Expressing concern that drug majors are running out of cash in the US market and their generics business is shrinking, Surajit Pal of Prabhudas Lilladher said he doesn’t expect great returns from large-cap pharma stocks.
Pal also highlighted it still remains to be seen if R&D efforts of such companies bear enough fruit to trump the patented drugs already available in the market.
Below is the verbatim transcript of Surajit Pal's interview to Anuj Singhal and Latha Venkatesh on CNBC-TV18.
Latha: Let me first start with Aurobindo that stock has a lot going for it, what with now we hear the European arm of Teva already that KKR deal is brewing it got some clean chits from the drug authorities, is it still a buy?
A: There are many things which has happened in say last 6-8 months, which is not reflected in the valuation that is one, so that might be because they were not able to catch up with the speed of approval vis-à-vis their launches in the US market, so many approval I think will be launched in Q2 end or Q3, Q4 so that is going to reflect in numbers that is one.
Second point is that there are valuation gap vis-à-vis this guy and the peers of billion dollar drug companies in US vis-à-vis if you see the overall revenue plus margin, there are quite a bit of valuation difference if I compare Lupin, Sun or Cipla. That gap has to be somewhere to be narrowed down going forward.
Anuj: The other stock in focus is Lupin, what’s going wrong there because that sort of underperforming a bit?
A: Frankly speaking not only Lupin I don’t expect any great return from any of the large cap, because I think they are running out of cash in the US market. If you want to take a big call it takes 2-3 years and for this 2-3 years we don’t know how things will turned around, because generic business you can take it for granted it is almost gone, so pies will be shrinking and that competition is really, really increasing, so everybody is depending on their R&D and how those R&D to churn out new product and we don’t know, because those products are not automatically substitutable the patented one. Your product is as good as the patented product of any big guys, so will they even be stand up over there or not, how many will be succeed is a big issue.
Latha: In the top guys you are not buying any of them, not Lupin, not Cipla none of the Nifty company interest you?
A: As far as fundamental call is concerned I don’t see any reason for them to achieve even their last hike.
Anuj: Any thoughts on Indoco Remedies?
A: I think it is very unfortunate once they are finished with their unit 1 483, simultaneously they received for unit 2 and 3 and any kind of these issues which definitely will hamper their approval in upcoming product particularly in ophthalmology or sterile product and I believe that is a setback for the company in terms of US business expansion, because when they are delayed already ophthalmology market is small and if we are delayed in approval, there is hardly anything left for them to take.
I think everything for the company currently depends on domestic market growth, which company is buzzing quite positive post restructuring their sales team and let see how it’s happen, because overall domestic is not in good shape.
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