Cipla: Omeprazole uncertainty intensifies - Views on News from Equitymaster

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Cipla: Omeprazole uncertainty intensifies

Oct 5, 2001

The uncertainty prevailing over the export of Omeprazole by Cipla to Andrx has further intensified. Omeprazole, which is the largest selling pharma product in both US and the World export, is considered to be a key earning opportunity for the company. Cipla has an arrangement to supply Omeprazole (bulk drug) to Andrx. Andrx in turn claims to have a six-month marketing exclusivity for the drug. However, the issue is caught in a long legal tangle. Recently, the US FDA had granted two more patents to AAI Pharma, which is working together with AstraZeneca (the original patent holder of the drug). Yesterday, the US FDA for the first time indicated to Andrx (and all other ANDA applicants) that the final marketing approval for generic version of Prilosec (Omeprazole) might be delayed. The US FDA is currently addressing issues raised by AstraZeneca relating to patents granted to AAI Pharma.

This announcement by US FDA would further intensify the ongoing legal battle and consequently, further delay the launch of the generic drug. The eventual launch of the drug is now contingent on the successful resolution of the patent litigation and FDA approval. The markets would be closely watching developments on the Omeprazole front in the coming months.

While Cipla has an agreement with Andrx to supply bulk omeprazole, Dr. Reddy’s has also filed an ANDA to market generic Omeprazole in the US and is expecting to receive a first to file status for the 40-mg version. Due to uncertainty, we had not incorporated any earnings upside from Omeprazole in both the companies and thus we maintain our projections.

Current Valuations
Particulars CMP Mkt.Cap P/E (x) EV/EBITDA (x)
  (Rs.) (In Mn.) 2002E 2003E 2002E 2003E
Cipla 1045 62669 24 19 20 17
Dr.Reddy's 1768 55957 21 16 16 15


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