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Amid general optimism around pharmaceutical firms and a buoyant equity market, Cadila Healthcare Ltd’s shares are down more than 18% since June.

Investors seem to have turned soft looking at tepid sales growth in the US markets once the extraordinary gains from the sale of covid treatment drugs were baked in to valuations. To be sure, the firm has received the much-awaited approval from the Drugs Controller General of India for its covid vaccine ZyCoV-D, in a clear boost to earnings. But, the Street remains watchful on the potential scale as multiple drugmakers pose intense competition here.

The firm derives about 40% contributions to sales from the domestic market, which continues to perform well. The strong domestic sales growth of 63% year-on-year (y-o-y) during Q1 was driven by covid treatment and management drugs. Its performance thereafter too has remained good, shows IPM (Indian pharmaceutical market) data.

Under pressure
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Under pressure

Analysts point out that the firm’s domestic sales clocked 11.9% y-o-y growth during August. Several of its top 10 products reported strong growth. In contrast, covid-related drugs such as remdesivir showed a downward trend (38.5% y-o-y decline) during August. Thanks to the strong domestic portfolio, analysts expect Cadila to report a double-digit domestic growth. That said, US sales remain key for valuation.

The firm’s US sales declined 4% sequentially and 11% y-o-y for the June quarter. Pricing pressure in some of the products and supply issues in the US dented sales. On the positive side, the pace of new product approvals has improved in the recent past. Also, the firm has a strong product pipeline for US markets. The same should translate into sales growth.

In the meantime, gains are expected to accrue from ZyCoV-D sales for Cadila. The firm’s vaccine will also be the first for adolescents aged 12-18 years. However, acceptance of a three-dose regimen in adults and competition from other covid-19 vaccines for adolescents are key concerns.

Analysts at Credit Suisse in a 27 September note said that since two-thirds of the adult population (18+) in India have already received at least one dose of covid-19 vaccine, the key target market for Cadila’s vaccine is adolescents. However, the competition is catching up fast and the first-mover advantage among adolescents could be short-lived.

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