The pharma space being a notable contributor in the rampant resurgence of the Indian economy post covid must receive its due credits. According to the Indian Economic Survey 2021, the country as the 3rd largest producer of pharmaceutical products is expected to be a $130 billion industry by 2030. That’s a 300% upside from where it currently sits.
The Pharma Index outperformed the Nifty by quite some margin! It posted 61% returns in 2020 against 15% returns of the benchmark index.
The Indian pharma industry holds the bragging rights to the world’s largest vaccine producer and exporter by fulfilling 62% of the total vaccine demand of the world.
In Q1, the pharma space saw a 37% upside y-o-y growth, banking on the overwhelming demand for covid treatment drugs and generic drugs in the US.
Mapping the performance of the top 5 pharma stocks
|Last traded price
( as on 1 Sep 2021 )
|1||Sun Pharma||85,134.40||1444||9719 (28% q-o-q rise)||788.30|
|2||Divis Labs||66,294.73||557.11||1970.64 (13.30% y-o-y rise)||5,194.00|
|3||Dr. Reddy||57,843.22||571||4919 (11% y-o-y rise)||4,758.40|
|4||Cipla||46,895.17||714||5504.35 (26.64% y-o-y rise)||921.90|
|5||Lupin||23,148.70||548||3314.12 (12.9% q-o-q rise)||963.15|
Source: News reports
We saw a mixed bag of results in the net profit margins posted by the Nifty pharma companies. Sun Pharmaceutical Industries, having the highest market capitalization among nifty pharma companies, posted a net profit of Rs 1,444 crore against a net loss of Rs 1,655 crore a year ago. The market reacted to the staggering numbers, and the stock surged 10% to close on Rs 774, the day the results were announced.
Although, Dr. Reddy’s didn’t live up to the expectations and reported a net profit of Rs 576 crore, down 1% y-o-y basis. Weak performance by the drugmaker caused the stock to dip 10% on the exchange, the day results were out.
Divi’s Labs had a very ordinary quarter, and its revenue rose from Rs 1,730.47 crore to Rs 1,960.64 crore in the period under review. This didn’t trigger the stock price, and it remained stable after the announcement of results.
Revenue growth of 29% by Sun Pharma ensured a stellar performance by the drugmaker. At the same time, Dr. Reddy Laboratories, despite results coming in below expectations, posted a 11% y-o-y increase taking its revenue to Rs 4,919 crore. Overall, revenues for the sector were a little disappointing on account of degrowth in the US markets.
Research and development expenditure
This is one segment where every single company reported an increasing trend. The unpredictable nature of Covid made companies open their currency chests to reach the root of the virus. Even though Dr. Reddy’s Laboratories’ net profit was down by 1%, the company saw a 14% upside on its research and development expenditure. Cipla, whose net profit tanked 24.5% during the quarter, made an investment of Rs 264 crore on research and development in the year.
Low base sales during the last year ensured that most of the companies performed reasonably well in this segment. Sun Pharma, with the best sales numbers since 2015, reported a 35% y-o-y growth. This impressive growth can be attributed to the increased demand for the company’s specialty sector in the US market. A 6% dip in the stock price of Lupin was enough to explain that the company missed out largely in US sales during the quarter. The US sales of the company were down 10.8% on a q-o-q basis. Pricing of famotidine generics was considered as the reason behind such underperformance. Though the company’s impressive sales in the Indian market ensured the overall sales grew 27.3% y-o-y.
Newly launched products
Pharma remains a highly competitive space, and innovation is the key to success. As a result, companies always look to come up with advanced drugs, and this quarter was no different.
Dr. Reddy almost stole the show by launching as many as 6 new products in the quarter under consideration. Dr. Reddy’s Laboratories had a marketing arrangement with RDIF and launched SputnikV in India.
Remember, SputnikV is the vaccine that has an excellent success rate in Russia. It also Launched 2-Deoxy-D-glucose, its vaccine to combat covid. Other significant launches in the US and Canadian markets were Sapropterin Dihydrochloride Powder, Albendazole Tablets, Ertapenem Injection, and Icosapent Ethyl Capsules.
Sun Pharmaceutical Industries made a strong statement by entering a licensing deal with an Italian company Cassiopea SpA. The company will manage the sales of Winlevi (clascoterone cream 1%) in the US and Canada. Cipla’s sales in the US too grew 5% y-o-y on the back of impressive sales of its respiratory drug, Albuterol.
The pipeline of a company decides its future outlook, an underperforming company might come on top given the million-dollar projects in its pipeline. Now that we have understood how important pipelines are, let’s find out what the major companies have in their respective pipelines.
Aurobindo Pharma is looking for long-term stability barring quarterly fluctuations despite a muted performance in the first quarter. The company has attained majority stakes in Cronus Pharma, a company engaged in producing veterinary pharmaceutical products. This investment will open the gates for the company in the $48 billion global animal health market. The subsidiary company has 67 products in the pipeline. 22 of such products are launch-ready, 6 of them have been approved by USFDA.
Meanwhile, Glenmark topped headlines when the news of its collaboration with a Canadian firm for Nitric Oxide nasal spray surfaced. In addition, Lupin is working on Remdesivir powder for inhalation. Remember, Remdesivir is a Covid 19 drug, and this would be a significant breakthrough for Lupin. Currently, Lupin is waiting for approval of clinical trials of phases 2 and 3 of the drug.
The outlook for the pharma space is positive, while covid-portfolio remains to be the department to keep an eye on. Even though the pharma stocks don’t come at cheap valuations, investors are readily going for them. The financial performance of the pharma companies was on a high in 2020, and in the first quarter of 2021, companies like Sun Pharma have managed to hold the sweet spot. The Pharma sector is seen performing much better than its pre-covid levels now. Given its been the most active sector in Q1 FY2021-2022 with activity levels of 14.6, and the low base created during the covid times, the pharma space is expected to have a staggering year ahead. Invest, but with caution. Consult your financial advisor before taking positions in the space.