Maintain Buy.
500 tonnes consumed in the US per year, Amarin making more demand in ex-US markets: Amarin sold about 500mn Vascepa capsules in the US in 2020. Amarin has many API suppliers for Vascepa. Amarin is now expanding to EU and China which promises to double its API offtake. In this manner, Amarin delivers a volume expansion chance to its suppliers, which generics will come across difficult to match with their principal concentrate on generic conversion in US.
Scale-up challenges at API supplier to generics: Our channel checks show that CCSB Taiwan has been the original Icosapent API supplier to Hikma and
Dr. Reddy’s. Both the generics have highlighted equivalent troubles of API shortage stopping them from scale-up/launch in the marketplace. The precise timeframe to resolution is hard to estimate even though we think each organizations will ultimately scale-up throughout the year 2021, either by means of a second supply or CCSB scaling up effectively.
The API constraint is most likely to also impact any other prospective generics which includes Teva and Apotex. Supply chain constraints indicate that Vascepa will stay a restricted competitors item in the foreseeable future, even following the entry of Hikma and Dr. Reddy’s.
Higher API and conversion expense have kept margins low for Hikma: Hikma has indicated that initial margins on gVascepa are decrease than for a standard launch of this form. We think larger API expenses at CCSB and larger conversion expenses at Catalent are contributing to decrease margins for Hikma. Costs can come down only when CCSB or alternate API suppliers scale-up.
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Dr. Reddy’s remains committed to launch, count on gradual ramp-up by means of FY22: gVascepa remains a crucial item driving FY22 US revenues. Due to API provide troubles, we anticipate a gradual ramp-up by means of FY22, with Dr. Reddy’s attaining $25 mn revenues in FY22 vs $50-60 mn we had estimated earlier. We reduce our FY22 income and EPS estimates by 1%/1%, leaving FY23 unchanged.