We initiate coverage on Cadila Healthcare (CDH) with BUY and a Mar17 TP of `370.
We initiate coverage on Cadila Healthcare (CDH) with BUY and a Mar17 TP of `370. We believe the impact of the USFDA’s Moraiya plant warning is fully reflected in current valuations and long-term risk-reward is favourable as CDH’s exciting US pipeline unfolds over the next few years. Near-term stock triggers include the launch of gAsacol HD (an own launch has the potential to boost our FY17 EPS by 13-14%) and Moraiya warning-letter resolution (likely by end-FY17).
CDH’s US pipeline is fairly strong with over 165 products pending approval – of these, 40% are in niche areas such as transdermals, nasals, injectables and controlled substances. Despite the warning letter at the Moraiya plant, we expect the US business to grow at a 16% CAGR over FY16-FY18 (to 44% of sales from 41.5% now), helped by approvals from Baddi and the Ahmedabad SEZ. In January 2016, CDH received a USFDA warning letter for manufacturing violations at its Moraiya plant. The plant accounts for 60% of CDH’s US business and nearly half of its oral solid filings, including key filings like gPrevacid ODT, gAsacol HD and gToprol. Resolution of the matter is likely by end-FY17 and can spur US approvals as well as a sharp re-rating given Moraiya’s strategic value.
CDH missed the November 2015 launch date for gAsacol HD, but is hopeful of launching before July 2016 on its own (else it may launch as an authorised generic).