Pharma company Cipla continued its topline growth momentum in both the Indian and US markets in Q4FY22. However, Cipla turned out to be far too bullish about Covid sales, and one-time write-offs here played spoilsport.

As a result, revenue growth failed to drive up the bottom line. The drug maker’s revenue rose 14.1% YoY to Rs 5,324.4 crore. 

Revenue growth was mainly driven by a 21% YoY growth in the Indian market (One India business) to Rs 2,183 crore on the back of traction in its branded prescription business. The company’s revenue from the US business, which is highly competitive, also rose 17% YoY to Rs 1,209 crore mainly due to strong demand in its respiratory product portfolio. 

Key product launches expected in FY23 in the US market will play a major part in the drug maker’s profitability.

Quick takes

• Strong revenue growth in the Indian market drives topline growth
• One-time Covid inventory costs, high R&D, and raw material costs drag net profit down
• Consumer health segment reaches EBITDA breakeven in FY22, to contribute 10% to overall revenues in FY23
• US revenues rise 17% YoY to $ 160 million driven by respiratory product portfolio
• Three products to be launched in FY23 with a total market size of about $ 15 bn
• Management expects US revenues to increase by $300-500 million by FY25

With the pandemic in the rear view (for now) Covid inventory losses hit Cipla’s margins 

The company incurred a one-time expense of Rs 160 crore for Covid-related inventory write-offs on account of Covid product portfolio still in its inventory. This expense led to a fall in net profit, which declined 12.4% YoY to Rs 361 crore. The EBITDA margin also fell 279 bps YoY to 14.5% in Q4FY22. 

Apart from the one-time expenses, high R&D expenses of Rs 322 crore also impacted the margins. When asked about this, the Global CFO of Cipla, Dinesh Jain said “higher R&D investment was driven by the initiation of the clinical trials of a respiratory asset”. The management expects the R&D expense to stay at a higher range of 6% to 7% in FY23. 

However, adjusting for one-time expenses, the EBITDA margin stands at 18.1%, up 70 bps YoY as price hikes in Indian markets offset the prevailing pricing pressure in the US market. 

Prescription business drives One India growth, crosses $ 1 billion revenues in FY22

Cipla’s India business revenues rose 21% YoY to Rs 2,183 crore on the back of sustained traction across prescription and generic business. One India business, which contributes 43% of the total revenues, mainly consists of branded prescription, trade generics, and consumer health segments. Its branded prescription business achieved a milestone, crossing $1 billion in revenues in FY22.

Cipla’s core branded prescription portfolio therapy mix (acute and chronic) continued its growth momentum and enjoys healthy market share across therapies. In the generics business, Cipla is the largest in the country with more than 155 brands. The company launched about 19 brands in Q4FY22 and witnessed strong demand across its flagship brands and key therapeutic categories.

When asked about the growth in the sub-segments, Umang Vohra, Managing Director and Global CEO of Cipla said that the consumer health business saw the highest revenue growth followed by branded prescription business and finally the pain therapy segment. The objective of the management is to beat the Indian pharma market’s growth rate, which is expected to grow by 11% in FY23.

US revenue rises despite the pricing pressure, respiratory drugs gain market share

Most pharma companies are facing pricing pressures amid intense competition in the US market. This directly impacts revenue and profitability. Cipla’s US revenue, which contributes 23% of total revenue, rose 17% YoY to Rs 1,209 crore, its highest ever quarterly revenue from the US market. Sustained traction in its respiratory and peptide segment aided topline growth. 

Cipla faced relatively lower price erosion in the US business compared to its competitors thanks to its focus mainly on complex drugs that have lesser competition in the US market. Indian pharma companies are now resorting to this strategy as generic drugs are seeing intense competition leading to price erosion.

The drug maker is focusing on its respiratory portfolio in the US as it currently accounts for over 27% of its US business revenue. Albuterol and Brovana are the major products in the respiratory portfolio, and they continue to gain market share in the US. Albuterol inhaler is used to prevent and treat wheezing and shortness of breath. Brovana is a medication used for the treatment of chronic obstructive pulmonary disease. The company’s market share in the albuterol market increased 130 bps QoQ to 17.2% in Q4FY22. 

Cipla launched its peptide asset Lanreotide injectable in the US markets in Q4FY22. This drug has a US market size of $ 867 million and the management is optimistic of a 10% market share in Lanreotide market. The company also plans to launch another peptide injectable in FY23. The management expects the US revenue to increase in the range of $300-500 million by FY25 driven by growth through existing drugs.

Another region the drug maker is focusing on for revenue growth is SAGA (South Africa, Sub-Saharan Africa, and global access). Revenues from SAGA rose 7.7% YoY to $ 126 million in Q4FY22 driven by strong growth in its prescription and over-the-counter (OTC) drugs. Cipla launched 32 brands in the South African private market in FY22. The management is also focusing on identifying more brands with high consumer potential in South Africa to build a strong global wellness franchise. 

Over the last few quarters, revenue from the SAGA region is on the rise as it continues to post market-beating growth in the South African private market segment. High contribution from SAGA region helps Cipla diversify its revenue mix without concentrating only on the Indian and the US markets. 

Key product launches to determine Cipla’s profitability in FY23

Key product launches in the US are important for Cipla as its revenue growth and profitability from US businesses depend on this. Its current pipeline includes major products such as Advair, Revlimid, Abraxane, Spiriva, and Breo. Advair, Revlimid, and Abraxane (planned to be launched in FY23) together have a market size of over $15 billion.

When asked about the outlook on India business, Vohra answered, “We are quite clear, I think we would like to see very high growth, better than the Indian pharma market for the non-COVID portfolio. And I think our business momentum is very strong across all the 3 businesses (prescription, generics, and consumer health). 

With a promising outlook on Indian business, Cipla’s US business growth will mainly depend on key product launches after USFDA’s facility inspection and approval. Any delay in the launch timeline can affect the profitability of the product. This is especially critical in the current high inflation environment - rising raw material expenses and high R&D costs are expected to stay elevated throughout FY23, putting pressure on margins. Cipla will have to stay on its toes.