Launches could revive Cadila health

Solving problems relating to its Moraiya unit will be key

The Cadila Healthcare stock was up four per cent on expectations that new launches in the US market and resolution of issues related to the US Food and Drug Administration (USFDA) over the next few months would boost sales. The optimism is also because Cadila has said the US pipeline is strong, with 15 new launches.

Launches in 2016-17 (FY17) include an authorised generic, as well as other high-value drugs. The USFDA has indicated that inspection of the company’s Moraiya plant is closed and it will address issues related to the warning letter for the plant separately. To overcome the impact of the letter, the company has been looking at shifting production of some drugs to other units, with 13 cumulative approvals achieved so far.

The quarter ended June was disappointing, with sales falling four per cent year-on-year (y-o-y). Sales in the US (37 per cent of its revenue), the single-largest market, fell 14 per cent y-o-y because of higher generic competition for arthritis drug HCQS. The company said the price erosion has bottomed out.

Sales growth in the US will depend on revenues from the authorised generic of anti-inflammatory drug, Asacol HD, launched on August 1. Cadila said a couple of the 15 new launches could rake in $25-30 million each.

Cadila’s performance in the Indian market was below par, with sales up 6.2 per cent y-o-y, largely because of price cuts ordered by the national list of essential medicines. The company said confusion about product pricing and returns hit sales two-three per cent. But, it has so far not been hit by fixed dosage combination pricing action and the firm believes it can achieve double-digit growth for the rest of FY17. Sales in Latin America fell five per cent because of pre-buying in March, given announcement of price increases, which led to a sales drop in April and May. While the clearance of the Moraiya unit will be key, analysts at JM Financial say Cadila has the best mix: 30 per cent of existing portfolio and 40 per cent of pending Abbreviated New Drug Applications are limited competition products, including modified release, dermatological and injectable products.

These could fetch high margins and boost profitability. At the current price, the stock is trading at 18 times its FY18 estimates.