Strong US sales momentum may drive further gains for Zydus Lifesciences

Market share gains in the Indian market and margin expansion are other positives

The stock of pharmaceutical major Zydus Lifesciences is up about 10 per cent from its low towards the end of November, even after considering the correction seen in the past few sessions. Brokerages are positive on the stock, given traction for its key products in the US market, new limited-competition drug launches, regulatory clearance for the Moraiya facility and market share gains in the domestic market.

 

The near-term trigger has been the launch of the generic version of Trokendi in the US. The drug used in treating migraines has been launched by Zydus in three strengths with a market size of $175 million. Apart from the innovator, the drug is expected to have just a couple of players for a year and a half. Given that Teva is the only other player in the authorised generics space but has not been able to get US FDA (Food and Drug Administration) go ahead, Zydus could be the sole player in the generics segment in the near term.
 

Vishal Manchanda and Bezad Deboo of Systematix Research expect minimal price erosion risks as the product will face limited competition for a period of time and estimate the generic version of the drug to add between $40-80 million to the company’s US sales. Systematix has factored in sales at the lower end of the band and maintained a ‘buy’ rating on the stock.

Market share gains and traction for key products should boost its overall sales in the US market which accounts for 39 per cent of its revenue. Sharekhan Research believes that key products Asacol HD (bowel disease), Lacosamide injection (to treat seizures) and Alimta (Pemetrexed Disodium) for chemotherapy, have seen strong volume expansion in the December 2022-2023 quarter (Q3FY23) on a sequential basis.
 

The company also launched the blockbuster cancer drug, Revlimid, in Q2FY23. Robust volume growth in recently-launched key products, as well as new products launched in Q3FY23, should lead to strong growth in the US market going ahead. The total market opportunity of these products on an annual basis is $2-2.5 billion, says Sharekhan Research.
 

 

Though there are concerns on the price erosion front, brokerages believe that a strong launch pipeline of 30-35 products and unveiling of exclusive products could offset some of the pressure. Analysts believe that the company would be able to achieve its target of $1 billion in sales by FY25, led by launches across segments such as injectables, complex oral products, and transdermals among others.
 

The India business is a bright spot on the back of market share gains. On a higher base, the company posted a 4.3 per cent year-on-year (YoY) growth in formulation sales while the consumer business posted a double-digit growth. The YoY growth was driven by market share gains in key therapies such as cardiovascular, gastrointestinal, respiratory and gynecology. Going ahead, the current trend of market share gains is expected to continue.
 

Elara Capital expects the traction in US and India business to drive an improvement in profitability. “Launch of exclusive products in the US and improved momentum in India would lead to an annual revenue growth of 10 per cent, an operating profit growth of 13 per cent and a net profit growth of 13 per cent over FY22-25,” say analysts at the brokerage. They also expect strong growth from the second half of the fiscal and margins to scale up by 200 basis points on monetisation of key US products.