Cipla Share Price Falls After Chinese Rival Eats Into Cancer Drug Opportunity

Cipla's share price fell to its lowest level in over two months after China-based pharmaceutical company Jiangsu Hengru received approval to make Paclitaxel, generic version of BMS’ Abraxane.

Abraxane's generic contributes 6-7% to Citi Research's earnings per share estimates excluding Revlimid for the next two fiscals. While the brokerage has maintained 'buy' with target price of Rs 1,870, implying a 15% upside, it noted that a further delay in resolving the warning against its Goa facility will diminish the opportunity for the said generic.

Paclitaxel is a chemotherapy medication, used in the treatment of various forms of cancer. The brokerage firm explained that though there are two non-interchangeable generic versions are available for this product, Hengrui’s product is the first interchangeable version that can garner a significant market share as well as can result in decline in the prices.

"Cipla’s generic version has been delayed due to the warning letter at the Goa facility and the outcome of the recent inspection is still uncertain," it said.

Meanwhile, in another report Macquarie noted that Thursday's fall in pharma stocks provides good entry points for pharma stocks. The decline came after Centers for Medicare and Medicaid Service published an RFI to seek input on the development of the Medicare $2 Drug List, or M2DL.

The brokerage said it sees minimal adverse impact of M2DL in the medium term: We estimate the M2DL model's current sample list, including 101 drugs, represents only low-single-digit downside for the generic manufacturing industry.

The brokerage has maintained its 'outperform' rating for the stock with target of Rs 1,875, implying an upside of 17.4% from the current level.

The scrip fell as much as 2.79% to Rs 1,573.75 apiece, the lowest level since Aug. 26. It pared gains to trade 1.15% lower at Rs 1,600.25 apiece, as of 10:42 a.m. This compares to a 0.1% decline in the NSE Nifty 50 Index.

It has risen 28.4% on a year-to-date basis and 33.4% in the last 12 months. Total traded volume so far in the day stood at 0.56 times its 30-day average. The relative strength index was at 43.5.

Out of the 37 analysts tracking the company, 21 maintain a 'buy' rating, nine recommend a 'hold,' and seven suggest 'sell,' according to Bloomberg data. The average 12-month consensus price target implies an upside of 3.1%.