area of interest given the complexity in ma

limited competition.

The drug price control order (DPCO) continues to be a menace for the industry. There are three tiers of regulations - on

formulations and on overall profitability. This has made the profitability of the sector susceptible to the whims and fanauthority. The recently announced pricing policy by the DPCO on 348 drugs has already impacted various pharma com

Introduction of GDUFA (Generic drug User Fee Act) in the US during July 2012 too had a negative impact on pharma co

this Act, the generic companies are required to pay user fees to USFDA, for application of drugs and manufacturing fac

be utilized by USFDA to engage additional resources in order to speed up the approval process. On back of this, various

withdrawn pending applications which they believed to be less accretive. Though the approval procedure is expected t

happen only over a period of time.

As the patent cliff is approaching, Indian pharma companies have increased their R&D expenses. The companies are spestablish niche product portfolios for the future.


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Companies Considered

CADILAHEALTHCARE

CIPLADR. REDDYS

LABLU

MERCK LTD

PIRAMAL

ENTERPRISES

SANOFI

INDIA P

TORRENTPHARMA

Pfizer

Analysis of key financial statement indicators/ratios


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Benchmarking of Data

Company Name ROCE (%) D/E Ratio ROE (%) Sales Growth (%) Operat

CADILA HEALTHCARE 21.4 0.4 23.4 13.6

CIPLA 19.3 0 13.8 22

DR. REDDYS LAB 27.9 0.3 25 12.8

LUPIN LTD 39.9 0 26.5 17.1

MERCK LTD 16.9 0 10.7 16.1

PFIZER 51.6 0 33.5 6

PIRAMAL ENTERPRISES 5.1 0.3 NA 27.7

SANOFI INDIA 28.9 0 19.7 15

SUN PHARMA 20.9 0 17 42.3

TORRENT PHARMA 34.1 0.4 34.9 30.3

Average 26.6 0.14 22.72222 20.29



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ROCE (%)

The average value of ROCE(%) for the companies considered is 26.6%, while its value for CIPLA is 19.3%

It means that CIPLA is moderately efficient in use of its capital and needs to improve to match with its com

Debt/Equity Ratio

The average value of this ratio for the companies considered is 0.14, while its value for CIPLA is 0

It means that the Pharmaceuticals industry as a whole is very less aggressive and in fact defensive in fina

with debt

In line with the industry CIPLA is using no leverage and has a strong equity position

ROE (%)

The average value of ROE (%) for the companies considered is 22.72%, while its value for CIPLA is 13.8%

It means that CIPLA is less efficient in utilizing its equity base and accordingly the returns to its investors a

lesser than its peers

Sales Growth (%) The average value of Sales Growth (%) for the companies considered is 20.29%, while its value for CIPLA is

It means that CIPLA is doing ok in term of generating sales year after year

However considering what others competitors like Sun Pharma have achieved, there is a lot of scope of im

CIPLA

Operating Profit Margin (%)

The average value of Operating Profit Margin (%) for the companies considered is 22.19%, while its value

It means that CIPLA is almost as profitable as most of the companies in the pharmaceutical industry

However considering what others competitors like Sun Pharma have achieved, there is a lot of scope of im

CIPLA



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Growth Levers and Enablers Key Drivers For Pharmaceutical Se

Leadershippipeline andcapabilitybuilding

Sustainability

initiatives (PPP)

Disruptive Costs

Supply Chainefficiency

GeographicalExpansion

Brands

Platformtechnologies

Healthy Pipeline

Value addedgenerics

Specialties

New DrugDiscovery

Research

R&D M&A

People

andCapability

SupplyChain

Growing andAgeing Population

Changing Lifesty

Higheraffordability

Improving accein pharmergin

markets

Rapidurbanization

Rising incomelevels

Increasinghealthcareinsurance

penetration

Key Drivers For CIPL

Asthma InhalersBio

St

New Licensing

agreements

Gen

U


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Risk Adjusted NPV Analysis of the Projected Revenues fAssumptions 2013 2014 2015 2016

Net Sales Growth 14.4% 5.0% 5.0%

Cost of Sales as % of Sales 32.3% 33.5% 33.5% 73.0%

SG&A Expenses as % of Sales 12.0% 13.4% 11.0% 11.0%

R&D Costs as % of Sales 5.4% 5.4% 5.1% 5.1%

Other Operating Income as % of Sales 2.8% 3.0% 1.4% 1.4%

Other Operating Expense as % of Sales 28.6% 31.3% 0.7% 0.7%

D&A as % of Sales 3.7% 3.4% 7.0% 7.0% Tax as % of Sales 4.7% 4.3% 5.0% 5.0%

Capital Expenditure as a % of Sales 0.7% 0.1% 0.5% 0.5%

Income Statement 2013 2014 2015 2016

Net Sales 8202.42 9380.29 9849.305 10341.77

Cost of Sales 2646.83 3145.34 3302.607 7549.492

SG&A Expenses 982.17 1254.41 1079.517 1133.493

R&D Costs 442.93068 506.5357 498.6339 523.5656

Other Income 229.13 280.28 133.6544 140.3372

Other Expense 2347.7593 2935.95 66.82722 70.16858

EBIT 2011.86002 1818.334 5035.374 1205.388 EBIT Margin 24.53% 19.38% 51.12% 11.66%

D&A 303.03 323.61 693.975 728.6738

EBITDA 2314.89002 2141.944 5729.349 1934.062

Depriciation 303.03 323.61 693.975 728.6738

EBIT 2011.86002 1818.334 5035.374 1205.388

Tax 386 400 492.4652 517.0885

EBIAT 1625.86002 1418.334 4542.909 688.2998

Depreciation (add back) 303.03 323.61 693.975 728.6738

Capital Expenditure 61.32 5.58 49.24652 51.70885

FCF 1867.57002 1736.364 5187.637 1365.265

Risk free Rate 8.0%

NPV (Rs in Crores) Rs. 9,293.85


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Cipla Strategica_MDI Gurgaon_Fire in the Belly

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