Zydus Cadila sees 60% of topline from US by FY20 even as rivals lose share

Company has already received highest number of USFDA approvals since April 2017 and aims to launch 75% of these

Cadila Healthcare is having a dream run in the US, riding primarily on growth in base business coupled with a steady pipeline of launches lined up for that country. The contribution of the US in its overall turnover has been growing steadily at a time when most of its peers saw the share of US business shrink in their turnovers -- it grew from 43 per cent in the first quarter of the 2017-18 fiscal to 48 per cent now. The company expects the contribution of US to rise to 60 per cent of its turnover by 2019-20.

This would be the highest among its peers. The other two pharma majors who draw significant revenues from the US -- Dr Reddy's Laboratories and Aurobindo --- have business from that country account for 45 per cent and 44 per cent of their toplines at present.

India's most valuable drug maker, Sun Pharma, has seen the contribution of US business in its overall revenue shrink to 30 per cent in Q2FY18 from a 50 per cent about a year back. Cipla, the second most valuable Indian pharma company, draws only 15 per cent of its revenues from the US market compared to 40 per cent for most of the larger peers. Similarly, Torrent Pharma saw the share of US business in its revenues shrink from 40 per cent in FY16 to 23 per cent in FY17 and analysts expect this would further contract to 18 per cent in FY18.

In fact, data show that the share of US business in overall turnover had shrunk from 44 per cent in H1FY17 to 38.8 per cent in H1FY18 for Big Pharma in India.

Product filings, approvals & launches in US in 2017-18
Quarter	ANDAs filed	Approvals received	Products launched
Q3	10	24	2
Q2	9	32	4
Q1	2	18	3
Total	21	74	9
Source: Company

A senior official of Cadila Healthcare (also known as Zydus Cadila) claimed that the price erosion of the base business in the US is bottoming out and in the third quarter it was at 4 per cent. "We expect the price erosion in US base business to be in low single digits as it is bottoming out together with volume growth in the base business. The fourth quarter would see around 10-12 new product launches in the US and this would continue for the upcoming quarters. On the whole, we expect, the share of US to rise in our overall revenue - from a roughly 50 per cent now to 55 per cent in FY19 and the US would contribute around 60 per cent of our revenues by FY20," he elaborated wishing to remain anonymous.

Edelweiss felt that the company has a clear roadmap for its US business - it has already received the highest number of US Food and Drug Administration (USFDA) approvals (78 including tentative approvals) since April 2017 and it aims to launch 75 per cent of these. It has launched nine products in the first nine months of FY18 and aims to file at least 30-40 products every year going forward. Malik said that Cadila Healthcare is expected to launch 150 products in the next two years. It has a pipeline of 157 abbreviated new drug applications (ANDAs) pending approval.

The 2017-18 dream run can be attributed to getting the approval for blockbuster drug for ulcerative colitis (generic Lialda that has a market size of $1.5 bn in the US) in the first quarter of the year itself. Zydus was quick to launch generic Lialda (with a 180-day exclusivity period) in the second quarter itself and saw its US revenues soar 66 per cent. The company received 32 product approvals during the second quarter including one for inflammatory bowel disease drug Asacol HD (market size of $400 mn).

Lialda has been the big launch for Cadila this fiscal -- analysts expect 40 per cent of the FY18 profits to come from the drug which would taper down to 20 per cent of profits in FY19 as competition for the drug increases in the US. Teva has already got USFDA approval to launch the drug, and Cadila's 180-day exclusivity has ended in mid January

US business is expected to be driven by other mesalamine drugs (post decline in Lialda sales) in 2018-19. Amey Chalke, pharma analyst with HDFC Securities felt that other mesalamine drugs (not many companies are into these molecules) like Asacol HD apart from transdermal products (niche category) would drive the company's US revenues in FY19.

Cadila Healthcare has filed 21 ANDAs so far this fiscal (expected to end the fiscal with around 30 filings), which is down from 50 filings in FY17. Chalke felt that going forward the number of filings would reduce as the company is moving to niche and complex generics which require significant amount of research and development (R&D). "It should not be a problem as the niche and complex generics are relatively limited competition and should continue to drive revenues," he said.  

Zydus Cadila: Financial snapshot
Quarter	Total income	YoY change	Ebitda	Change	PAT	Change	US Revenues	Change	US share in Topline
Q1	22.30	-4.0%	2.77	-47.0%	1.38	-65.0%	9.65	14.0%	43.0%
Q2	32.30	35.0%	9.83	64.5%	5.03	33.0%	16.40	66.0%	47.0%
Q3	32.60	38.0%	8.41	108.0%	5.43	68.0%	15.84	78.0%	48.5%
9 months	87.22	22.8%	19.75	37.0%	11.8	7.2%	41.90	53.9%	48.0%
Figures in Rs bn, unless otherwise indicated; Source: Company