Home / Markets / Mark To Market /  Cipla shares get a boost from Revlimid patent settlement

Cipla Ltd’s settlement with Bristol Myers-owned Celgene is lifting its stock as it is seen to boost earnings. The drugmaker has settled a patent dispute with the innovator Celgene Corp. that will allow Cipla to sell volume-limited drugs after March 2022. The stock jumped 4% on Monday.

The settlement took place months before it was expected, which indeed surprised investors. While volume details are under wraps, note that Revlimid has sales of over $8 billion in the US. Hence, firms like Cipla, even with limited volumes, can derive decent earnings boost after its launch.

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“We currently forecast revenues of about $48 million, $185 million, and $150 million in FY23, FY24 and FY25, respectively, for Cipla with net present value of 35 per share," analysts at Kotak Institutional Equities in a client note said.

Shot in the arm
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Shot in the arm

Cipla’s settlement with Celgene is the fourth for Revlimid. In addition, there are several filers, including Indian firms such as Sun Pharmaceutical Industries Ltd, Lupin Ltd, Aurobindo Pharma Ltd, and Cadila Healthcare Ltd. Hence, the product could see some increased competition in the coming years.

Nevertheless, margins are quite high, and hence the product should be able to generate decent cash flows for generic players. That said, analysts see an earnings upside of about 6% factoring in the new product’s sales in earnings in FY23.

“We bake in Q4FY23 launch for Revlimid and increase FY2023 estimates by 6.6%," said analysts at Kotak.

However, note that any possible delay could derail earnings. That said, the timeline of the launch will also determine potential earnings. Besides, the terms of the settlement with other generic players also remain to be seen.

“At this stage, there is no clarity on the eventual number of competitors. While we have assumed FY26 market share of 10% and five generics till FY24, any change in these variables can impact our net present value," analysts at Edelweiss Securities Pvt. Ltd said in a note to clients.

With pharma stocks in focus this year, shares of Cipla have jumped about 72% in the past one year.

As of now, they are trading at a price-to-earnings multiple of about 23 times for FY22, which is a historically rich valuation.

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