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Near-term opportunity shrinks in USA; long-term prospects remain strong
Adverse outcome of patent litigation on Prevacid ODT shrinks short-termprospects in USA: Japan's Takeda Pharmaceutical (Takeda) won a patent
infringement suit against Zydus Pharmaceuticals (US subsidiary of Cadila
Healthcare) after proving to a New Jersey federal judge that Zydus
Pharmaceuticals’ (USA) proposed generic gastric relief product would unfairly
compete with Takeda's Prevacid SoluTab (Prevacid ODT) medication. Takeda
had sued Cadila Healthcare on filing for generic Prevacid ODT. Prevacid ODT isused to treat gastric ulcers and its market size is estimated to be $300 million.
It was expected to have three to four competitors after patent expiry/invalidity.
Zydus Cadila is one of the litigants who seek to get generic entry before the
patent expiry on May 17, 2017 (patent number 6328994). Prevacid ODT could
provide a low competition opportunity for Zydus Cadila. This potentially limitsthe short-term opportunity in the US market for Cadila Healthcare, which could
give nearly $80-100 million revenues under market exclusivity.
Long-term opportunity remains intact; complex generics to ensure better
market share: Cadila Healthcare has recorded a slower growth during the recent
quarters due to price erosion in plain generics and lack of new approvals. Though
we do not see a big trigger in the US market in near future, the long-term
prospects remain strong on account of complex generics and technology-intensive
products like transdermal products, vaccines, injectibles, nasal sprays andbiosimilars. However, a surge in the US business would be visible only in FY2015,when some key approvals are likely to come. We estimate the US revenues to
jump from $283 million in FY2013 to $340 million in FY2014 and $425 million inFY2015.
Ex-US business is doing fine; India, emerging markets
stronger growth in FY2015 when most of these products
to support the near-term growth: The near-term
growth for the company is likely to come from theIndian formulation business (despite the new pricing
Ex-US formulation business augurs well in near term
policy impacting the revenues, we expect better than
Cadila Healthcare’s Indian formulation business is likely
industry growth rate in FY2014), Zydus Wellness
to witness a better-than-industry growth despite the new
(consumer business), emerging markets and some of
pricing policy coming into force. The company is expected
the joint ventures. We expect the revenues and profit
to maintain the growth momentum on the back of launch
compounded annual growth rate (CAGR) of 17% and
of new products and improved market share in key
segments. We expect a 15% revenue growth in FY2014and 20% in FY2015 from the Indian formulation business.
We maintain estimate, recommendation and price
Besides, it is also expected to record a stronger revenue
target: Despite a short-term disappointment, we keep
growth from Zydus Wellness (nearly 20% in FY2014 and
our earnings estimate intact and maintain Buy
18% in FY2015), animal healthcare business (15% growth
recommendation on the stock with a price target of
in FY2014 and FY2015 each) and supplies of additional
Rs906 (implies 17x average earnings for FY2014 and
products from joint ventures with Hospira, Nycomed and
Bayer. It also started commercial supplies of two productsunder marketing deal with Abbott.
Near-term prospects remain muted in USA; long-termopportunity remains strong
Operating performance to improve on better product
Cadila Healthcare’s US business has been impacted due
to lack of key approvals in FY2013.The company received
The company is in the process of cost optimisation (called
approvals for a total 15 abbreviated new drug applications
PRISM2) through multiple levers. We expect the company to
(ANDAs), including seven injectibles in FY2013, after
achieve an operating profit margin (OPM) of 19.1% in FY2014
witnessing complete null in FY2012. Though the company
as compared with 17.7% in FY2013. The OPM would enhance
has nearly 100 ANDAs pending approval and 22 ANDA
further to 20.5% in FY2015 on launch of key products.
approvals are likely to come in FY2014, the growthguidance of 20% given by the management signals only a
Net profit to grow at CAGR of 39% over FY2013-15E,
vanilla generics play in the US market without a big upside.
We expect the net profit to grow at 41% to Rs926 crore in
However, the company’s focus on complex technologies
FY2014 from a low base and 36% to Rs1,257 crore in FY2015
like transdermal products (three products filed and several
on the back revenue growth of 15% to Rs7,302 crore in
other patches under development), vaccines (several
FY2014 and 19% to Rs8,694 crore in FY2015.
vaccines under different stages of development),injectibles (21 injectibles filed with the US Food and Drug
We maintain estimate, recommendation and price target
Administration [USFDA]; approvals for seven injectibles
Despite a short-term disappointment, we keep our
obtained), inhalation devices (five nasal spray products
earnings estimate intact and maintain Buy
filed) and ointments is likely to give sustainable growth
recommendation on the stock with a price target of Rs906
and improved profitability going forward. We expect a
(implies 17x average earnings for FY2014 and FY2015).
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.
Receding regulatory concerns and easing competitive environment
Over the last few weeks, a series of developments have
taken place both on the regulatory front as well as on the
As opposed to the earlier concern that the national
business front for the telecommunication (telecom)
roaming charges would be totally eradicated and roaming
operators; here in this note we have analysed the implications
would be free for subscribers, the Telecom Regulatory
of the same on the sector and the players in particular.
Authority of India (TRAI) adopted a balanced approachand has reduced ceilings for national roaming calls and
SMS, and has also given flexibility to the players to partially
Ban on 3G intra-circle roaming agreement; matter in court
offset the same via special tariff vouchers (STV) and combo
The Department of Telecom (DoT) has sent legal notices
to Bharti Airtel (Bharti), Vodafone India (Vodafone) and
New ceiling on roaming rates as prescribed by TRAI
Idea Cellular (Idea) for violation of licence conditions byentering into 3G roaming pacts. The operators have taken
legal recourse and hence the case for the same is being
Meanwhile, the court has barred these companies from
adding 3G subscribers in the circles wherein they do
not have 3G spectrum and are operating via the intra-
circle roaming (ICR) pacts with the other players.
For Bharti and Idea, the 3G subscribers form 3.4% and
4.2% to the total subscribers respectively. We estimate
that the revenues from the same to be around 3-4% ofthe total revenues.
Our take: We believe the TRAI’s policy of reducing the
Our take: We believe that if the case ruling is against the
ceiling on roaming compared with earlier envisaged free
operators (implying no 3G ICR), the financial impact for
roaming is a balanced approach as it achieves the twin
the same would be minimal. Since no operator has a pan-
objectives of benefiting the consumers and also safeguards
India 3G licence and spectrum, all the players would feel
the operator’s interest by not materially impacting the
the heat. However, Bharti being the player having
revenues as the current tariffs for most packages in the
spectrum with maximum coverage (with spectrum in 13
market are largely in line with the new proposed ceilings.
circles, the company has ~73% revenue coverage), it would
We do not expect most telecom companies to reduce
tariffs to meet the new guidelines, except under one or
3G subscriber base as a % of total subscriber base
two instances. In addition, the telecom companies wouldbe able to charge a “one-time” fee to subscribe to the
STVs; hence, they should be able to partially offset any
negative impact from an incoming roaming rate cut.
EGoM refers spectrum pricing back to TRAI
After the two rounds of spectrum auctions, which received
muted response (March 2013 auction received no bids for
the 1800MHz and 900MHz spectrum), the recent
development whereby the Empowered Group of Ministers
(EGoM) has again referred spectrum pricing back to TRAI
gives us the belief that the 2G spectrum prices would be
lowered again in order to attract the players and make
Our take: We believe the licences of Bharti, Vodafone
and Idea would come up for renewal starting FY2014
onwards and a reduction in the spectrum payout would
Steep cut in the 2G data rates by operators
The data contribution to overall revenues has seen a
substantial improvement and currently stands in the rangeof 7-9% for the operators.
Revenue market share points towards consolidation
In an attempt to further increase the data usage and bring
The Q4FY2013 revenue market share data points that the
elasticity, the players have slashed their data tariffs in
three incumbents, Bharti, Vodafone and Idea, collectively
selective circles by 70-80%, which we believe will reflect
gained around 180 basis points in the revenue market share
in the contribution and overall revenues going forward.
(RMS; adjusted gross revenues). Over the whole year, these
three operators have gained an impressive 200 basis pointsin RMS indicating that the industry dynamics are
consolidating in their favour. However, consolidation in
the industry is seemingly playing out at various levels.
Although the revenue per minute (RPM) growth has
disappointed despite reduction in promotion expenses
(driven by lower competitive intensity), the traffic growth
has resulted in superior margins aided by lower churnand related expenses. The trailing operators have been
unable to make dents in the three incumbents’ revenues.
The rupee has depreciated significantly against the dollar
recently. This is likely to impact both Bharti and Idea in
terms of foreign exchange (forex) fluctuation losses on
the income statement and higher interest expenses.
Furthermore, the balance sheets would have to be
restated to account for the higher foreign debt.
Consolidated market share of top three players at ~70%; highest in eight quarters
Idea has presence mainly in the domestic market (India),
implying that impact of forex fluctuations for it would be
Improving domestic environment: The recent months
limited to its foreign currency denominated debt (that
have witnessed a substantial decline in the competitive
forms 50% to the total loans of which 50% of the foreign
intensity providing the telecom players with an elbow
currency loans are hedged, thus the impact may be felt
room to increase tariffs and reduce discount and
on the income statement in the form of high interest and
freebies. We believe that the era of cut-throat tariff
war is over. Thus, the telecom companies shouldwitness a gradual return of pricing power. The top three
In case of Bharti, its consolidated exposure to foreign
operators are likely to benefit from the trend.
currency is high (in the form of long-term forex loan of ~$9billion taken to fund the African acquisition). Also since its
Strong data growth opportunity: The data uptake,
African business is reported in dollars, the impact of the
which was subdued in 2011, has seen a substantial
same gets translated into the consolidated revenue (in the
improvement, and the operators in their commentary
form of high revenues to the extent of rupee’s depreciation
sounded very positive on the growth opportunity for
coupled with bloated losses). On the consolidated level,
this segment and believe that the data would drive
the balance sheet‘s long-term debt is bloated with the
the next big growth wave for the telecom players.
exchange depreciation, while on the asset side, the fixedasset gets equally impacted by the same amount. Thus,
Receding regulatory hurdles: Though the outcomes
gauging the impact of rupee’s deprecation in case of Bharti
of a lot of regulatory issues remain ambiguous and are
is very difficult, as apart from the rupee-dollar movement,
being contested in the court of law, we believe that
the forex is also impacted by other foreign currency loans
the tepid response to the last two spectrum auctions
and African currency movements (as apart from the dollar,
would result in the lowering of the spectrum prices as
the loan is also taken in various other currencies). Thus,
and when the licence comes for approval, bringing
there are too many variables impacting the final outcome
Positive on telecom: Despite improving domestic
fundamentals and a decent growth upside from thevoice and data opportunity, the Indian telecom players
are trading in the range of 7-7.5x their one-year
forward EV/EBITDA. Thus, we maintain our medium-
to long-term positive bias on the sector and prefer
Bharti and Idea in the Indian telecom space, though
Q1FY2014 performance for Bharti as well as Idea would
Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.
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Effective January 1, 2008 2008 EMPIRE PLAN PREFERRED DRUG LIST Administered by UnitedHealthcare The following is a list of the most commonly prescribed generic and brand-name drugs included on the 2008 Empire Plan Preferred Drug List. This is not a complete list of all prescription drugs on the preferred drug list or covered under the Empire Plan. This list is subject to change du
Psychiatry Naturalistic Impact of Second-Generation Antipsychotics on Weight Gain Diana I Brixner, Qayyim Said, Patricia K Corey-Lisle, A Vickie Tuomari, Gilbert J L’Italien, William Stockdale, BACKGROUND: While second-generation antipsychotics (SGAs) have had benefits over earlier antipsychotic treatments, their use has been associated with reports of weight gain. Body mass index (B