Pharma: Expect strong results on export sales, rupee fall

The results season has started and once-again the expectations are on a high from the pharma sector. The fundamental outlook of the sector remains the same compared to the last quarter and the sector as a whole is expected to announce strong operating performance in this quarter also.

The revenues and EBITDA margins will be boosted by one-time gains from FTF launches in the US market, higher exports to the emerging markets and rupee depreciation. Some of the significant one-time opportunities during the last quarter were Lipitor ( Ranbaxy ), Geodon (Dr. Reddy’s & Lupin ), Cutivate (Glenmark), Stalevo & Lipidox (Sun Pharma) and Lexapro (Cipla). Even, the domestic pharma businesses of most of the companies are expected to witness strong growth of 16%-20%. Last quarter, the domestic acute therapy segment has picked up growth which should drive the growth of domestic market coupled with the strong growth of chronic therapy segment. Overall the revenue growth for the sector as a whole would be above 20% and one can expect a slight expansion in operating margins.

While the rupee depreciation will help the operating performance, it will negatively affect companies with high foreign currency loans. The rupee has depreciated during the last quarter by 9.5%, which would result in mark-to-market losses for the companies with foreign currency loans. Aurobindo Pharma, Glenmark Pharma, Cadila Healthcare and Ranbaxy Laboratories are some of the major companies with high foreign loans. Also, the raw materials costs will be higher for companies that depend on imports for their raw materials.

On a whole, many major pharma companies are expected to report strong operating results but that performance may not be reflected in the bottom line of companies with high forex loans.

Pharma units in AP to get closure notices on pollution grounds: The Andhra Pradesh Government has asked five pharma companies to close down their manufacturing units at Jawaharlal Nehru Pharma City, Visakhapatnam in line with pollution control norms. The notices were served by the district administration to Mylan Laboratories, Vegesna Labs, Auctus Pharma, Vijaya Organics and Acacia Lifesciences. Meanwhile, the AP Pollution Control Board had also ordered the closure of units at Medak and Rana Reddy districts for violating norms. The list of companies which were issued closure orders of some of their units include Aurobindo Pharma Ltd, Hetero Labs Ltd, Cirex Pharmaceuticals Ltd, Covalent Laboratories Pvt Ltd, Divis Pharmaceuticals Ltd, Sri Krishna Pharmaceuticals Ltd, and Innogent Laboratories Pvt Ltd. Meanwhile, Divi’s Laboratories has clarified that it does not have any business dealings or transactions with Divis Pharmaceuticals Pvt. Ltd.

Drug trade body proposes formula for market-based pricing: Pharma trade-organisation the All India Organisation of Chemists and Druggists (AIOCD) has cast its lot with the pharmaceutical industry on drug pricing. They have suggested that the Government stick with its proposal of looking at market-based pricing. But providing a different formula, the trade-body said the Government could fix a ceiling price on the weighted average of all brands in a particular dosage form, with over 1% market share. This was suggested as an alternative to the present policy proposal of the referential price being fixed at the weighted average of the top three brands. The trade body’s formula brings down the price of drugs by about 13% as compared to the policy proposal, which lowers price by about 9%, said AIOCD head, Mr. J.S. Shinde.

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