At 09:50 AM; Nifty Pharma index, the largest gainer among sectoral indices, was up 2.3% at 9,927, as compared to 0.53% rise in the Nifty 50 index. The pharma index hits two-month high of 9,939 in intra-day trade so far.
Among the individual stocks, Sun Pharma was up 4% at Rs 605, hits seven month high on the NSE. The stock was trading at its highest level since May 25, 2017 after media reports suggested that the US Food and Drug Administration (USFDA) is expected to begin inspection of Sun Pharma manufacturing facility at Halol in the second week of February.
In past two weeks, the stock of Sun Pharma has outperformed the market by gaining 12% after the company on December 27 said that the USFDA accepted its application for a novel medicine to treat dry-eye disease.
“Sun Pharma has outperformed vs. large cap peers in the last 6 months despite the large earnings disappointment in FY18 so far. We like Sun Pharma’s specialty strategy for long-term growth. However, at current valuations of the US business, the stock is pricing in the recovery in earnings trajectory from potential clearance in Halol’s status and successful execution of its Specialty pipeline over the next 5 years,” analyst at JP Morgan said in pharma sector update.
The brokerage firm believes there is risk to Sun Pharma’s consensus earnings given FY19 margin assumes strong launch pipeline post Halol, lower erosion in Taro and limited investment in the specialty business. Further, there is also the risk from failure or delay in the specialty pipeline, which is not factored in the current premium valuations.
While the issues in the US generic industry are likely to persist into 2018, analyst believe FDA’s efforts towards faster approvals particularly limited-competition drugs should provide upside for pharmaceutical companies from 2HCY18.