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| Higher US drug sales pep up revenue show |
| Ram Prasad Sahu / Mumbai Nov 28, 2011, 00:14 IST |
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Strong growth performance of generic drug sales in the US market helped Indian pharmaceutical companies record 17-19 per cent year-on-year growth in revenues for the September 2011 quarter.
As for the US market, it grew at 30 per cent y-o-y during this July-September.
Edelweiss Securities analyst Manoj Garg says the US generics sales growth was due to an increase in the number of product approvals, supply hiccups due to manufacturing issues at multinational generic players Teva and Hospira and higher patent cliff (number of drugs going off patent). While international sales stood out, domestic performance was muted due to seasonal factors and competitive pressure.
While the sales show was mixed across geographies, the sector continues to outperform the broader markets. In fact, given the market volatility and the move towards defensive plays it commands a higher premium. The sector is trading at higher premium (32 per cent) than the normal 10-15 per cent, says Garg. US GROWTH TO CONTINUE
Despite the high base from generic Eloxatin (for colon cancer) and Lotrel (for hypertension) in the year-ago quarter, the US generic business showed good growth. In addition to this, good performance in the rest of the world markets as well as benefits from a weak rupee helped push up realisations.
While part of the gains are diminished as some of the Indian drug firms also import, the balance is tilted strongly in favour of exports.
Going ahead, growth is likely to be sustained due to the upcoming launches of cholesterol-lowering drug Lipitor and anti-psychotic medicine Geodon among others. Further, given that Aricept (Alzheimer’s) and Tarka (hypertension) were the only Para-IV contributors in the December 2010 quarter, the recent sales growth is likely to sustain. While currency risk is among key concerns, analysts say that regulatory issues (both due to drug price control) in India as well as FDA action coupled with competitive pressures could erode profitability of pharma companies.
DOMESTIC SALES: RECOVERY?
While domestic sales growth across companies was mixed, Standard Chartered analysts say growth, which had faltered in the first quarter of the fiscal, showed recovery. While domestic drug sales in the June 2011 quarter for top companies grew by 10 per cent y-o-y, it grew at 13 per cent in the recent quarter. Sun, Cipla, Lupin and Glenmark did well, but companies such as Dr Reddy’s, Ranbaxy, Cadilla and Ipca under-performed. The reason for the muted show in the domestic sector, according to Motilal Oswal analysts was lower incidence of infectious diseases, increasing competitive intensity and a high base effect.
If the pharmaceutical market sales for October, which grew at 14 per cent is any indication, the current quarter should see an uptick in sales numbers for the quarter backed by new launches. The best performers among Indian companies in the domestic market in October were Sun Pharma, Lupin and Glenmark Pharma which recorded a year-on-year growth of 17-23 per cent.
While the sector’s revenue and operating profit grew, margins came under pressure. Avendus Securities’ Monica Joshi says the margins for the pharma pack, with the exception of Sun Pharma and Cipla that reported a significant rise in EBITDA margins, were under stress.
The reasons for the fall were higher input and overhead costs. Employee expenses continued to move up as companies added medical representatives and commissioned new manufacturing units. Net profit growth came in at a muted 6.7 per cent y-o-y due to a 40 per cent y-o-y growth in interest costs and higher taxes.
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