Higher Dose of Regulations Weakens Pharma | CORPORATE ETHOS

Higher Dose of Regulations Weakens Pharma

By: | September 13, 2017
Pharma3

Along with software, India’s pharmaceutical industry has gained global attention thanks to its low cost of production and strength in the generic drugs market. It is growing at a healthy rate and is expected to touch 15% annually from 2015-2020, much ahead of the global industry which may register a growth of 5%.

sreekumar-photoIndia accounts for 20% of the global share of generic exports and has a large pool of scientists, biotechnologists working on new compounds and molecules. The country’s pharma industry has the distinction of supplying 80% of the global requirement of anti-retroviral drugs to combat AIDS.

Apart from the issues related to good manufacturing practices in India and regulatory issues abroad, the prospects for pharma sector look bright.

Here is a look at the major players in this sector:

Dr Reddy’s Laboratories Ltd (BSE: 500124, NSE: DRREDDY) Category: Large Cap

Dr Reddy’s Laboratories Ltd was established in 1984 by scientist, philanthropist and entrepreneur Dr K Anji Reddy. Born in a well-to do farming family in Andhra Pradesh, was educated abroad in Chemical engineering and worked for 10 years in pharma industry before venturing on his own. The company remains committed to the founder’s vision of developing new molecules at affordable costs.

Recently, two news reports have caused a fall in investor interest in Dr Reddy’s stock – an investor complaint against CFO and CEO in New Jersey for violation of US Securities laws and certain adverse remarks regarding good manufacturing practices (GMP) at its plant in Duvvada,Visakhapatnam  by German Regulatory body Regierung von Oberbayern).

Dr Reddy’s Lab reported a 56.61% fall in Q1 profits at Rs 66.60 cr while sales rose 3.23% to Rs 3315.90 cr. Earnings per share has fallen sharply to Rs 4.01.

On a monthly perspective, Dr Reddy’s has provided 2,71% returns ahead of peer average while quarterly and half yearly performances are negative. On financial parameters, Dr Reddy’s doesn’t score well on return on equity, assets and net margin while liquidity, cash flow ratios are negative.

On technical charts, Relative Strength Index (RSI) of 47.76 denotes neutral to bearish trend, while MACD line has witnessed a bullish crossover and Average Directional Index of 31.37 indicates uptrend, stochastic indicator of 88.94 indicates overbought situation. Prices are trending below the 50 DMA of 2371.

Target: 2700  Duration: 6 weeks Strategy: Hold/Buy

Biocon Ltd (BSE:532523   NSE:BIOCON) Category: Large Cap

Biocon Ltd was founded in 1978 as an enzyme manufacturing company and evolved quickly into a biopharmaceutical enterprise. It was started as joint venture between Biocon Biochemicals Ltd of Ireland and Indian entrepreneur, Kiram Mazumdar-Shah. The Irish operations were taken over by Unilever and subsequently they sold their shares to Indian promoters in 1998. The company also established India’s first Clinical Research Organisation Clinigene for R&D activities.

There is some buoyancy in the stock, of late, following news of its Malaysian Insulin manufacturing facility getting Good Manufacturing Practice (GMP) compliance certificate from European drug regulator was out.

However, recently the French drug regulator had raised concerns about GMP compliance at its Bengaluru facility for the production of biosimilars. Such news creates negative outcomes in the market in the short run.

Biocon has reported a 51.20% fall in net profit in Q1 at Rs 81.30 cr while sales fell 5.52% to 927.40 cr. On a returns perspective, performance is better on a monthly basis while quarterly and half-yearly returns are negative, not much better off then peers.

On financial parameters, Biocon fares poorly on return on equity, assets and net profit margin. Liquidity and cash flow ratios are also negative. It is trading at a Price Earnings Ratio (P/E) of 47.53 denotes higher valuation by market.

On technical charts, RSI of 49.18 denotes neutral trend, while ADX of 20.98 denotes range bound trading, MACD line has witnessed a bearish crossover. Stochastic indicator is neutral. Currently trading below 50 DMA of 360.

Target:  Nil

Jubilant Lifesciences Ltd (BSE: 530019, NSE: JUBILANT)  Category : Midcap

Jubilant Lifesciences Ltd is a global pharmaceutical and lifesciences company involved in Active Pharma Ingredients (API), solid dosage formulations, radiopharmaceuticals, allergy therapy products, life sciences and nutritional products.

Recently it acquired the US radiopharmacy business of Triad Isotopes, Inc. throught its subsidiary Jubilant Pharma Ltd. It has tied up with Barentz International to cater to food and nutrition market in India.

The Q1 net profit fell 11% to Rs 143.71 cr while sales rose 9.81% to Rs 1538.38 cr. On a returns perspective, except for 1.61% gains on monthly basis, the quarterly, half yearly returns are negative. Financial parameters are all negative including return on equity, assets, net profit margin, liquidity and cash flow ratios. Promoters hold close to 50% stake. Currently trading at a PE of 138.36, the scrip is overvalued by the market.

On technical charts, RSI of 48 denotes neutral trend, while MACD line has witnesssed a bearish crossover, ADX of 17.34 denotes tight range bound trading. Stochastic indicator of -54 indicates oversold situation. Currently trading below the 50 DMA.

Target: Nil

Divis Laboratories Ltd (BSE: 532488   NSE: DIVISLAB) Category: Large Cap

Divis Laboratories was set up in 1990 as an R&D firm and subsequently set up its first production facility at Hyderabad in 1995. The second facility was set up in 2002 in Vishakhapatnam. Both the facilities have been inspected by US FDA and other international agencies.

On a returns perspective, 4.98% monthly and 8.68% quarterly basis are comparatively better off than peers while six-month returns are negative in line with industry trends.

In Q1, net profit fell 41.51 % to Rs 176.54 cr while sales fell 18.37% to Rs 821.20 cr. It doesn’t fare well on return on equity, assets, net profit, liquidity and cash flow ratios. P/E of 138.25 denotes higher valuation by market.

On technical charts, stochastic of 79.91 denotes over bought position, MACD line has witnessed a crossover, while RSI of 57 indicates bullish trend. ADX of 14.91 indicates tight range bound trading.  Currently trading close to 50 DMA.

Target: 763     Duration: 4 weeks      Strategy: Hold/Buy

Summary

pharmaThe Indian pharma industry is going to witness heightened activity in the coming quarters as the state is set for 100% foreign direct investment (FDI), pharma majors are aggressively raising funds for expansion.

The market is volatile on competition faced in generics market worldwide, tighter regulation in US markets, the lower first quarter performance, concern over compliance of GMP in some manufacturing units and uncertain global market conditions have turned unfavourable and hence the weakness seen in the pharma counter. The introduction of Goods and Services Tax (GST) has had an impact on the industry and make take time to stabilise.

Given the inherent strengths of the Indian pharma industry in research, development apart from core strength in generics, the medium to long- term prospects appear brighter. It all depends on how quickly some of the players address the quality issues and regulatory issues. The domestic market is set to expand on more utilisation of health care services in semi-urban and rural areas.