Cadila announced on December 31 that it has received warning letters from the USFDA for its Moraiya formulation and Ahmedabad API sites, following inspections in Sep 2014 and Nov 2014, respectively. The Moraiya formulation plant is critical as it has 74 of the company’s ~160 pending ANDAs. In our assessment, this development presents risks to ~28-30% of total projected earnings for FY17F, assuming no approvals from Moraiya and no upside from site transfer efforts. Asacol HD and Prevacid ODT are some of the high-value approvals we have factored in from the site.
The company has begun the site transfer process for four high-value ANDAs aPrevacid ODT. The company has no pending approvals at the Ahmedabad API facility, hence we see no impact on earnings there.
Earlier-than-expected resolution (by 1H FY17F) of these issues, successful site transfer and new approvals from other sites (eg, Baddi and the SEZ) would minimise the earnings risk. The company successfully closed the inspection observation for the Baddi and SEZ sites after having received Establishment Inspection Reports (EIRs).
The company expects at least 15 ANDA approvals based on the Complete Response Letters (CRLs), Information Requests (IRs) and Easily Correctable Deficiencies (ECDs) it has received so far.
We retain our Buy rating. We are reviewing our earnings estimates and target price. We present the key takeaways from management interactions after the warning letters were issued.