No bitter pill for Caplin, Natco & Cadila
While most suffer, investors cheer some with good product pipeline and improving regulatory record
We a large number of pharmaceutical stocks have lost market value on account of regulatory issues in the US market, some have bucked the trend.
On top of this list of 30-odd higher valued pharma companies with over ~5,000 crore market capitalisation, is Caplin Point Laboratories. It has given the highest return -- 106 per cent -- from January till date.
The company got an Establishment Inspection Report (EIR) this year from the US regulator, the Food and Drug Administration (FDA), for its sterile injectables unit in Tamil Nadu. An EIR says a facility complies with the FDA regulations on good manufacturing practices. Also, last month, product development partner Cycle Pharmaceuticals got approval for its Ketorolac injectable, used in treating acute pain. The product will be developed at Caplin’s Tamil Nadu plant for export to the US market.
Also in the list of the top three performers on the BSE exchange are Natco Pharma and Cadila Healthcare, with returns of 68 per cent and 38.5 per cent, respectively.
“The market has basically rewarded companies with a promising product pipeline and not facing regulatory issues,” says Amey Chalke, analyst with HDFC Securities. “This trend is visible across small, mid and large- cap companies.”
Last week, Natco Pharma jumped the most in about nine years after the FDA approved partner Mylan’s application for a copycat of Teva’s multiple sclerosis drug, Copaxone. The market was earlier only expecting approval for the 20 mg dose whose annual market size is about $500 million. But, Mylan got approval for the 40 mg drug which has annual sale of $3.5 billion.
“These stocks have jumped on positive developments at a time when the sector is not showing strength,” says Sarabjit Nangra, vicepresident (research), Angel Broking. “More, Cadila Healthcare which was under regulatory concerns for a long time has come out of it.”
Early this year, Ahmedabadbased Cadila got approval for its Moraiya unit, in Gujarat. After this, the company announced it would double its annual US sales target to $1 billion, from $553 million. Kunal Randeria of Antique Stock Broking believes the company is in a good position to double its US business in the next three years, on the back of 40 new launches in FY18, highest among peers. Further, with nearly 200 Abbreviated New Drug Applications (ANDAs) at the FDA, it is in a position to launch up to 30 drugs annually there over the next three years.
Apart from these three top performers, there are only half a dozen more in the list of about 30 which have gained on the stock markets this year. Most of these, however, have given returns below 15 per cent. Except Bengaluru-based Biocon, which has given 16.3 per cent this year. Analysts are bullish on the company’s prospects, given the rising demand for biosimilars. Further, with its Malaysian facility getting stabilised and the low cost of manufacturing, it could gain market share.
“Given the headwinds faced by some pharma companies due to price erosion in the US, investors can look at players which have a predominant India exposure, preferably those focused on the lifestyle segment (diabetes, hypertension),” says Ranjit Kapadia senior vice-president at Centrum Broking. “These segments typically face lower competition and have better margins.”