In a big move today, Cadila Healthcare share price has virtually  skyrocketted. The share jumped so much that it hit the 10 pct upper circuit level today. The reason behind this big upmove are the strong quarterly results announced by the company. It has also led to various brokerages expressing their views on the matter. 

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Morgan Stanley maintains an overweight rating on Cadila Healthcare with a target of Rs 460. They highlight that the earnings concentration is waning for Cadila, profit base is getting normalized, though gAsacol HD retains its customer appeal. Injectables should drive U.S. business for next 3 years.

Cadila reported net sales of Rs 3 bn, +13.5% yoy / 4.9% QoQ, driven by the U.S. (up 5.3% QoQ, led by volumes including 6 new launches) and domestic formulations (+11.2% YoY). Operating margins expanded 4 ppt YoY but was flat QoQ,at 22.6%, due to higher U.S. share. Net profit was Rs 4.7 bn,vs. Rs 4.3 bn estimate.

Business outlook:

Cadila Healthcare expects continuing improvement across its business segments in the ensuing quarters. In the domestic market, chronic continues to do well while acute is gradually recovering from Covid-19 impact. New launches, market share gains and digital initiatives are its prime focus. Growth for the US formulations should be driven by upcoming flu season, in-licensing opportunities, new launches, transdermal approvals and injectables (U.S. $150-200 mn in sales in 3-4 years). API and Animal businesses should both grow in double digits.

U.S. business:

The base business continues to do well, as pricing erosion is stable. ANDA filing momentum should continue in the second half, with 30-35 products planned in F21 (10 filed in first half ok FY21) and 40-45 in F22. Cadila Healthcare plans to build on the limited competition, complex mesalamine portfolio with three more products to be filed. For gLialda, it is maintaining good market share. Asacol HD continues to be the preferred choice of customers due to its manufacturing capability

Concall highlights:

Domestic marketing activities are still below pre-Covid-19 levels due to limited access to doctor clinics. Marketing should increase as business normalizes. R&D spending is likely to be up 7-8% for the next two quarters. Importantly, net debt is down 40% since Mar '20, to Rs 40.3 bn. This was achieved through QIP (qualified institutional placement) raising in Wellness business, internal accruals and better working capital management. For remediation of Moraiya Warning Letter (WL), it has submitted its response to the FDA and is awaiting the agency's response.

Innovation pipeline:

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Cadila Healthcare has completed Phase 1 trials for ZYCOV-D vaccine for Covid-19 and has completed enrollment of 1,000 subjects for Phase 2 trials. Data readout is expected by Nov-end and approval from DCGI is likely in March 2021. Cadila has launched remdesivir in India and EMs. For saroglitazar, phase 2 trials for PBC indication are completed. This is a F23-F24 launch opportunity. NASH indication should be ready by 2024. In specialty, it has nine products in various development stages; it plans to file one NDA for pain management in F21.