Zydus Lifesciences (Erstwhile: Cadila healthcare)

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I am confused about this stock and have a tracking position.

Pros for investment:

  • Zydus/Cadila is an Indian pharma firm, therefore devoid of any drama with the MNC pharma stocks that pay huge dividend/royalty to their MNC parents.
  • Gujjubhai Patel run company. Patels know how to do good business and blessed with astounding business sense and are clean honest people. All good signs like 0 debt, 30X returns in 20 years and 3X returns in 10 years and sales is 3X in 10 years
  • 37 Plants producing formulations, APIs, vaccines, animal health, biologics, research & development, contract manufacturing, wellness (food and cosmetics) etc.
  • Who does not Glucon D, Nycil and Complan? Company is home to these brands as well as Nutralite. What the heck - they even produced a Covid-19 vaccine
  • Spends close to 10% annually on R&D. Not a commodity player. This is seen by its launches in USA and Europe with 180-day exclusivity and Day-1 launches. Further it is only 55% into generics and rest is on new chemical entities, biologics and vaccines. Triggers for growth can be Saroglitazar and Desidustat, which are on sale in India

Cons:

  • Very poor sales growth in the last 5 years in single digits at 8.23%
  • P/E ratio is 25 which means poor margin of safety considering the stock traded at 10 P/E 2 eyars go
  • Adverse observation on their plants

I think this is a good stock to load but not convinced on valuations still. I plan to increase my tracking position, when there is a trigger like poor adverse observation on plants and stock presents a -20% down from current price, offering margin of safety

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Sales growth:-

  1. They sold their animal health portfolio in FY22 to focus on human health
  2. Indian pharma business was not growing much during those times, it has improved only recently, reason possibly is the shift in business strategy led by innovation and R&D to introduce new products with high margin which focus more on bottom-line that’s why the sales growth looks less historically. Going forward expect 15% topline and 20% bottom line growth in pharma business.

For Valuation:-
Median PE is 23 for last 5 and 10 years. So it is reasonably priced considering peers valuations which varies from 18 to 35.

Adverse observation:-
These get resolved eventually, nowadays even the price does not correct much on getting negative observations. In past such FDA observations caused significant price corrections for pharma stocks and allowing people to load up. It still might cause price correction for small players but larger player have multiple plants so one plant getting observation does not cause significant impact on product launches.

The unknown is the ongoing litigation in mirabegron and the eventual outcome. Any negative verdict may impact in short term, and might give an opportunity to accumulate.

This is just opinion. Please do your own research.

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Great points. I think buying lower gives good margin of safety. At high P/E risk is too high like all the Marcellus stocks

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Zydus Lifesciences has secured final approval from the United States Food and Drug Administration (USFDA) to manufacture Ibuprofen and Famotidine tablets (800 mg/26.6 mg) in the U.S. The approved product is a generic version of Duexis®, which recorded annual sales of USD 3.6 million in the United States (IQVIA MAT December 2024)

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Hi Hardik,

I looked into the three drugs which are part of their NCE portfolio.

  1. Saroglitazar
    The company is running two separate trials in the US for this drug. The following two diseases are being targeted:

1.1 PBC - Phase II(b)/III trials are on. Next update about these trials is expected by December 2025. Look at slide 10 in the Feb 2025 Investor Presentation.
1.2 MASH - For US, Phase II trials are on. This drug though is already approved in India. No specific timeline has been given by the management for the US Phase II trials.

  1. Desidustat

For this one, let’s look at what is happening in US and India/China.

2.1 US
This drug was under trial in the US for Chemotherapy Induced Anaemia (CIA) as per Page 23 of Annual Report FY21. But right now there is no further update on that. The last update was in November 24 earnings call transcript (check page 20). I quote "“On Desidustat, we are doing a trial in Sickle Cell Anaemia and we are also looking for something in the US in the defence space, so that is the other important milestone if we are able to achieve.”.

2.2 India/China
The drug has been selling in India since 2022 and the final approvals are now awaited for selling the drug in China. The approval from China is expected to come by next year.

  1. Usnoflast

In the February earnings call on Page 5, the management mentioned that FDA has given an approval for carrying out Phase II(b) trials. The specific disease being targeted is ALS. There is no communication on by when are the Phase II(b) trials going to start.

For this molecule, the Annual Report FY24 on Page 56 also talks about clinical trials being done for some other diseases such as Parkinson’s, CPAS, UC.

For Desidustat and Saroglitazar the management mentioned on Page 19 of November 2024 earnings call that they believe these two drugs can be the top 50 branded drugs in indian pharma industry though they did not provide any timelines.

For Usnoflast, the management talks about how many people suffer from the diseases which this molecule is targeting. See Page 55-56 of the Annual Report FY24.

  • Parkinson’s has 90,000 new cases every year in the US.
  • In 2023, it was estimated that 5 million people were suffering from UC
  • About 1,30,000 people suffer from ALS across India, Europe and US.
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