Non-FDA Trig­gers Key to Grad­ual Pharma Re­cov­ery

Drug ap­provals by USFDA gives prod­uct-spe­cific gains to cos; US’ push to cut med­i­ca­tion cost another pos­i­tive

The Economic Times - - Smart -

ET In­tel­li­gence Group: In­dian pharma com­pa­nies are pay­ing the price for be­com­ing sig­nif­i­cant play­ers in the US drug mar­ket. The out­per­for­mance of drug com­pa­nies has been blunted in the past one year — thanks to reg­u­la­tory head­winds as well as in­ten­si­fy­ing com­pe­ti­tion — both in the US and in lo­cal mar­kets.

Af­ter hit­ting record highs on the bourses in 2015, pharma stocks have taken a beat­ing with val­u­a­tions hav­ing ra­tio­nalised — com­ing off from the peak val­u­a­tions of their hey­days. USFDA warn­ing let­ters have be­come a key rea­son for in­creas­ing the risk pro­file of the sec­tor, oth­er­wise per­ceived to be de­fen­sive. Credit rat­ing agency ICRA finds 143% in­crease in such notices in 2015 over the pre­vi­ous year. Most pharma firms have borne the brunt of FDA ac­tion. Ac­cord­ing to Credit Suisse, FDAre­lated pain is likely to last another year and should lessen in the next round of in­spec­tions as firms up­grade their sys­tems and prac­tices.

In the do­mes­tic mar­ket, the in­crease in num­ber of drugs un­der price con­trol and ban­ning of 344 fixed dose com­bi­na­tion drugs are likely to in- ten­sify pres­sure on the com­pa­nies.

At such a time, Aurobindo Pharma, the fifth largest pharma com­pany by rev­enues, has made an en­try into the bench­mark Nifty In­dex from April 1. The 50-mem­ber in­dex now has five pharma com­pa­nies hav­ing a cu­mu­la­tive weight of 7.5%.

As reg­u­la­tory over­hang has cooled down the val­u­a­tions, non-FDA trig­gers are likely to re­sult in a grad­ual re­cov­ery in these stocks. A pickup in the pace of drug ap­provals by the

USFDA un­veils prod­uct-spe­cific gains to com­pa­nies. Be­sides, re­cent buy­outs, es­pe­cially in the US, by com­pa­nies like Lupin, Ci­pla and Sun Pharma, are slated to en­hance their drug pipe­lines. Lupin on Tues­day launched its first prod­uct from Gavis. The sus­tained push in the US for bring­ing down cost of med­i­ca­tion re­mains a sec­u­lar pos­i­tive fac­tor.

For in­vestors keen to par­take in the pharma growth story, the re­cent cor­rec­tion­could­be­ab­lessingindis­guise.

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