Pharma Sector: September 2012 Quarter Preview

The pharma sector is likely to continue with its good performance in the September quarter. Though there may be some impact of the delayed monsoon on therapeutic segments like acute therapy, pain management and respiratory ailments, the overall results should be in line with the numbers posted in the last quarter. Those pharma companies exporting their products will display additional improvement as the rupee went through heavy depreciation for most of the quarter. However, as there was some appreciation of the rupee towards the end of the quarter, some companies who reported Mark to market (MTM) losses in the earlier quarter may show a MTM profit and vice versa.

The momentum of monetizing the ANDAs has continued during the quarter and those companies that did so will show good revenues for the said quarter. Dr Reddy’s Lab during the quarter launched about four products in the U.S. while Strides Arcolab received USFDA approval for its facility in Poland that may lead it to post higher revenues in the quarter. Cadila Healthcare received a facility approval during the quarter and has received about five USFDA approvals in the quarter. It also acquired a few companies last year and hence the revenues are expected to be better than before.

Lupin last year acquired Japanese firm I’rom Pharma, which has been contributing to its topline in the last three quarters .We expect the same to continue in an even better fashion this quarter. Claris Lifesciences also saw its facility cleared by the USFDA during the quarter. Sun Pharma may witness good earnings’ momentum on the back of a noteworthy performance by its Israeli subsidiary Taro. Torrent Pharma, which launched a couple of products in the American market, is also expected to come up with good earnings.

Ranbaxy, on the other hand, may see a sequential drop in its revenues as it lost the exclusivity of the blockbuster drug Lipitor in May. Also, it has failed to monetize some of its FTFs and therefore the revenues are likely to be weak during the quarter. This will prompt analysts to study its base business performance. The numbers from Orchid Pharma are likely to be lower as it sold Aurangabad unit to Hospira during the quarter.

Last month the New Pharmaceutical Pricing Policy (NPPP) was approved by the Cabinet Committee on Economic Affairs. We at DSIJ are expecting a marginal impact on the Indian pharma sector. Meanwhile, the shares of many companies have come off from the yearly highs as investors are moving out of defensive sectors like pharma and FMCG. The market is awaiting the response of the companies to the NPPP that will help clear the overhung situation on the pharma stocks. The focus during the quarter would be to understand the impact of the NPPP on each company. Our top bets in the sector include Cadila Healthcare, Strides Arcolab, Sun Pharma and Torrent Pharma.