CDMO shares under pressure; Neuland, Laurus, Syngene tank up to 12%

Thus far in the calendar year 2024 (CY24), the market price of Neuland Laboratories has zoomed 216%, Piramal Pharma (88%), Divi's Labs (53%) and Jubilant Pharmova (52%)

Shares of contract development and manufacturing organisation (CDMO) companies were under pressure as they fell by up to 12 per cent on the BSE in Monday’s intra-day trade as investors booked profit on concerns that the Biosecure Act is unlikely to get passed in the US Senate as the current session ends on December 20.

 

Neuland Laboratories tanked 12 per cent to Rs 15,391.80 in intra-day trade; Syngene International slipped 6 per cent to Rs 865 followed by Jubilant Pharmova (6 per cent at Rs 1,140.95), Laurus Labs (6 per cent at Rs 554.25), Piramal Pharma (4 per cent at Rs 255.90) and Divi’s Laboratories (3 per cent at Rs 5,931.70). At 10:41 AM, these stocks were down in the range of 2 per cent to 6 per cent. In comparison, the BSE Sensex was down 0.26 per cent at 81,494.

 

 

According to reports, five biotechnology firms with ties to China received a reprieve on Saturday as negotiators on a major defense bill chose not to include provisions that would ban the companies from securing new federally funded research projects and contracts.  ICICI Securities in a note said they will keep a watch on further developments in this regard and will also get insights from Indian CDMO players regarding the development.

 

Meanwhile, despite today’s fall, thus far in the calendar year 2024 (CY24), the market price of Neuland Laboratories has zoomed 216 per cent, Piramal Pharma (88 per cent), Divi’s Labs (53 per cent) and Jubilant Pharmova (52 per cent). Laurus Labs and Syngene have rallied 31 per cent and 24 per cent, respectively. In comparison, the BSE Sensex was up 13 per cent so far in CY24.

 

Syngene’s management expects the US funding environment to improve in the coming quarters. In the conference call, the management indicated that the company is witnessing increased requests for proposal (RFPs), on-site visits and more than 60 audits in the first six months of the year, a 36 per cent increase compared to the same period last year. 

 

“Additionally, the growing de-risking mechanism among big Pharma in the backdrop of the US Biosecure Act which is specifically encircling some Chinese CDMO / CRAMs players is also likely to provide some rebalancing opportunities for other global players albeit gradually. The management has guided for high single-digit growth on a constant currency basis in FY25 and similar kind of Ebitda margins as were in FY24,” ICICI Securities had said in its Q2FY25 results update.

 

Meanwhile, over the years, Indian pharmaceutical companies have established themselves as a dependable source for global peers. A confluence of other factors, including a focus on specialty/complex products in addition to emerging opportunities in the Active Pharmaceutical Ingredient (API) space, would be key growth drivers over the long-term. The sector is witnessing an easing of input costs – of raw material, freight, and power – that are likely to aid the sector in expanding margins. The sector is also witnessing an easing of price erosion followed by increasing contribution from product launches. 

 

Brokerage firm Sharekhan believes that the sector is in a sweet spot where it is experiencing a healthy product mix and cost rationalisation, which increases the operational profit of the companies. The sector is mainly a low-debt sector with increasing operational profit followed by experiencing the advantage of a low tax rate due to its operations in the SEZ sector. Hence, overall, the brokerage firm said in a recent report on Divi’s Labs that they stay positive on the sector.