Cadila growth may take a hit as Moraiya facility comes under USFDA radar

The Cadila Healthcare stock has corrected over 6 per cent in two days, following the warning Letter from the USFDA for its Moraiya plant (Gujarat). Some regulatory action was expected after the plant received OAI (official action indicated) status in August, following inspections from April-May 2019.

However, given that the plant is under the ‘warning letter’ from the US drug regulator, it will have a bearing on future growth prospects. This is because the facility contributes 50 per cent to Cadila’s US sales, and accounts for one-third of its ANDA pipeline (32 abbreviated new drug applications pending approval), say analysts.

Krishnanath Munde at Reliance Securities says he does not expect any new drug approval from the facility till it gets regulatory clearance.

In December 2015, too, the Moriya facility had received a warning letter, which was resolved by the firm in 2017. However, after receiving Form 483 for the unit again in May 2019, the company had been transferring key products such as injectables from Moraiya to other plants, say analysts.

Further, after the inspection of the facility, Cadila has successfully completed US FDA audits of formulations manufacturing facility at Baddi, and API facilities at Ankleshwar and Dabhasa.

These moves would allow Cadila to manufacture drugs at other approved facilities, thereby limiting the potential loss in its US business. Hence, analysts feel the downside for the stock, which has already corrected above 30 per cent since its April highs, may now be limited.

The stock may also get support from better prospects in domestic and emerging markets (EMs), which may help compensate for the likely dip in US sales.

On the domestic front, Cadila has been restructuring its portfolio, with greater focus on key brands and improved productivity of the field force, to drive profitability.

Besides, benefits are expected to accrue from the acquisition of Heinz India by Zydus Wellness, Cadila’s listed subsidiary. Brands such as Complan, Nycil, and Glucon-D are expected to strengthen its consumer health business.

Analysts at Motilal Financial Services expect domestic sales (43 per cent of overall revenue) to grow 28 per cent year-on-year during the September quarter, led by the addition of the consumer healthcare business. Better growth in EMs and Europe should also lend support. The company’s results, due soon, will provide further cues regarding the support other facilities and markets could lend in the absence of the Moraiya.