Cadila among few bright spots in pharma space

Market share up from 16% to 47%, USFDA clearance for Moraiya unit, almost a dozen product approvals

Unlike many of its pharma peers, there has been a slew of goods news for Cadila Healthcare in recent times. While its Moraiya plant recently got clearance of the USFDA, Cadila has also received almost a dozen approvals for new launches in the US since September. In the last 7-8 days itself, there were five announcements on fresh approvals for new products and dosage forms. Faster launches is crucial for the US business (40 per cent of sales), given the intense pricing pressure being faced by all pharma companies, and will enable Cadila to sustain its growth rates.

Compiled by BS research Bureau

While the approval rate remains strong, shortage of hypertension drug, Atenolol in the US can help Cadila garner some quick gains too. In the four generic player markets, the shortage of Active Pharma Ingredients (or APIs) for the drug is proving helpful for Cadila, which is not facing any shortage. Cadila's market share has surged from 16 per cent to 47 per cent (absolute increase of 130 per cent) suggests a Credit Suisse report, which also indicates towards Cadila having taken price hikes of about 280 per cent in past three months. While the shortages will add 2/1 per cent to Cadila's FY18-19 earnings, analysts say there is scope for further ramp-up (up to 70 per cent share) and could provide additional upside to these numbers.

Nevertheless, Cadila's September quarter (Q2) performance will get a boost from already launched generics of blockbuster product Lailda (treating ulcerative colitis) and also some push from another product Asacrol HD (both used in treating ulcerative colitis). Analysts at Edelweiss Securities expect the company's US revenue ($200 million) to grow 34 per cent sequentially in constant currency terms, with Lailda generics contribution at $40-50 million.

Even beyond Q2, improved visibility in ensuing quarters with strong approval rate lends confidence. In the next few quarters, Tamiflu generics (flu season) will be a contributor, while Prevacid ODT (heartburn treatment), transdermal Exelon patch and Toprol XL (anti-hypertensive) are some of interesting pipeline opportunities, say analysts at Antique Stock Broking.

The company's domestic sales are also expected to rebound after goods and service tax-related destocking impacted June quarter, with Edelweiss estimating a 15 per cent increase in Q2.

All these are expected to lead to net profit rising 3-fold year-on-year in September quarter, and 73 per cent in FY18.

Not surprisingly then, analysts are positive on Cadila's stock (Rs 498), which has gained nearly 40 per cent in 2017. Those at Credit Suisse have maintained an outperform rating with target price of Rs 540, while Edelweiss' is at Rs 580 and Antique's at Rs 515, which could be reviewed upwards after September quarter results.