Jefferies has put a ‘Hold’ rating on Zydus Lifesciences with a target price of Rs 630 after the company received approval for Clindamycin Phosphate Gel USP from the United States Food and Drug Administration (USFDA). Jefferies evaluated the 2% downside potential of the company and said that, “We value Zydus Lifesciences’ core business at 23x June-25E EPS and gRevlimid NPV at Rs 10 per share to arrive at our price target of Rs 630. Key risks include losing market share in Lialda and Asacol HD and increased price erosion in the US.”
Jefferies hosted Dr Sharvil Patel, MD, and Arvind Bothra, head of IR at Zydus Lifesciences Management, in Singapore and Hong Kong. According to Jefferies, “Management believes Zydus will not just do well in their current business operations but will evolve new lines of growth in next 3-5 years. The new drivers will be based on vaccines, biosimilars in EM (including India), NCE/NBE and complex generics for the US. Management believes Asacol HD risks are overstressed.”
Zydus Lifesciences has a near monopoly in the manufacturing of Asacol HD and is the market leader in the Mesalamine franchise. The US is the key market for the franchise, while Mesalamine is the highest revenue generator for the company. Any supply disruption by Zydus can cause challenges for both the patients as well as the company’s financial performance.
However, Jefferies shared a differing opinion on this and said that, “Mesalamine franchise involves manufacturing complexity. The franchise has sustained for a long time. However, competition can come in at any time. New complex products and limited competition launches in the US remain another major concern.”