How to trade pharma stocks ahead of Q4 earnings

Dolat Capital has come out with its report on pharma sector.

Domestic formulations in a recovery phase: We expect the domestic pharma industry (DPI) growth to rebound to mid teens (14%-15%) during FY13, from low double digit growth during FY12. Over the medium term, we believe 14% growth to be sustainable. Our assumption is based on market share gains in life-style related products; increased pace of new product launches and higher penetration in tier III cities and rural markets. We have observed sales force attrition levels to have come off their peaks while our channel checks indicate gradual absorption of underlying inventory (anti-infectives in particular). We expect Lupin and Sun Pharma to sustain market outperformance (>16-17% growth) while others, Torrent and IPCA in particular, to witness a stronger FY13E (albeit on low base) on the back of higher MR (marketing representative) productivity and increased focus on faster growing segments. The National Pharmaceutical Pricing Authority (NPPA) / Drug Price Control Order (DPCO) stance to expand the drug coverage list for pricing control and recovery of arrears remains an overhang.

Increased sales from US generics to propel growth: The key regulated markets - US and EU - are due to witness continuing mass generic penetration. The upcoming patent cliff coupled with pro-generic healthcare reforms places the US generic market in a sweet spot. On the contrary, stringent price control interventions and intense competition makes Europe less a profitable market. Our research highlights that CY12 will see the largest wave of US patent expirations (for drugs worth USD 33.6bn) and Indian players - Dr. Reddy

Read More