Maintain ‘long’ on Cadila Healthcare with TP of Rs 444

Published: March 27, 2018 4:26:19 AM

CDH’s exclusivity in gLialda expired on 14 Jan’18, while Teva, having secured tentative approval for the drug, was expected to launch it in Jan’18.

Cadila Healthcare, Cadila Healthcare stock, Cadila Healthcare growthCadila Healthcare’s (CDH) stock has corrected by ~10% over the last three months due to delays in key approvals (gPrevacid ODT, gToproletc) and fears of earnings plateauing out in FY20.

Cadila Healthcare’s (CDH) stock has corrected by ~10% over the last three months due to delays in key approvals (gPrevacid ODT, gToproletc) and fears of earnings plateauing out in FY20. While we don’t contest street concerns on FY20 growth since earnings visibility is limited, we note that the stock is now trading closer to pre-WL resolution levels, as well as below historical averages. Despite a high FY18 base, FY19 should be a strong year for CDH given (a) its own launch of gAsacol HD (vs. authorized generic launch currently) and (b) delayed competition in gLialda as every month of delay in Teva’s entry adds R0.50 to CDH’s EPS; we are thus comfortable with our EPS assumptions. Maintain LONG with a Jun’19 TP of R444 set at 20x P/E.

CDH’s exclusivity in gLialda expired on 14 Jan’18, while Teva, having secured tentative approval for the drug, was expected to launch it in Jan’18. However, for reasons unknown, Teva’s final approval has been delayed and it now expects a launch some time in 2018. gLialda is currently the biggest drug for CDH with annualized sales of $200mn+ and a 43% market share, with the only generic competition from the authorized generic. While our estimates already factor in a couple of generic players in gLialda in FY19, we note that every month’s approval delay for Teva adds `0.50 to CDH’s EPS.

Apart from gLialda, CDH has a fairly strong pipeline in the US with 140 ANDAs pending approval. The company expects to launch 40-50 products in FY19, including approved products in FY18 which are yet to be launched. Also, the pipeline mix is fairly strong, comprising oral solids, transdermals and injectables. Among key products, CDH expects approvals for gToprol, gPrevaid ODT and the gExelon patch; approvals for these products, expected in Q1CY18, were delayed perhaps due to new USFDA quality guidelines (relating to elemental impurities). We feel Q2CY18 could be potentially better as concerns likely show signs of abating. Additionally, CDH has a settlement with Warner Chilcott to launch its own version of gAsacol HD where margins would be high as 90%.

By: Equirus

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