Pharmaceutical barons swallow FDA bitter pill
India’s top pharma barons are feeling the heat of a greater regulatory scrutiny in their bread-and-butter US business. In the past 12 months, the NSE Pharma Index is down 12.7 per cent, losing the most among all sectoral indices, which has hit the fortunes of the country’s top pharma promoters. In comparison, the benchmark NSE Nifty is down 5.7 per cent, while BSE Sensex is up 4.3 per cent since the end of 2015.
The combined market capitalisation of the country’s top eight pharma companies that are part of NSE Pharma Index is down 16 per cent, as investors worry about the earnings impact of a greater US Food and Drug Administration (FDA) scrutiny of the manufacturing practices of top pharma exporters. This has hit the fortunes of the country’s top pharma promoters, most of who rank among the country’s richest businessmen. In all, their combined net worth has declined by ~42,000 crore since January last year. The top eight pharma promoters are now worth ~2.18 lakh crore, down from ~2.6 lakh crore at the beginning of January 2016.
The analysis is based on the share price changes and promoter holding of NSE Pharma Index companies since the close of trade on December 31, 2015. The analysis excludes GlaxoSmithKline Pharma, the Indian arm of global pharma major GlaxoSmithKline and Piramal Healthcare, which has a large financial services division.
Among individual promoters, losers include Dilip Shanghvi of Sun Pharma, Murali Divi of Divi’s Labs, Lupin’s Desh Bandhu Gupta, P V Ramprasad Reddy and K Nithyananda Reddy of Aurobindo Pharma and Yusuf Hamied of Cipla.
Exports to the US account for around 40 per cent of the consolidated revenues for the country’s top pharmaceutical manufacturers in India. The USFDA, which regulates the manufacture and sale of health care and food products in the country, has raised concerns about the manufacturing practices of many pharma companies. Besides, the regulator has issued import alerts against some manufacturing units of Indian pharma manufacturers. This has forced many companies to cut their exports to the US, as export licences are unit-specific rather than company-specific.
In absolute terms, Dilip Shanghvi has been the biggest loser with nearly ~22,000 crore of decline in his net worth due to a slide in Sun Pharma’s share price in the past one year. His 55 per cent stake in the company is now worth ~86,160 crore, down from ~1,08,476 crore at the beginning of January last year.
Murali Divi, the founder of Divi’s Labs, has, however, taken the biggest knock in relative terms, losing more than a third of his net worth due to a crash in Divi’s Labs share prices after the company received a warning letter from the FDA in November last year.
Promoters of Aurobindo Pharma lost more than a fifth of their 2015 net worth, while Lupin’s Gupta family saw an 18 per cent erosion in the market of their shareholding.
Experts see more pain for the pharma sector, as the key US market will see a protectionist economic policy under Donald Trump, who takes over as President this week. For example, in his first press conference after the election results, he had accused pharma manufacturers of overcharging. “Indian pharma companies are already facing headwinds with the regulator in the US. Even a small negative move by the new administration could take the wind out of growth of pharma exports from India,” says G Chokkalingam, founder & chief executive officer, Equinomics Research & Advisory.
Promoters of Aurobindo Pharma lost more than a fifth of their 2015 net worth