Pharma: In the best of health

Nalinakanthi V | Updated on March 12, 2018 Published on January 04, 2015



The party in pharma stocks continued in 2014 too; the BSE Healthcare Index has gained 45 per cent. But unlike other sectors, the rally was backed by healthy growth in revenue and profits of drug makers. This was thanks to the strong growth in exports, coupled with rupee depreciation and recovery of demand in the domestic market.

The year 2014 was also eventful for drug makers. In July, the drug price regulator, National Pharma Pricing Authority (NPPA), for the first time, imposed restrictions on the selling prices of drugs outside the national list of essential medicines (NLEM). The vast price differential among various brands of the same underlying drug triggered this move by the NPPA. However, the same was called off in September.

The year also saw the announcement of the largest acquisition deal in the history of Indian pharma; Sun Pharma announced the merger of Daiichi-owned Ranbaxy Laboratories with itself in an all-stock deal worth $4 billion, making Sun Pharma the country’s largest drug maker and the world’s fifth largest generic drug company.

Given the stellar rally in pharma stocks over the last five years, is there scope for further upside? Despite rich valuations, pharma stocks offer good opportunity. Even as cyclical themes such as infrastructure, capital goods and metals are struggling to grow, pharma companies clearly have the drivers in place. The impending patent expiries for blockbuster drugs such as Nexium ($2.5 billion) in the US will boost revenues of Indian companies that are gearing to launch generic versions of these drugs. Further, depreciation of the rupee will be another earnings kicker for drug makers such as Sun Pharma, Lupin, Cadila and Dr Reddy’s, which derive a chunk of their revenues from the US. Growth comeback in the domestic market will benefit companies such as Sun Pharma and Lupin, which enjoy strong brand recall.

Published on January 04, 2015
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