Zydus Lifesciences Ltd - gRevlimid eliminates the concern of competition in Asacol HD. Maintain BUY

• ZYDUSLIF surprised us positively by launching gRevlimid in the US in the first wave of generic introductions as per the patent settlement pacts with innovator – Bristol Myer Squib (BMS).

• Given the large branded market opportunity of US$ 8.7bn in US, gRevlimid becomes the largest ever generic opportunity for multiple generic players including ZYDUSLIF.

• In fact, seven generic players (including Teva, Dr Reddy, Cipla, Mylan, Alvogen, Apotex and ZYDUSLIF) have announced the launch of Lenalidomide (generic of Revlimid) in the US and SUNP is waiting for its ANDA approval for commercialization soon.

• As per the settlement, one can sell a mid-single-digit percentage volume of the total Lenalidomide dispensed in the US during the first year of entry and the volume limitation is expected to increase gradually each 12 months until March 2025, and is not expected to exceed one-third of the total volume dispensed.

• Hence, assuming just 5% volume share with 30%/40% price erosion, we estimate the gRevlimid to add incremental sale of US$ 150mn/US$ 260mn with a profit of US$ 80mn/ US$ 136mn during FY23/ FY24 (annually thereafter till FY26).

• Potential generic competition in Asacol HD (wherein ZYDUSLIF has been the sole supplier of the drug in the US market) has long been the key investment concern in the company.

• We believe gRevlimid is the key influential earnings trigger for ZYDUSLIF over next four years (with an annual revenue/earning potential of over US$ 250mn/US$ 130mn till FY26) and will neutralise all earnings impact caused by any generic competition in Asacol HD.

*Outlook & Valuation*

• With such influential cash flow, we believe the gRevlimid will drive ZYDUSLIF’s qualitative growth by complementing its discovery research (in NCE/NBE/Biosimilar/vaccines) as well as its M&A led growth plans in the specialty business in the US. We recommend to BUY ZYDUSLIF for a TP of Rs 510 i.e. 20xFY24 EPS (Rs 450 earlier).