On a positive note, however, Credit Suisse feels that generic approvals will double over the next two years and annual approval rate for Abbreviated New Drug Application (ANDAs) to almost double to over 1200 over next two years from 600-650 currently.
Analysts are cautious about pharma stocks as pressure on generics may increase while branded and specialty drug are being less profitable. According to Credit Suisse, US wholesalers' stock correcting sharply post 2017 guidance cut may spell trouble for Indian drug makers especially for those which have high exposure to that market.
As per the brokerage firm, most Indian generic firms have already increased expectation of price erosion from mid-single digit to high single digit post September 2016 quarter results and that may lead to de-rating of stocks with high exposure to the US. Hence, Credit Suisse prefers only those pharma stocks which have higher exposure to branded generics.
“Multiples of US generic stocks are highly sensitive to price erosion level and therefore with increasing erosion, we expect de-rating for stocks with high exposure to the US. We already use a lower multiple of 15 times for the profits derived from the US generic market,” it says in a report.
On a positive note, however, Credit Suisse fells that generic approvals will double over the next two years and annual approval rate for Abbreviated New Drug Application (ANDAs) to almost double to over 1200 over next two years from 600-650 currently.
An ANDA is an application for a US generic drug approval for an existing licensed medication or approved drug. An ANDA contains data which when submitted to FDA provides for review and ultimate approval of a generic drug product. Once approved, an applicant may manufacture and market the generic drug product to provide a safe, effective, low cost alternative to the American public.
A generic drug product is one that is comparable to an innovator drug product in dosage form, strength, route of administration, quality, performance characteristics and intended use.
Major Indian pharma companies earn around 15-50 percent revenue from the US market.
But, here's a surprise!
Most pharma stocks have been reeling under selling pressure from beginning of this year. BSE Healthcare index has fallen 7.2 percent year-to-date while Sensex climbed 1 percent in the period. From January to November, BSE Healthcare lost 10 percent whereas Sensex climbed 5.6 percent.
However, the trend reversed after Hillary Clinton's loss in the US Presisential election on November 9. This was around the same time when demonetisation dragged Indian market due to cash shortage after Rs 500 and Rs 1000 were banned overnight on November 8. From November 8 to 29, BSE Healthcare jumped 2.8 percent against stark contrast of Sensex (down 4.3 percent) in the period.
Pharma stocks made smart recovery as Donald Trump’s US elections win removed a major overhang. On November 9, the Nifty Pharma gained 1.5 percent from previous close as presidential candidate Hillary Clinton was seen posing greater pricing challenges for the industry and tighter pricing regulations for both brand name and generic drugs.
Most pharma stocks were under pressure on worries over pricing environment in the US, and sustainability of growth in the math of aggressive erosion in several, high margin, limited competition baskets and price increase led products.