Ipca, Cadila gain on pandemic fears, but window may be short

Shares of Ipca Laboratories Ltd and Cadila Healthcare Ltd touched new 52-week highs, gaining 6% and 12%, respectively, on Wednesday. The government’s move to lift the ban on hydroxychloroquine exports fuelled a rally in the stocks.

The Ipca and Cadila stocks are now up 30% and 40%, respectively, from their lows in end-March.

Besides, the US Food and Drug Administration withdrew an import alert on Ipca’s manufacturing units. With this, the firm can supply active pharmaceutical ingredients (APIs), such as hydroxychloroquine sulphate and chloroquine phosphate, to the US.

Booster dose.
Booster dose.

Ipca and Cadila are large producers of hydroxychloroquine sulphate, demand for which has increased in India and abroad. The anti-malarial drugs are seen as a potential treatment option for covid-19. Before the pandemic outbreak, utilization was significantly lower, said Nomura Research.

Enquiries and orders have been rising for both drug makers. Cadila is ramping up its production by three-four times, said analysts at Jefferies India Pvt. Ltd.

Ipca is also set to resume supply of the generic chloroquine drug to the US. With prices in the US significantly higher, exports are profitable. “Realisation for chloroquine API in India is $45,000 per tonne; in the US $10 million per tonne, based on our assumptions and data from AIOCD AWACS for India and IQVIA for the US,” said Nomura Research. “The sudden surge in demand is likely to have some positive impact on the companies’ near-term financials.”

Some analysts are, however, wondering whether the demand spike will last. Demand is primarily being driven by a need to build up inventory, and sales can be high if countries tend to store these drugs.

However, analysts at Nomura and Jefferies India say the scarcity has triggered production and supply ramp-ups by other producers, such as Teva, Mylan NV and Sandoz, in the US as well. Consequently, hydroxychloroquine supplies to the US can increase by one-fourth to one-third, they add.

Hence, Indian drug makers may not be able to sustain high volumes.

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