Growth takes a knock
Cadila Healthcare, Jubilant Life, Alkem Labs and Biocon are able to grow despite pressures
Once tipped to emerge as the biggest exporter, the pharma industry is yet to acquire the scale of software services exports. Krishna Kant writes
At a time when the US business of several large Indian drugmakers has slowed because of pricing pressure and compliance-related issues, a few have bucked the trend.
Top of this list is Ahmedabad-based Cadila Healthcare, which overtook Lupin as the second most valuable pharma company this month. This is on the back of approvals by the US Food and Drug Administration (FDA) for its key plants and products. On Friday, Cadila Healthcare’s market capitalisation was ~53,756 crore on the BSE, compared to Lupin’s ~47,918 crore.
Recently, it got approval to market the generic version of the $1.145-billion ulcerative colitis drug Lialda in the US, besides receiving approval for the generic of antibacterial Levofloxacin. This comes after its Moraiya plant, which was under a warning letter from the FDA, got cleared. “With the lifting of WL (warning letter) for Moraiya and followon approvals, especially FTF (First to File) launch of generic Lialda, we are positive for future approvals and expect the US business to grow annually at 18.2 per cent over FY16-19E,” said Chaturya Aggarwal, an analyst with IDBI Capital.
Neha Manpuria of JP Morgan assumes exclusivity or limited competition for generic Lialda over the next few quarters, implying improvement in earnings, going ahead.
Another pharma company expected to post strong growth is Biocon. Kiran Mazumdar-Shaw, founder of the Bengaluru-based biotechnology company, was long criticised for the poor return of her company’s stock. Biocon’s market value jumped 135 per cent to ~22,670 crore in the past financial as its version of a topselling biologic drug had its first breakthrough in developed markets.
This vindicated Mazumdar-Shaw’s call for patience while the company developed complex biosimilars that take longer to show results.
The biologics segment of the company includes biosimilars, encompassing Rh-insulin, insulin analogs, monoclonal antibodies and recombinant proteins. This segment accounts for about 12 per cent of its turnover. Biocon is mainly focusing on therapies, including diabetology, oncology and immunology. The company has invested heavily in this space in the past two-three years, especially the Malaysian facility.
“So far, progress has been encouraging with launches in emerging markets, insulin Glargine launch in Japan and filing arrangements in the EU and US,” said Siddhant Khandekar, analyst with ICICI Securities. “We expect biologics to grow at an annual rate of about 52 per cent in FY17-19E,” he said.
Among other companies bucking the trend are Alkem Laboratories and In ~crore
Net sales CADILA HEALTHCARE FY15 8,651 1,151 35,612 FY16 9,427 1,934 32,448 FY17 9,430 1,488 53,757 JUBILANT LIFE FY15 5,826 FY16 5,749 FY17 5,861 ALKEM LAB FY15 FY16 FY17 BIOCON FY15 FY16 FY17 Net profit Market cap Jubilant Life Sciences. Alkem Laboratories’ market cap gained 62 per cent to ~26,387 crore in FY17.
“While major pharmaceutical companies are under pressure due to pricing pressure in the US, Alkem has bucked the trend due its high focus on domestic markets which account for 75 per cent of its revenue,” said Amey Chalke of HDFC Securities. “Barring the temporary hiccup of GST (goods and services tax), the company is expected to perform well in the domestic market,” he said.
While other generic majors were struggling, the company reported a 16 per cent growth in revenue to ~5,853 crore for 2016-17. Its net profit for the period grew by 20 per cent to ~905 crore.
Jubilant Life Sciences, which operates in pharmaceuticals and life science ingredients, is also well-placed. Its net profit in FY17 grew by 49 per cent to ~575 crore, given its operational and financial leverage.
The pharmaceuticals business has grown at nine per cent annually in the FY12-17 period driven by generics and specialty pharma. The margin scenario is returning to normal on the back of generic launches in the US, launches in specialty pharma and FDA clearance for two facilities.
While it had taken additional debt, to build capacity and create multiple revenue heads, the situation has improved on the back of better operational performance and higher free cash flow (FCF) generation.
“As the capex cycle moderates in the medium term, the company expects to utilise maximum FCF for debt repayment,” said analysts with ICICI Securities. The brokerage expects the company’s net debt-to-equity ratio to further go down to 0.4 by 2018-19, from 1.1 in 2016-17.