Cadila Healthcare - Inks pact to commercialise Urokinase; event update; Hold :: Edelweiss

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Cadila Healthcare (CDH IN, INR 680, Hold)

Cadila Healthcare (Cadila) has entered into a partnership with Microbix Biosystems (Microbix) to recommercialise and market Urokinase, a thrombolytic drug, for the North American market. Under this agreement Microbix will provide manufacturing infrastructure, raw material and technical expertise, while Cadila will be the commercial partner to market the product. Cadila will make initial milestone payment to Microbix which is undisclosed. We view this deal as positive over the long term; however, due to lack of financial details, we maintain our estimates and ‘HOLD’ recommendation.

Strong market potential for Urokinase

Urokinase was approved by FDA in 1978 and was primarily used for treatment of blockage in arteries and vessels. It had been a popular therapy among physicians and was first-in-class treatment for catheter clearance up till 1998. However, the drug was later withdrawn form market in 1999 due to GMP issues at Abbott. Microbix along with Cadila plans to re-establish the franchise which has significant potential in the US. Moreover, the drug can also be utilized for oncology and ophthalmology therapy. Overall, the market potential is estimated at USD400mn by 2020.

Front-end financial funding by Cadila

As per the agreement, Cadila will provide entire funding needed to relaunch the drug including an initial commitment and milestone based payments for clinical trials to Microbix. Post launch (expected in late 2014) Microbix will receive milestone for certain sales target and will receive fixed margin and royalty on sales. Further, Cadila will receive an option on rights to all future indications including oncology and ophthalmology.

Outlook and valuations: Long-term positive; maintain ‘HOLD’

We believe this partnership is positive over the long term; however, it could lead to higher front-end costs initially. We have not factored in financial impact of the same, pending clarity. We maintain ‘HOLD’ with target price of INR800/ share.