Cadila Healthcare stock: Analysts see 20% compounded growth in US sales

The Cadila Healthcare stock price has corrected by a fourth since its high touched in November and by almost a third from its peak level reached in June last year.
 
Concerns over rising competitive intensity in the US and pricing pressure in the pharma sector are weighing on the company’s stock prices.
 
While analysts have cut their forward net profit estimates to factor in the challenges, the correction in stock prices, according to them, is exaggerated.
 
Analysts at Nomura, while maintaining their positive stance on Cadila, said the fall in stock prices was significantly higher than the consensus earnings cut of 10 per cent for FY18 and 13 per cent for FY19.
 
The company has a strong pipeline of products pending approvals and no major regulatory issues. It was successful in resolving the issues raised by the US Food and Drug Administration (US FDA) regarding its Moraiya plant. It also said a recent FDA inspection of its topical manufacturing facility near Ahmedabad had resulted in no observations. With no regulatory overhang, approvals and launches of products will continue to drive earnings growth. Thus, analysts said the downside from the current levels should be limited.
 
Nomura said there was a strong earnings support in the near term, driven by the contribution from generics of ulcerative colitis drug Lialda, anti-inflammatory medication Asacol HD and flu treatment drug Tamiflu. They also expect the launch momentum to remain strong.

For Asacol, while the company is marketing authorised generics, its own generic launch of Asacol by FY19 can further boost profitability, with a gross margin of 70-75 per cent versus 20-25 per cent currently. Elara Capital expects an additional Rs 1.4 billion of earnings before interest, tax, depreciation and amortisation (Ebitda) from the launch of Asacol.
 
Besides, Cadila has 135 pending abbreviated new drug applications (ANDA). Though generic Lialda, launched on exclusivity in July 2017, may face competition now, some high-value, niche products such as acid control drug Prevacid ODT and transdermal Exelon patch are likely to receive approvals in the next three-six months.
 
The management has guided for 40 ANDA launches in FY19, which should help to grow its base business and offset any price erosion.
 
Analysts at Elara estimate Cadila’s US revenues to grow at a compounded rate of 20 per cent over FY17-20.
 
Cadila has also received approval for the launch of hypertension treatment Toprol XL generics. The launch of the drug can add $45-50 million per annum to Cadila and being a complex product it is likely to see limited competition.
 
Given the building blocks are in place for a sustained growth from the US, analysts see a 12-24 per cent upside for the stock from the current levels of Rs 378.65.