Pharma cos capable of resolving FDA concern in 12-15 months:IIFL

Dr Reddy’s Laboratories, he believes, has corrected enough so far and could be picked up purely on pricing basis.Below is the transcript of Abhishek Sharma’s interview with Anuj Singhal and Ekta Batra on CNBC-TV18.Anuj: It has been a brutal correction in the pharmaceutical space, especially, in the midcap pharma. So, let us start with something like Glenmark Pharma which has seen a 30-35 percent correction. How would you approach it after the big fall?A: We have a buy rating on Glenmark and a couple of other midcap stocks. I believe what has essentially happened is that the Food and Drug Administration (FDA) warning letters to some of the companies served as a wake-up call and people were forced to look at the larger sector. And, essentially, wherever there were questions around growth, those kind of challenges have been put in the spot light and the sector has seen some decent amount of correction.Ekta: What about the news on the likes of Wockhardt and Marsksans Pharma which have really dominated in the past couple of days. Your read through on it, on the Form 483 for Wockhardt, in case you have had a chance?A: No, I do not cover Wockhardt and I have not had a chance to look at the 483. I do not think it is out available in the public domain yet.Ekta: From an industry stand point, because now, the market seems to be reacting to every word of a Form 483 when it comes to a pharma stock. And, have you assuaged your clients on the same, I mean your interactions and your reading of it?A: What you are saying is absolutely true. I guess the issues are getting compounded by the day, given the fact that the regulatory onslaught seems to be never-ending. However, my view is that these are all big companies and there is no point in discriminating between one versus the other. I guess all of these are companies which have had track record in the US market. They have built their infrastructure and capabilities. So, I see most of these issues as being short-term in nature and companies do have the capabilities within themselves to get out of these kind of issues within 12-15 months.Anuj: Let us talk about the largecap pharma. All of them have corrected, but Lupin has been the most resilient one. Of course, we have seen Sun Pharmaceuticals and Dr Reddys Laboratories fall the most. What would be your pecking order in some of these largecap pharmaceuticals names?A: I like Lupin simply because it has not faced the kind of regulatory challenges that the other companies have had which basically means that there would be a continuity of the business as we go through the next 12 months or so whereas other companies would essentially be spending more of their time around clearing the regulatory hurdles. So, that is one reason why I like Lupin. There is some earnings visibility over the next 12 months which again is going to support their performance over the next 12 months. And, in that pecking order, I like Dr Reddys, simply because it has corrected very sharply from its highs and I believe that a lot of negativity around the morning letter as well as the Venezuela risk has already been factored into the stock price. We do not still know what is the magnitude going to be like, especially around Dr Reddys, in terms of how much time they are going to take to remedy their three facilities, but broadly I think it is in the stock price, so that would be my second pick.Sun Pharmaceuticals, I think has been pretty resilient at least in the last two months or so. It started at around Rs 730 odd, it is at Rs 780-790 levels today. So, in effect, people are after the warning letter came out for the Halol facility, the stock has actually moved up. Some of the concerns have been assuaged. But, having said that, I believe that the stock is expensive and that is why I would put it as third in my pecking order amongst the largecaps.