Pharma Q4 earnings uncover persistent pricing pressure in US generics, says Nomura

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A plethora of pharmaceutical companies have detailed their fourth-quarter earnings reports in the past two weeks. While hits and misses are a part of the earnings game, brokerage firm Nomura caught some common trends emerging from the earnings showdown.

The most visible trend within the pharma sector earnings was the persistent price pressure in the US generics market. The last quarter was filled with reports and management commentaries hinting towards a recovery in the US generics space, pegged on signs of easing price erosion.

While there has been some moderation in the intensity of price erosion, Nomura highlighted that the US generics pricing environment still remains challenging.

The impact of this persistent pricing erosion was felt in the US revenues of companies like Alkem Laboratories, Gland Pharma, and Biocon, among others.

A similar story is seen emerging from the input cost front. "Cost pressures remain for pharma companies, as the prices of certain raw materials are still elevated," Nomura stated in its report.

In an attempt to recover numbers from the loss of COVID sales, pharma companies are also pushing their sales and marketing costs higher. Companies are also stepping up investments in research and development (R&D) initiatives as noted by Nomura, in an attempt to grab a higher market share.

Industry major Sun Pharmaceutical Industries also guided higher R&D investments towards the specialty and US generic business, going up to 7-8 percent of sales in FY24.

Analyzing the earnings report card of companies that have recently released their quarterly numbers, Nomura listed Sun Pharma, Cipla, and Zydus Lifesciences as their biggest hits this season. The firm has a 'buy' call for the three pharma companies.

When it comes to the laggards, Nomura stated that Alkem Labs, Gland Pharma, Divi's Laboratories, Abbott India, GlaxoSmithKline Pharmaceuticals, and JB Pharma reported numbers below its forecasts or consensus estimates.

Focusing on hospital companies, the brokerage firm highlighted a consistent increase in Average Revenue Per Occupied Bed (ARPOB) and improvement in case and payer mix.

The broking firm also remains positive on the outlook given by hospital majors that indicate constructive growth and better EBITDA margin performance in FY24.

Within the hospital space, Max Healthcare posted quarterly earnings that were ahead of estimates while Fortis Healthcare lagged expectations.

Nomura sees a gradual improvement in the hospital business performance aided by higher ARPOB and better case and payer mix as a positive for Fortis. Regardless, the broking firm also pointed towards the company's underperformance as against its peers.

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