Pharma stocks advance; Ipca Labs, Cadila Healthcare soar up to 19%

Any slowdown in pharma is likely to be supply led rather than demand led, say analysts.
Shares of pharma and healthcare companies rallied in an otherwise volatile market on Friday. Ipca Laboratories jumped as much as 19 per cent to Rs 1,500 apiece on the BSE after news reports said the company's Active pharmaceutical ingredient (API) for Chloroquine has been approved by the USFDA. Chloroquine, which is being used to treat malaria, may help treat coronavirus, say some reports.

At 09:47 am, Ipca Labs was trading 11.6 per cent higher at Rs 1,406.65 apiece on the BSE. In comparison, the S&P BSE Sensex was trading 51 points or 0.18 per cent lower at 28,237.50 levels. Other pharma counters were also trading in the green. For instance, Cadila Healthcare was up around 9.5 per cent to Rs 269 while Torrent Pharma was trading 6.5 per cent higher at Rs 1,882 on the BSE. Dr Reddy's, Ajanta Pharma, Indoco Remedies, and Neuland Labs were up in the range of 4 per cent - 5 per cent. The S&P BSE Healthcare index was trading 2.64 per cent up at 11,698 levels. 

Analysts at Antique Broking note that the pace of Abbreviated New Drug Application (ANDA) approvals more than doubled from FY14 to FY19, which saw a record 935 approvals in FY19 translating to an average 78 approvals per month. 

"In the last couple of months, the approval rate has dipped to 50. We expect the next couple of months to be light on the approval front given that FDA has deferred plant inspections and its staff is minimizing the meetings. Beyond Apr-May, FDA's alacrity is unlikely to die down anytime soon given that ANDA backlog is still over 3,500, in our view. While FY20 may not surpass FY19, we expect approvals to significantly ramp up June onwards, that may lead to some pricing pressure," they said. 

The brokerage is of the view that that any slowdown in pharma is likely to be supply led rather than demand led. Our positive view stems from the fact that the shortages in the US are increasing and are near 5-year highs, and EU accounts for nearly 31 per cent of API plants and nearly 18 per cent of finished dosage form (FDF) plants.

While majority of these are for branded drugs, nearly 5-8 per cent of US Gx volume comes from Europe that may be at risk from a potential US sanction. Given India is relatively better placed to scale up and due to lower outbreak of Covid-19, India may benefit by supplying more to US and EU, they note.

Cipla and Dr Reddy's in the large cap segment and Alkem Labs in the midcap space are the brokerage's top picks.

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