Cadila among fewbright spots in pharma space

While drug shortage in US will add to some quick gains, new approvals will drive earnings

Unlike peers, it’s good times for drug major Cadila Healthcare.

While its Moraiya plant got a clearance from the US drug regulator, Cadila received almost a dozen approvals for launches in the US since September. In the last seven- eight days, there were five announcements on fresh approvals for new products and dosage forms.

Faster launches is crucial for its US business (40 per cent of sales), given the intense pricing pressure being faced by all pharma firms. It will also enable the drug major to sustain its growth rates.

A shortage of hypertension drug, Atenolol, in the US can help Cadila garner some quick gains. In the four-generic-player market, the shortage of Active Pharmaceutical Ingredients for the drug is proving helpful for Cadila. Its market share has increased to 47 per cent, from 16 per cent (absolute rise of 130 per cent), suggests a Credit Suisse report. It also indicates that Cadila has taken price hikes of about 280 per cent in the past three months.

While shortages will add 2/1 per cent to Cadila’s FY18/19 earnings, analysts say there is a scope for further ramp-up (up to 70 per cent share) and could provide additional upside to these numbers.

Cadila’s September quarter (Q2) performance is likely to get a boost from the already launched generics of blockbuster product Lailda and from Asacrol HD (both used to treat 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. Prevacid ODT (heartburn treatment), transdermal Exelon patch and Toprol XL (anti-hypertensive) are other opportunities, analysts at Antique Stock Broking said.

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

All these are expected to lead to a threefold sequential jump in Cadila’s net profit in Q2. On a yearon-year basis, they are likely to improve 63 per cent in Q2 and 73 per cent in FY18.

Analysts are positive on Cadila’s stock (~ 498), which has gained nearly 40 per cent in 2017. Those at Credit Suisse have maintained an ‘outperform’ rating, with a target price of ~540. Edelweiss has set the target price at ~580, while Antique’s is at ~515, which could be reviewed upwards after Q2 results are announced.