Cadila Healthcare overtakes Lupin as second most valuable pharma company in India

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Mumbai: Cadila Healthcare Ltd overtook Lupin Ltd to become India’s second most-valuable drugmaker on Wednesday as investors, cheered by US regulatory approval for a generic drug produced by the firm, drove its shares to a lifetime high.

Shares of the Ahmedabad-based company closed up 9.6% at Rs537.25, off the intraday high of Rs542.40, on a day the benchmark Sensex ended 0.3% higher at 31,271.28.

With a market capitalization of Rs55,000.57 crore, Cadila is now behind only Sun Pharmaceutical Industries Ltd, which remains the most valuable Indian drug firm with a market capital of Rs1.23 trillion. Lupin Ltd has slipped to the third spot with a market value of Rs52,128.57 crore.

Investors have been heartened by the US Food and Drug Administration (FDA) approving Cadila’s generic version of Lialda, a drug used in the treatment of chronic inflammatory bowel disease.

Cadila Healthcare is the only company whose generic version of Lialda has been approved so far by the regulator. The market size for brand Lialda was $1.145 billion in the year to April 2017, the company said in a statement on Monday, citing data from IMS Health. Brokerage firm IIFL Institutional Equities said in a report on 29 May that the generic version of Lialda can contribute $150 million to Cadila Healthcare’s revenue over FY18 and FY19.

At a time when the US business of several large Indian drug makers has slowed because of pricing pressure and compliance issues, Cadila Healthcare is likely to buck the trend, given FDA’s clearance for its Moraiya plant in Gujarat that will lead to higher product approvals, analysts said.

Shares of Cadila Healthcare have surged 51% so far in 2017, while those of Sun Pharma, Dr. Reddy’s Laboratories Ltd and Lupin Ltd have declined 19%, 17% and 22%, respectively.

Lialda generic is the second product to be approved in one week from the Moraiya plant, which was issued a warning letter by the US FDA in December 2015 due to violation of so-called good manufacturing practices. On 2 June, the company received approval from the US FDA for its generic levofloxacin injection, an antibiotic.

Edelweiss Securities Ltd said in a report on 2 June, “The US FDA has given the first product approval to Cadila’s Moraiya unit post its inspection in February…should lead to a flurry of approvals in the next one year. This is a significant development within all the gloom and doom in the industry with respect to FDA audits.” The plant was cleared by the regulator in February after a re-audit. Cadila is among the few Indian firms to have resolved compliance issues with the FDA; larger firms like Sun Pharma and Dr. Reddy’s continue to grapple with such issues.

In a post-earnings conference call with analysts on 27 May, Pankaj Patel, chairman and managing director of Cadila Healthcare, said the company expects to receive 40 product approvals in the US in the current financial year, of which 30 products would be manufactured at the Moraiya plant. The company’s business in the US, which accounts for almost 40% of revenue, suffered on account of regulatory issues at Moraiya. In 2016-17, its US sales were Rs3,710 crore, down 8% from a year ago. Total consolidated sales were flat at Rs9,630 crore.

Now, say analysts, such problems are behind the company. “Cadila is one of the few large pharma companies that is currently free from regulatory overhang and possess a lucrative product pipeline, which we believe will begin to fructify starting FY18,” Amey Chalke, analyst at HDFC Securities, said in a 29 May report.

Broking firm India Nivesh has named Cadila its most preferred pick in the pharmaceutical space, given the visibility on faster pace of approvals in the US market. The company has pipeline of around 200 products filed with the US FDA, which includes complex generics such as transdermals and injectables.