Shilpa Medicare -Racing away on the Oncology API highway!

Stock Opportunities Not-so-Hidden Gems
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TAPI'S ACTIVE PATENTS/APPLICATIONS

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http://phx.corporate-ir.net/phoenix.zhtml?c=130431&p=irol-newsArticle&ID=1437041&highlight=

Excerpts:

According to IMS data, U.S. sales of EloxatinÂź in 2009 were $993 million1. According to 2009 IMS data, combined U.S. sales of EloxatinÂź and generic oxaliplatin were approximately $1.35 billion1.

1Per IMS Dataview © IMS HEALTH as of December 31, 2009

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http://articles.economictimes.indiatimes.com/2010-03-12/news/28410432_1_injections-caraco-pharmaceutical-laboratories-oxaliplatin

PTI,Mar 12, 2010, 09.42pm IST

NEW DELHI: Sun Pharmaceutical’s US arm Caraco has launched oxaliplatin injections, used in the treatment of cancer, in the American market.

Oxaliplatin is an anticancer used in the treatment of colon and rectal cancer. These injections have annual sales of about USD 1.3 billion in America.

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http://www.business-standard.com/india/news/sun-to-stop-selling-cancer-drug-oxaliplatin-in-usjuly/399538/

Sun Pharmaceutical Industries today said it will stop selling generic Oxaliplatin, a cancer treatment drug, in the US after June 30, following an order by a New Jersey court.

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http://money.oneindia.in/news/2011/03/24/ind-swift-labs-usfda-nod-temozolomide-te-aid0096.html

Ind Swift Labs gets USFDA nod for Temozolomide and Telmisartan

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Some information on the Oncology drugs mentioned in the report from Donald. The market opportunity looks to be much less than what the report says. However it is still big enough for a small cap lik Shilpa Medicare. In my opinion focus should be more to find out whether Shilpa is low cost producer of theseAPI (Shilpa has no presence in Formulations)and who are the competitors both inside and outisde India. Comments from Annual reports and press below on the drugs:

Capecitabine (Brand name Xeloda ))- Innovator - Hoffmann La Roche FY10 SalesUSD 1.426 Bn. Patent to expire in 2013.

Docetaxel (**Brand name **Taxotere), Innovator- Sanofi-Aventis FY10 Sales Euro 2.1 Mn, Out of patentin United States.

Sanofi-aventis received notifications from Hospira, Apotex and Sun in 2007 and 2008 who
have filed 505 (b) (2) applications, and from Sandoz in 2009 and Accord Pharmaceuticals in 2010 who each filed an ANDA with the U.S. Food and Drug Administration (FDA) seeking to market generic versions of Taxotere. In response to these notifications, sanofi-aventis has filed patent infringement lawsuits against Hospira and Apotex (2007), Sun (2008), Sandoz (2009), and Accord (January 2011). The lawsuits are pending in the U.S. District Court for the District of Delaware. None of the applications contested U.S. Patent No. 4,814,470 claiming the active ingredient, which expired in May 2010. The cases against Hospira and Apotex were consolidated for trial held between October 26, 2009 and November 2, 2009. In September 2010, the U.S. District Court for the District of Delaware ruled against sanofi-aventis in the consolidated Hospira/Apotex

trial, finding the disputed patents both invalid and unenforceable. Subsequently, in October 2010, sanofi-aventis appealed to the United States Court of Appeals for the Federal Circuit. Based on the District Courtas judgment in the consolidated Hospira/Apotex action, judgments were entered against sanofi-aventis in the Sun and Sandoz actions. Sanofi-aventis has appealed the Sun and Sandoz judgments to the United States Court of Appeals for the Federal Circuit. All three appeals are pending. The proceedings against Accord are in the early stages.

Oxaliplatin)- Brand name ELOXATIN, Sanofi-Aventis
)- Sales Before patent USD 1.4 Bn, After patent Euro 427 mn (fell by 58 % before the generic ban) , Before patent 1 bn Euro

Currently in the U.S., there is no generic of Eloxatin on the market(1) ( Generic makers (Teva, Fresenius Kabi (formerly Dabur), Sandoz, Mayne/Hospira, MN/Par, Actavis and Sun) have been required to cease selling in the U.S. since June 30, 2010 but litigation continues)
http://phx.corporate-ir.net/phoenix.zhtml?c=175550&p=irol-newsArticle&ID=1409035&highlight=
http://www.evaluatepharma.com/Universal/View.aspx?type=Story&id=210140

The French drugmaker said that under the deals, the three companies will stop marketing their generic versions of the drug on June 30, and will allow them to market their versions of Eloxatin in the US from August 9, 2012. Further details of the settlements were not disclosed.

**Temozolamide (**TEMODAR),Merck-ScheringUSD 1 bn in 2010 FY (Lost patent protection in the EU; generic market entry began in 2010 in Europe. US patent will end in 2014, Japan in 2018)

http://www.lexisnexis.com/community/patentlaw/blogs/peopleinthenews/archive/2010/01/27/u.s.-district-court-rules-against-merck-in-temodar-_2800_temozolomide_2900_-patent-lawsuit.aspx

In November 2010, Merck announced that a federal appellate court ruled in its favor in a Temodar patent infringement suit against Barr Laboratories (“Barr”), an affiliate of Teva Pharmaceuticals (“Teva”). The appellate court rejected Barr’s arguments and reversed a lower court ruling that the U.S. patent was unenforceable. Teva had been seeking FDA approval to sell a generic version of Temodar. In connection with Teva’s prior agreement not to launch during the appeal, Merck agreed that it will not object to Teva’s launch of a generic version of Temodar in August 2013. The U.S. patent and exclusivity periods otherwise will expire on February 2014. Temodar lost patent exclusivity in the EU in 2009 and generic products are being marketed.

Temodar a In July 2007, a patent infringement action was filed (jointly with Cancer Research Technologies, Limited (“CRT”) in the United States against Barr (later acquired by Teva) in respect of Barr’s application to the FDA seeking pre-patent expiry approval to sell a generic version of Temodar. In January 2010 the court issued a decision finding the CRT patent unenforceable on grounds of prosecution laches and inequitable conduct. In November 2010, the appeals court issued a decision reversing the trial court’s finding. In December 2010, Barr filed a petition seeking a rehearing en banc of the appeal. By virtue of an agreement that Barr not launch a product during the appeal process, the Company has agreed that Barr can launch a

product in August 2013. In September 2010, a patent infringement lawsuit was filed (jointly with CRT) in the United States against Sun Pharmaceutical Industries Inc. (“Sun”) in respect of Sun’s application to the FDA seeking pre-patent expiry approval to sell a generic version of Temodar. The lawsuit automatically stays FDA approval of Sun’s ANDA until February 2013 or until an adverse court decision, if any, whichever may occur earlier. In November 2010, a patent infringement lawsuit was filed (jointly with CRT) in the against Accord HealthCare Inc.

(“Accord”) in respect of its application to the FDA seeking pre-patent expiry approval to sell a generic version of Temodar. The Company, CRT and Accord have entered an agreement to stay the lawsuit pending the outcome of the appeal en banc process in the Barr lawsuit.

**Gemcitabine HCI (**Gemzar), El Lilly, Q1 FY11 revenue USD 156 mn, USD 1.15 Bn FY2010 ( 1.36 Bn in FY09), off Patent
http://www.dddmag.com/news-Court-Upholds-Gemzar-Patent-4110.aspx
http://www.pharmatimes.com/Article/11-05-17/Amylin_sues_Lilly_over_Boehringer_link-up.aspx

Meantime, Lilly suffered a further setback on the news that the US Supreme Court has left intact a federal appeals court decision last July invalidating its patent on the chemotherapy Gemzar (gemcitabine). The firm had been looking to protect Gemzar from generic competition in the USA until May 2013, but the Supreme Court, without comment, refused to hear Lilly’s appeal in the case originally won by India’s Sun Pharmaceutical Industries. Copycat versions became available across the pond in November. Gemzar has already lost effective exclusivity in the U.S. and major European countries (France, Germany, Italy, Spain and the United Kingdom), and Humalog has lost exclusivity in major European countries.

Gemzar: Teva Parenteral Medicines, Inc. (Teva); Sun Pharmaceutical Industries Inc. (Sun) and several other generic companies sought permission to market generic versions of Gemzar prior to the expiration of our relevant U.S. patents (compound patent expiring in 2010 and method-of-use patent expiring in 2013). We filed lawsuits in the U.S. District Court for the Southern District of Indiana against Teva (February 2006) and several other generic companies, seeking rulings that our patents are valid and are being infringed. In November 2007, Sun filed a declaratory judgment action in the U.S. District Court for the Eastern District of Michigan, seeking rulings that our method-of-use and compound patents are invalid or unenforceable, or would not be infringed by the sale of Sunas generic product. In August 2009, the district court in Michigan granted a motion by Sun for partial summary judgment, invalidating our method-of-use patent, and the opinion was affirmed by a panel of the Court of Appeals for the Federal Circuit in July 2010. We are seeking review of this decision by the U.S. Supreme Court. In March 2010, the district court in Indiana upheld the validity of our compound patent in the Teva case, but applied collateral estoppel with regard to our method-of-use patent, given the ruling in the Sun case. Generic gemcitabine was introduced to the U.S. market in mid- November 2010.

**Irinotecan HCI (**Camptosar), Pfizer certainly no $ 1.1 Bn opportunity as mentioned in the report
Camptosar lost exclusivity in Europe in July 2009 Loss of U.S. exclusivity in February 2008

**Docetaxel (**Taxotere), Sanofi Aventis, SalesEuro 382 mn for Q1 FY11 (Lost 30 % YOY) Euro 2.1 Bn (before expiration) USD 2.94 Bn
http://www.bloomberg.com/news/2010-09-27/sanofi-s-patents-on-cancer-drug-taxotere-invalidated-update1-.html
The top four countries contributing to sales of Taxotere in 2010 were the United States, France, Japan and Germany. Generics of docetaxel were launched at the end of 2010 in Europe. In the United States we anticipate that the FDA will grant final approval to one or more generics of docetaxel in 2011.

No generic products presently on the US market till Feb 2010. Patent expored in My 2010 in US and November 2010 in EU, Japan in 2012. Generic docetaxel became available throughout Western Europe by November 2010. In the United States, distributors commenced a
work down of Taxotere inventories in late 2010 in anticipation of the expected arrival of generic docetaxel in 2011. However, the product saw modest growth in Emerging Markets and in the Other Countries region (1.4% and 2.5% respectively).

Taxotere has been facing generic competition in the EU since the end of 2010 following the expiry of its composition of matter patent and in the U.S. since the end of the first quarter following the loss of its market exclusivity. First-quarter net sales of the product decreased by 31.6% to aÂŹ382 million, reflecting decreases of 61.3% in Western Europe (aÂŹ74 million) and 19.9% in the U.S. (aÂŹ168 million). In Japan, Taxotere continued to record good performance with sales up 13.2%.

**Anastrozole (**Arimidex), AstraZeneca Sales Q1 FY11 USD 233 MN
In the US, sales of Arimidex were down 92 percent in the first quarter to $19 million, as a result of genericcompetition which commenced in June of last year. Facing competition from generics in all big markets.

Arimidex sales in other markets were down 21 percent to $214 million. Sales in Western Europe were down 33 percent, reflecting the loss of exclusivity from February 2011. Sales in Established ROW were down 2 percent.

Carboplatin )- Patent expired quite a few years back, Innovator BMS - Bristol-Myers Squibb-Global
http://www.tapi.com/tapiteva/productPages/Carboplatin
http://www.genericsweb.com/index.php?object_id=323
Carboplatinas innovator is BMS - Bristol-Myers Squibb-Global and is distributed world-wide by the brand names Paraplatin and Paraplatin Novaplus.

Cisplatin )- Patent expired quite a few years back,Innvoator Bristol-Myers Squibb sells Cisplatin under the brand name Platinol.
http://www.ftc.gov/opa/2003/03/bms.shtm

1 Like
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Hey Arindam & YSB,

That was quick. Thanks for the collation. Some things are pretty clear from here:

a) Off-Patented Oncology drugs too suffer pretty severe market erosion. In the first year of going off-patent, there is more than 50% price erosion (as in Oxaloplatin’s case till the generics ban). So Sunidhi’s projections of taking a 70% hit in year1, and 10% of that as the API scope seems to be okay

b) There are multiple players already in the race to launch generic versions of these. For Oxaloplatin itself there is Sun Pharma, DRL, Fresenius Kabi, Hispora, Sandoz, Actavis. These are the formulations players

c) API suppliers like Shilpa will need to supply to these formulations players. Some of these formulations players will have their own captive API supplies too.

d) Is it boiling down to API capacities therefore? The investment by Shilpa to become the largest oncology API capacity player can thus be significant. Think the report also mentioned capacities for different APIs can be mixed and matched to demand.

Lets go after establishing API capacities of different players in the Oncology space then. The majors as mentioned above plus Intas pharma, Venus Remedies, Biocon.

Great work!

-Donald

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Thanks Donald for the succinct observations. Some of my thoughts are:

1). The time window for an off-patent oncology drug, looks like it is at best 2 years. Shilpa has ridden the Gemcitabine opportunity in 2009 & 10, it wasn’t a growth driver fro 2011, which was flat.

2). If you have drugs in the pipeline every year going off patent, then there is some visibility. So Oxaliplation (after the ban) in FY12, and Temozolamide and Capecitabine in FY13 offer that peek into Shilpa’s growth for next 2-3 years perhaps.

3). Next indicator of growth visibility should come from established tie-ups/contracts with majors like Sun, Actavis, DRL, others. It may be more important to establish that rather than so much on the capacities.

4). In the rising interest scenario (with FD rates touching 10%), a tepid single digit growth achieved by Shilpa in FY11, is likely to be discounted heavily by the market, if the visibility into growth is not there.

In this high-interest/high inflation, longer credit & working capital cycle,current scenario - only companies with low debt and great working capital management, with strong growth (anything upwards of 25%) may not get discounted badly.

Welcome views from everyone.

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Excellent observations.

So you are making the case that Shilpa’s growth is likely to be muted in FY12 - say another 10%. It has high working capital 145 Cr vs sales of 290 Cr or almost 50% of Sales. Debt is not too high at 0.22x

Actually if we take out the Cash and Cash Balances of 83 Cr out of the picture, then working capital/Sales is not too bad at ~22% or so. Why do they need so much Cash. If they had no use for it, why not retire the debt -Ayush??

Overall though, I concur with your observation about focusing on companies with low debt, and excellent working capital management with good growth visibility -if one were to make any fresh investments in the market. I echo these sentiments and feel Mayur Uni and Astral Poly are good bets if the markets gets cheaper. Which are the others? Companies not having these characteristics will be discounted much more.

As for Shilpa, yes FY12 will be muted but thats probably factored in already (given that its in the pharma space) in current prices.Let’s establish the visibility of long term contracts in Shilpa’s case if we can.

Atleast we are getting more clear in our understanding of issues, or what to try and understand from the interaction with management.

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Hi,

Thanks a lot for digging out so much of info. Few inputs from my side:

1). The Barring Equity fund was allotted equity shares and not warrants. Hence only the promoter’s warrants are pending for conversion.

2). Even though the near term growth for FY12 may be muted, but the past track record is excellent and why can’t they scale it up going forward?

3). I think it would be rare to come across cos which have their own R&D and are capable of manufacturing high value patented drugs. So if this small pharma co has such qualities and they can successfully manufacture high value drugs going off=patent over next 2-3 years at competitive prices 
no doubt they will enter the big league.

4). Regarding working capital requirement - I think its quite less. For eg - for FY 2011, the Debtors are just 33 Cr, Inventory is 37 Cr and Current Liabilities are about 25 Cr. Hence working capital is just 45 Cr for 260 Cr turnover.

Other ratios are also very attractive like - High OPM, High NP, High ROCE etc.

Views Invited

Regards,

Ayush

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What about the Cash 83 Cr? is this not unproductive??

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Hi,

The 83 Cr cash has come into the company by doing a placement to Baring Equity Fund of about 90 Cr. The purpose of raising funds was to meet the cost of their upcoming 100 Cr formulations expansion.

The formulations plant would take about a year to complete. So over next 6-12 months the cash would get deployed.

Historically working capital requirements have remained limited for the company.

Regards,

Ayush

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I think this is an important point. The reason why Shilpa deserves better valuations than its peers. Pharma is one space that is ripe for consolidation -M&As.

If we think about Shilpa from an Investment Bankers point of view, and his advise to a prospective acquirer, the gap in valuations will stand out.

That’swhy it may be important to study competitors like Fresenius Kabi (erstwhile Dabur), Vanus Remedies, Intas, which others?? Get a better perspective on Shilpa’s strengths & weaknesses.

Over to comparative studies, then.

-Donald

3).

Regards,

Ayush

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Shilpa's direct competition. People with active DMFs filed with USFDA

Oxaliplation

HOLDER

SUBJECT

TANAKA KIKINZOKU KOGYO

OXALIPLATIN AS MFG. IN KANAGAWA, JAPAN

JOHNSON MATTHEY PHARMACEUTICAL MATERIALS INC

OXALIPLATIN AS MANUFACTURED IN WEST DEPTFORD, NJ.

SICOR DE MEXICO SA DE CV

OXALIPLATIN AS MANUFACTURED IN ESTADO DE MEXICO, MEXICO.

PLIVA LACHEMA AS

OXALIPLATIN AS MANUFACTURED IN BRNO, CZECH REPUBLIC.

FRESENIUS KABI ONCOLOGY LTD

OXALIPLATIN AS MANUFACTURED IN WEST BENGAL, INDIA.

WC HERAEUS GMBH

OXALIPLATIN AS MANUFACTURED IN HANAU, FEDERAL REPUBLIC OF GERMANY.

SUN PHARMACEUTICAL INDUSTRIES LTD

OXALIPLATIN EP/BP ACTIVE SUBSTANCE AS MANUFACTURED IN MAHARASHTRA, INDIA.

WC HERAEUS GMBH

OXALIPLATIN PROCESS HER-2 USP AS MANUFACTURED IN HANAU FEDERAL REPUBLIC OF GERMANY

CIPLA LTD

OXALIPLATIN PH. EUR. AS MANUFACTURED IN BANGALORE, INDIA

JIANGSU HENGRUI MEDICINE CO LTD

OXALIPLATIN AS MANUFACTURED IN JIANGSU CHINA

POLYMED THERAPEUTICS INC

OXALIPLATIN, NON-STERILE BULK DRUG SUBSTANCE AS MANUFACTURED IN CHONGQING, CHINA FOR POLYMED THERAPEUTICS INC

APTUIT LAURUS PRIVATE LTD

OXALIPLATIN PH. EUR. AS MANUFACTURED IN ANDHRA PRADESH, INDIA

ZYFINE DIV CADILA HEALTHCARE LTD

OXALIPLATIN PH. EUR. AS MANUFACTURED IN GUJARAT INDIA

QILU PHARMACEUTICAL CO LTD

OXALIPLATIN (NON-STERILE API) AS MANUFACTURED IN SHANDONG PROVINCE PEOPLES REPUBLIC OF CHINA

SHILPA MEDICARE LTD

OXALIPLATIN AS MANUFACTURED IN KARNATAKA INDIA

HOSPIRA BOULDER INC

OXALIPLATIN DRUG SUBSTANCE AS MANUFACTURED IN BOULDER CO

EMCURE PHARMACEUTICALS LTD

OXALIPLATIN USP AS MANUFACTURED IN MAHARASHTRA, INDIA
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Similar lists for Temozolomide and Capecitabine exist with us. between the 3 estimated market portential for APIs in 2012 and 2013 is ~85 mn.

Point is, what are the implications? There are Chinese guys as well as Indian biggies like Cipla and Sun Pharma. Cost competitiveness and API Capacities may be crucial. Long term assured supply contracts with the approved drug manufacturers may be crucial with so many vying for supplies?

Rgds

Donald

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One way of moving forward on this is to examine Gemcitabine record.

When was generic Gemcitabine introduced in US and European markets, what was the potential projected, how many competitors had DMFs filed and how much did Shilpa gather in revenues from Gemcitabine in FY10 and FY11.

That data wud be nice to have:) Donald? Tcx? Ayush?

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Gemcitabine

US market $1350 mn

off patent API market $ 41 mn

DMF #

TYPE

SUBMIT DATE

HOLDER

1

18810

II

9/24/2005

JIANGSU HANSOH PHARMACEUTICAL CO LTD

2

18857

II

10/11/2005

DOCTOR REDDYS LABORATORIES LTD

3

19053

II

12/19/2005

SCINOPHARM TAIWAN LTD

4

19427

II

5/16/2006

SUN PHARMACEUTICAL INDUSTRIES LTD

5

20979

II

10/29/2007

TEVA PHARMACEUTICAL INDUSTRIES LTD

6

21399

II

4/22/2008

FRESENIUS KABI ONCOLOGY LTD

7

22199

II

10/23/2008

OLON SPA

8

22229

II

11/26/2008

HETERO LABS LTD

9

22748

II

4/15/2009

INTAS PHARMACEUTICALS LTD

10

22800

II

5/16/2009

APTUIT LAURUS PRIVATE LTD

11

23339

II

12/4/2009

EMCURE PHARMACEUTICALS LTD

12

23433

II

1/6/2010

CADILA HEALTHCARE LTD

13

23516

II

2/12/2010

EUTICALS SPA

14

23633

II

3/31/2010

ARCH PHARMALABS LTD

15

23801

II

5/26/2010

ARCH PHARMALABS LTD

16

23833

II

5/26/2010

SMS PHARMACEUTICALS LTD

17

24136

II

3/4/2011

SHILPA MEDICARE LTD

18

24278

II

10/14/2010

PHARMAESSENTIA CORP

19

24341

II

10/29/2010

JARI PHARMACEUTICAL CO LTD
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Eli lily held the patent. Genrics from Sun Pharma, Teva, APP Pharma, Fresenius Kabi, and Hospira Inc.

Interestingly if you look at the data above, Shilpa Medicare was granted an active DMF status only on Mar 4 2011!

So API sales to drug marketers in US has started only in FY12? Does this mean FY10 sales of Gemcitabine were only to drug marketers in Europe??

Does this mean more upsides from Gemcitabine Sales in FY12??

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http://webcache.googleusercontent.com/search?q=cache:http://www.dnaindia.com/money/report_shilpa-medicares-a-strong-oncology-bet_1233418

This reports states contribution from Gemcitabine for Shilpa Medicare was 75-100 Cr fro FY10E!