Pharma Analyst, Abhishek Sharma of IIFL spoke with Ekta Batra & Anuj Singhal of CNBC-TV18. He shared his reading and outlook on the pharmaceutical space.
Below is the transcript of Abhishek Sharma's interview:
Ekta: Do you look at Ipca Laboratories and if you would have a view in terms of how things might look for them considering that even the World Health Organisation (WHO) had nine observations one of their facilities?
A: I do cover Ipca Laboratories and we heard on the call yesterday that the key active pharmaceutical ingredient (API) plant, which is the Ratlam plant has got nine observations out of which the management stated that seven are minor and two are critical. We do not know the nature of the two critical observations yet but having said that the WHO Europe, which is basically the ex-India, ex-US piece for Ipca is a very substantial portion. Fifty three percent of revenues come from ex-India, ex-US, so any adverse impact from the regulatory agencies, be it European Medicines Agency (EMEA) or WHO would be a sort of a nasty thing for the stock, that is one. Second thing and this is our thought process on the observations till we know the nature of the observations completely, is that the US Food and Drug Administration (US FDA) action would possibly put some pressure on the other regulatory agencies to not give a clean chit to Ipca in an easy manner. So, there would be a due-diligence, maybe a far more stringent due-diligence at other regulatory agencies also and that is part of what we are seeing with the WHO inspection at Ratlam.
Anuj: The stock that has got rerated, Lupin. What is your call now on this stock? There has been technical reason as well with the foreign institutional investor (FIIs) buying, but at current levels, what is your call?
A: I have a buy on Lupin, it is one of my top-picks and essentially the view that we have on Lupin is basically based on the two-fold growth opportunities that we see in the stock. First, over the next two years they have a visible pipeline of products for the US market. There is Renagel, Renvela which is coming up in 2016. There is Welchol; they have already launched Celebrex in the market. There is Vancocin coming up. These are couple of key names; they have a multitude of new launches coming up. Their base business is holding up pretty well. Stuff which usually used to erode at a significant rate, US generics erodes at a significant rate maybe in high single digits every year - that erosion is not happening so the base business is holding up and the new business is going to add to that number so, we are bullish on the stock from a two year perspective that is one. Second, their move to specialties -- I do not think that it is fully factored in. The deal with Celon Pharma, the Polish company for the inhaler is one step in that direction. They now have a dry powder inhaler which will possibly hit the market in 2017 or 2018. It would be one of the first two entrants in the market if it gets approved in time and we see those kinds of moves toward specialties being very significant for the stock going forward.
Ekta: How are you going to view Sun Pharmaceuticals-Ranbaxy Laboratories as a consolidated entity? What do you think the numbers will look like and your rating now?
A: Ranbaxy has been a great company all this while, it was one of the pioneers for the Indian pharma industry in the way they went to the US generics. It is still, at this date, there are obviously issues which the company has faced in terms of the US FDA issues, in terms of their forex management, but apart from that, we believe that Ranbaxy comes with a lot of strengths to the table and if managed and integrated very well it provides a significant upside to Sun from here.
A couple of things which we believe and the pointers were all there in Mr. Shanghvi’s press conference yesterday and also the investor presentation that they put out, we believe that they are going to focus on essentially improving their productivity in India - that is one area that they will work out. There is a cross-sell opportunity for Sun to do with the Ranbaxy’s infrastructure in rest of world markets. Therefore, we are now seeing that a combined entity would have a USD 300 million annual R&D. So, with that kind of a number, we are actually reaching Teva’s generic R&D budgets every year and we hope to see the impact of that huge R&D number into the pipelines over the next two-three years.
Disclosures: I do not own any of these pharma stocks; my family does not own any pharma stocks.
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