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Logic behind big bang spike in pharma stocks

The News International Team

With improvement in the quality of ANDA (Abbreviated New Drug Application) applications filed by Indian pharma companies, demand in the European and South American market and a big number of drugs going off patent in US, Indian drug manufacturers are gearing up for a very lucrative time ahead. 

In fact, the opportunities far outweigh the US Food and Drug Administration (USFDA) flak received by many Indian companies.

According to a Quant report, most pharma companies continue to have strong ANDA filings pending for approval, which provides them with enough confidence in terms of high long-term growth, subject to timely regulatory approval. Not only have the number of ANDA increased, the quality of ANDA have also improved in terms of complexity, which would enable pharma companies to have sustained higher revenue as well as profitability.

The European market is also expected to become exciting in the future despite base business remaining flat in Q1FY15. Europe sales showed strong y-o-y growth rate of 37 percent. “We expect very selective exposure to this market by pharma companies to continue over medium term,” Quant says in its report titled ‘Domestic growth to pick up; US continues to drive earnings’.

The US and European market aside, other geographies are also providing great opportunities. In recent times, Argentina completely opened its USD 6 billion drug market to India companies. Earlier, India was not allowed to export finished pharmaceutical formulations to Argentina due to local laws there.

Another big positive for the pharmaceutical companies in India is the debt headroom. According to a Moody’s Investors Service report, most Indian pharma companies have large debt headroom due to their balance sheets being usually lowly leveraged. The report further adds that the Indian pharmaceutical market will continue to grow in double digits on the back of better growth opportunities in other geographies. 

“As a rule, key pharma companies here have maintained low financial leverage and shown risk aversion, compared to global pharmaceutical firms,” the Moody’s report states.

The pharmaceutical industry globally is also expected to continue to undergo rapid consolidation to push shareholder value; especially in the case of companies seeking new growth platforms, in the backdrop of patent expirations, said the Moody’s report.

Indian pharma companies such as Lupin ,  Divi’s Laboratories and  Aurobindo Pharma are expected to see further growth. In the past one year to date, the S&P Healthcare index rose nearly 51 percent. The top five pharma companies such as Sun Pharma , Dr Reddy’s Lab , Cipla ,  Lupin and  Glenmark rose 70.33 percent, 36.71 percent, 28.54 percent, 60.45 percent and 34.89 percent, respectively.

With many drugs going off patent in the US , Indian pharma companies would continue to experience strong growth in American market, credit rating agency ICRA has said. Indian pharma companies would continue to experience strong growth in the US over the medium-term. This would be driven by the sizable generic opportunity (drugs with brand value of USD 25-30 billion are expected to face generic competition) over the next 2-3 years, the investment information and credit rating agency said in a statement.

Posted By: Devika Ghosh

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