Explained: Why Morgan Stanley has the second-lowest price target on the Street for this drugmaker

Shares of Cipla Ltd. were trading in the red on Friday, September 4, after Morgan Stanley retained its Underweight rating on the drugmaker with a target price of ₹1,218, making it the second-lowest target among analysts who track the stock.

The brokerage's target implies a downside potential of 12.4% downside from Thursday's closing price.

Morgan Stanley's cautious stance comes even as it views Cipla's exclusive US licensing deal with Qilu Pharmaceutical for the latter's Keytruda biosimilar, QL2107, as positive for the company's oncology portfolio.

Why Morgan Stanley is cautious on Cipla

Morgan Stanley said the Qilu deal is a strategic fit for Cipla as it strengthens the company's oncology and biosimilars portfolio and supports its long-term speciality growth strategy.

Under the agreement, Qilu will handle the development, regulatory filing and supply of QL2107, while Cipla will focus on commercialising the biosimilar in the US through its existing presence.

The brokerage sees the pembrolizumab biosimilar as a potentially important oncology asset that could also expand access to the treatment through lower costs.

However, Morgan Stanley believes the opportunity is still some time away. It expects the benefits from the deal to materialise only from 2028 onwards, around the expected expiry of Keytruda's US patent.

QL2107 is still under development, with its pharmacokinetic study expected to be completed in May 2027, meaning regulatory milestones are still ahead, the brokerage wrote in its note.

Competition is another concern. Morgan Stanley noted that at least 13 pembrolizumab biosimilars are in development, including programmes from Zydus, Formycon, Samsung Bioepis, Celltrion and Amgen.

Cipla's US recovery already priced in

Morgan Stanley said it remains Underweight on Cipla as it sees limited upside, with the stock already pricing in a successful recovery in the US business.

The brokerage said achieving Cipla's targeted $1 billion US run-rate will require strong execution across gVentolin, gAdvair, additional respiratory launches and a major peptide opportunity.

This, according to Morgan Stanley, leaves limited room for regulatory or competitive setbacks.

Cipla analyst consensus

Among the 41 analysts who cover Cipla, 26 have a "buy" rating, nine say "hold", while six have a "sell" rating on the stock. The consensus 12-month target price of ₹1,513, implying an upside of around 8.8% from Thursday's close.

Morgan Stanley's ₹1,218 target is the second-lowest among the tracked brokerages. Jefferies has the lowest target on the stock at ₹1,170 apiece.

Shares of Cipla are trading at the day's lows on Friday, currently trading 1.2% lower at ₹1,377.7. The stock is down 3% over the last one month and has extended its year-to-date loss past 8%.