Motilal Oswal maintains ‘Buy’ rating on Cadila Healthcare, revised TP Rs 550

By: |
March 31, 2021 2:45 AM

Expects a 19% earnings CAGR over FY20–23

Revlimid is used to treat multiple myeloma in adults. The drug is available as orally administered capsules. Patents on Revlimid expire on 27th April, 2027.

Cadila (CDH) and Celgene (innovator) have reached an agreement to settle the litigation pertaining to g-Revlimid in the US. Assuming the terms of the settlement by the innovator are similar to that with other generic companies (limited volume sales over FY23–26E and unlimited quantities post Jan’26), there could be a potential NPV addition of Rs 25 per share from this opportunity. We await further clarity on the agreement. We remain positive on CDH on account of its strong ANDA pipeline (comprising injectables), NCE portfolio, and outperformance in DF. The vaccine opportunity may be a potential trigger over the medium term. We value CDH at 22x (in line with its three-year average) 12M forward earnings to arrive at TP of Rs 550. Maintain ‘buy’.

CDH and Celgene (wholly owned subsidiary of BMS) reached an agreement pertaining to patents for Revlimid. Both parties would file consent judgements with the United States District Court for the District of New Jersey enjoining CDH from marketing g-Revlimid before the expiration of the patent-in-suit, except as provided for in the settlement.

The innovator had settled cases with NTCPH, Alvogen, DRRD, and CIPLA on Revlimid previously. As per the settlement with NTCPH, it is allowed to sell mid- to single-digit volume share of Revlimid sold in the US in the first year of entry. The volume share allowed would gradually rise each year up to Mar’25 – from when it has permission to sell up to one-third of the total volume share of Revlimid sold in the US.

Alvogen, DRRD, and Cipla have also reached an agreement with the innovator on g-Revlimid, whereby they would be licensed to sell limited volumes of g-Revlimid on a confidential date after Mar’22. They are licensed to sell without volume limitations from Jan’26. We believe the settlement with CDH is also on similar lines.

SUNP, LPC, ARBP, Mylan, Apotex, and Hetero Drugs are other companies currently in patent challenges with the innovator on Revlimid. Revlimid is used to treat multiple myeloma in adults. The drug is available as orally administered capsules. Patents on Revlimid expire on 27th April, 2027. Revlimid’s CY20 sales in the US were up 12% y-o-y to $8.2b.

We expect a 19% earnings CAGR over FY20–23 on the back of a) a 5% sales CAGR in the US v/s almost flat US sales over FY18–20), b) an 11% sales CAGR in DF v/s modest growth over FY18–20, and c) a 20% sales CAGR in EM – supported by 230bp margin expansion and reduced financial leverage. We value CDH at 22x (in line with its three-year average) 12M forward earnings to arrive at TP of Rs 550. Maintain ‘buy’.

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