Stock Review: Cadila Healthcare

 

Hospira, Cadila Healthcares joint venture partner, has received the final approval to market the generic Taxotere, an oncology drug that went off the patent in November 2010. This has opened the gateway for generic companies.

As of now, Hospira is the only company that has received final approval. Taxotere is primarily used in treatment of breast, lung and other types of cancer and has a market size of $1.2 billion. The oncology drug is the registered product of Sanofi-Aventis. Cadila Healthcare has a joint venture with Hospira for six oncology drugs. Taxotere is one of these.

The joint venture would supply these oncology products to Hospira, for sale to regulated and developed markets of the USA, the European Union and Australia. Cadila Healthcare would be able to market the products in other specified markets, including India and Latin America. This venture commenced production and supply of two products to Hospira for the European market in first quarter of financial year 200910. In the first quarter of financial year 2010-11, Cadila Healthcare launched its third product in Europe and has indicated plans to launch its fourth product in the current quarter.

Initially, Sharekhan expects a three-player market. With only two to three players in selling the drug in 2011-12, analysts expect Cadila Healthcare to capture at least 30 per cent market share of generic Taxotere, assuming a price erosion of 50 per cent.

Usually, the price erosion is limited to 30–40 per cent in such a scenario. However, the chances of a negative surprise cannot be ruled out, given the recent Aricept case for Ranbaxy (threeplayer market, 70 per cent erosion), say analysts.

Assuming a 50 per cent price erosion for 2011-12 and a 40 plus per cent market share for Hospira, the opportunity can generate sales of $53 million for Cadila Healthcare, which will add

`5.2 in earnings per share. According to Religare, while this is an interesting opportunity from a cashflow perspective, its impact on Cadila's target price will be insignificant (less than 2per cent) as it values such limited period opportunities on net present value based methodology.

Cadila will supply the oncology drug to joint venture partner Hospira