Cadila Healthcare –Buy- Sharekhan
Cadila Healthcare (Cadila)’s recent Para IV filing of Lialda could lead to an incremental earnings per share (EPS) of Rs6-7 upon the launch (patent expiry in 2020) whereas the recently-approved Anastrazole (a breast cancer drug with shared exclusivity) would fetch in a decent Rs2-3 for the same. We think the market is yet to factor in the company’s potential abbreviated new drug application (ANDA) pipeline (95 filed ANDAs, 50 approved and 27 launched).
The company has already filed for four aerosols and 11 parenterals till date and plans to file 12-15 ANDAs every year. Besides this, the company has also received a nod from the Drug Controller General of India (DCGI) for conducting phase I clinical trials for its oral anti-diabetic molecule, Glucagon.
Cadila has recently received the approval from DCGI to market its H1N1 vaccine in India. The company has priced VaxiFlu-S at Rs350/dose, translating into a potential market opportunity of around Rs1,700-1,800 crore. The addition of flu vaccine would spruce up the company’s current vaccine portfolio of anti-rabies and anti-typhoid vaccines.
The licensing deal with Abbott for a portfolio of 24 products in 15 emerging markets such as Russia, Turkey and Brazil paves way for Cadila to achieve its sales target of $3 billion by 2015. Cadila received $10 million from Abbott as upfront milestone payment and the deal is expected to contribute from FY2012 onwards. We remain positive on the management’s ability to strike lucrative deals to boost its branded generic business.
Cadila is in accelerated growth phase over the next two-three years, driven by incremental contribution from Hospira joint venture (compounded annual growth of [CAGR] of 32% over FY2010-12E) besides the robust US business (CAGR of 18%), strong Brazil (CAGR of 16%) and RoW markets (CAGR of 22%), and consumer division business (CAGR of 24%) in addition to reinvigorated domestic formulation sales (CAGR of 15%), which would result in a top line CAGR of 16% over FY2010-12E.
Backed by the licensing deal, the monetisation of its strong research and development (R&D) pipeline and the early success in trans-dermal and oncology segments would act as a trigger going forward. Given the company’s strong potential ANDA pipeline we have worked out the value of the stock on a sum of the parts (SOTP) valuation. We value Cadila’s base business at 18x FY2012 EPS (Rs622 per share) while adding 50% probability (arrived through NPV method; Rs158) to the successful monetisation of its R&D and ANDA pipeline. Hence we arrive at our revised price target of Rs780 and maintain our BUY recommendation on the stock.
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