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‘Virafin’ approval bodes well to tackle rising COVID cases

* Cadila Healthcare (CDH) received Restricted Emergency Use approval from the Drug Controller General of India (DCGI) for the use of ‘Virafin’, Pegylated Interferon alpha-2b (PegIFN), in treating moderate COVID-19 infections.

* Considering the drug’s potential in reducing the need for supplemental oxygen and its better efficacy against other viral infections, we expect sales of INR2.5–3b on an annualized basis.

* Accordingly, we raise our earnings estimates by 7%/6% for FY22/FY23, factoring in a) the Virafin opportunity and b) lower operating cost in the Domestic Formulation (DF) segment on account of the lockdown. We value CDH at 23x 12M forward earnings to arrive at Target Price of INR670. The vaccine prospect may be a potential trigger over the medium term. Maintain Buy.

Virafin potentially an INR2.5–3b opportunity; further upside subject to level of acceptability / stage of prescription

* The multi-centric trial conducted at 20–25 centers across India revealed that administering Virafin to the patient reduced their dependency on supplemental oxygen; this indicates the drug’s ability to control respiratory distress/failure. As per the management, it significantly reduced the viral load when administered early, thus providing better disease management.

* Phase III clinical trial data indicates a higher number of patients in the PegIFN arm showed two-point, statistically significant clinical improvement (WHO’s seven-day ordinal scale) on Day 8 vis-à-vis the Standard of Care (SoC) arm. Interestingly, Virafin is to be administered only as a single-dose subcutaneous injection.

* While emergency use authorization has been granted, the prescription of the medicine would be left to the doctor’s discretion – it may be prescribed either when a patient is hospitalized for moderate COVID symptoms or when they require supplemental oxygen.

* CDH is expected to supply 50,000 doses initially. By July, however, the company may be able to scale this to 1m doses per month.

* Channel checks suggest 10–12% of COVID-positive patients require hospitalization, of which 6–8% require supplemental oxygen.

* The current therapy for hospitalized patients is six doses of Remdesivir. Assuming an average price of INR2k per dose, a course of Remdesivir treatment for a COVID patient costs ~INR12K. We assume a conservative price of INR5,000 per dose for Virafin in India, implying potential sales of INR2.5–3b from this opportunity.

Valuation and view

We raise our EPS estimates by 7%/6% for FY22/FY23, factoring in the COVID treatment opportunity as well as the extended benefit of reduced operational cost in the DF segment. We roll forward our Target Price to INR670 (based on 23x 12M forward PE). We remain positive on CDH on the back of a) superior growth in the Specialty segment of DF, b) a strong ANDA pipeline, c) its NCE portfolio, and d) a better outlook in the Consumer Wellness segment. The vaccine prospect may be a potential trigger over the medium term. Maintain Buy.

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