Cadila Healthcare launch pipeline points to healthy outlook, stock gains

Strong Q4, healthy forecast could result in more upside for stock

The stock of Cadila Healthcare gained 7 per cent after the company reported better-than-expected March quarter (Q4) results. This was on the back of strong generic sales of limited-competition ulcerative colitis drug Lialda and anti-infective Tamiflu in the US market. The 29 per cent jump in overall sales was largely on account of its performance in the US market, where sales were up 66 per cent over the year-ago quarter. Given the high-margin products and limited price erosion in the US, operating profit margins also improved 870 basis points (bps) to 25.8 per cent. 

Cadilac

What should keep the Street interested is the strong guidance given by the management both for new launches as well as the margins the company will be able to achieve. It has guided for about 50 new launches in FY19 which is expected to keep the revenue growth strong in the coming quarters. 

It also indicated that margins should improve by 100 bps from the current levels over the next two-three years, excluding the impact of one-offs. Margin gains are expected to come on the back of its product base (including limited competition products) as well as operational efficiencies.  

While the company has a strong pipeline of 144 pending abbreviated new drug applications, the high-value launches could include the generic version of Prevacid (anti-acid) and Exelon Patch (Alzheimer’s). Further, the launch of Asacol (anti-inflammatory) in FY19 will boost both the revenues as well as profitability. The company has guided for low double-digit growth in the US market. 

The India business growth at 5.2 per cent in Q4, however, has been below expectations. The company indicated that it would be able to hit the double-digit growth market for the business in FY19. Going ahead, the company is looking at new growth areas such as biosimilars and vaccines for emerging country markets, including India. The management believes that over the next four-five years, the two segments have the potential to generate about $400 million in business.