Pharma wrap: Antitrust lawsuit, regulatory issues and muted guidance unsettles stocks

In the past week, pharmaceutical stocks were volatile. The US class action lawsuit, bleak US Food and Drug Administration (USFDA) inspection outcomes and muted guidance of companies have added pressure on their stocks.

The S&P BSE Healthcare Index dropped 4.3 percent, while the benchmark Sensex rose 1.17 percent.

Seven Indian drug makers have been named in a US antitrust lawsuit filed by the Attorney General of the State of Connecticut and additional attorneys general of 43 US states, seeking expansion of the investigation and alleging a broad conspiracy to artificially inflate and manipulate prices, reduce competition and unreasonably restrain trade for more than 100 generic drugs.

This second lawsuit includes additional parties and products which were not referred in the first one. It named Sun Pharma, Aurobindo Pharma, Dr Reddy’s Laboratories, Lupin, Glenmark, Wockhardt and Zydus Cadila.

The lawsuit also named 15 individual senior executive defendants at the heart of conspiracy, who were responsible for sales, marketing, pricing and operations.

Indian drug makers said they will vigorously defend themselves.

The lawsuit could be have financial implications for drug makers, and comes at a time when generic drug makers are struggling in US market, facing steep price erosion.

The week also saw USFDA classifying that inspections it had conducted at three of the facilities at Aurobindo Pharma as official action indicated (OAI).

The company has received letters from the USFDA classifying the inspections concluded at its API facilities of Unit I and XI and intermediates facility of unit IX in February 2019 as Official Action Indicated (OAI).

Alkem's St Louis site and Strides Puducherry facility were also classified as OAIs by USFDA early this month. Lupin is already has OAI classifications on three of its sites at Mandideep, Pithampur Unit-2 and Somerset.

An OAI classification means that approvals of the facility are withheld, until the company resolves the issues raised by USFDA.

Lupin posted a consolidated profit after tax of Rs 296.4 crore in Q4FY19 versus net loss of Rs 777.6 crore for the same period a year ago.

The performance was considered by analysts as below estimates due to lower-than-expected US revenue and not so rosy outlook.

Analysts were expecting much larger growth in US led by exclusivities of generic versions Ranexa. Lack of visible progress on compliance front also made analysts wary.

Dr Reddy's reported a 44 percent year-on-year jump in its Q4 FY19 net profit at Rs 434.4 crore. Revenue rose 14 percent YoY to Rs 4,016.6 crore. The profit was largely on account of an exceptional item due to sale of derma specialty assets in US and cost cutting.

While Dr Reddy's is progressing towards resolving pending regulatory issues, the delays of potential launches are becoming cause of worry for analysts.