From Lupin to Dr. Reddy's, year may end on a good note for pharma firms

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The year is likely to end on a good note for Indian pharma companies as analysts expect an uptick in US sales. Around 13 -15 per cent year on year growth is expected in revenues primarily on the back of good product launches by firms like Lupin, Dr. Reddy's Laboratories etc. On the domestic front, too a 9-10 per cent growth is expected by most brokerages led by price growth as the long winter impacted volume growth here. 

During the previous quarter too, the Indian drug firms had reported a better than expected performance in the US. Foreign brokerage firm CLSA said, "We believe that trend could continue in the medium term given rising drug shortages in the US driven by the discontinuation of products by large generics, plant-specific issues impacting certain companies, and stringent failure to supply penalties from customers."

It added that drugs in shortage in the US have spiked to 112 drugs, which is the most since 2012. Drug shortages are the highest in the paediatric, cardiac and gastro therapies. 

"The valsartan (hypertension drug) issue is well known. After several recalls, the US market now has a shortage of the drug and a handful of Indian companies now had approval to launch it there. This provides a short to medium term opportunity for these companies, who will have some pricing power in the market," said a senior executive of a drug firm which has recently got an USFDA nod to launch the drug there. 

The flu season in the US too picked up towards the end of the quarter. 

A recent ICICI Direct report highlighted that formulations growth is likely to be driven by an 18.4 per cent growth in the US led by waning price erosion, opportunities created by high profile exits and new launches in limited competition products. "On the companies front, Aurobindo (US injectable traction and acquisition), Biocon (biologics traction), Cadila (US limited competition opportunities, and acquisition) and Divi’s (API opportunities) are likely to register above 20 per cent growth in revenues," the report said. 

Antique Stock Broking pointed out that on a quarter on quarter basis, the Rupee has appreciated by 2 per cent against the US dollar and around 3 per cent against the Euro, which would negatively impact the exporters.

On the domestic front, the fourth quarter promises better growth than the previous one. Antique analysts said that while the growth during the third quarter was around 9 per cent, in January and February the growth has been around 9.8 per cent and 11.3 per cent respectively. " Much of this growth has been led by price while volume has been growth has been in low single digit. The longer than expected winter may impact some volume uptick in March," the report said. 

ICICI Direct analysts too felt that domestic formulations and Europe are expected to grow by 9 and 16 per cent respectively. The active pharmaceutical ingredients (API) and Contract Research and Manufacturing Services (CRAMS) businesses are likely to grow strong mainly due to direct advantage of Chinese capacity constraints and strong order book. 

"On the other hand, Ajanta, Natco and Indoco are likely to report negative revenue growth mainly due to slow growth in domestic formulations and high base," it said.

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