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US economy, MNC pharma & more...

Mar 11, 2008

  • Fears of a US recession were founded on Friday when the Bureau of Labour Statistics reported that the economy lost 63,000 non-farm jobs in February. This figure is considerably worse than the January data, which reported a revised decline of 22,000 jobs and has set the alarm bells ringing across the world. While the unemployment rate in the US dropping to 4.8% from 4.9% at first appears to provide some semblance of a relief, the same has been attributed to a reduction in the labour force as some people have given up looking for jobs. The US economy is now being haunted by falling house prices, rising energy and food prices, a weaker dollar, job cuts and declining consumer spending. This has impacted the country's stockmarkets, which in turn have had a negative bearing on the other markets around the world as well.

    The gloom afflicting the global stockmarkets as a result has spilled over to India too with the BSE-Sensex displaying weakness yesterday following a turbulent week when the benchmark index fell by 9%. Inflation rising to 5% has not helped matters either and has possibly dimmed the chances of the RBI undertaking interest rate cuts. As against this, the expectations of the Fed cutting rates appear all the more imminent.


  • The healthcare index was the top performer last week registering losses of only 3% as against the Bankex, which registered a steep decline of 16%. While the uncertainty surrounding the waiver of the Rs 600 bn loan to small farmers was one reason why the banking sector was at the receiving end, the other was the revelation of ICICI Bank's exposure to the subprime crisis raising concerns that Indian banks were not completely insulated from the subprime malaise after all. As far as the waiver is concerned, the government is expected to compensate the banks either in bonds or cash over a period of three years. However, pressure on net interest margins (NIMs) is likely to persist till such time the banks are compensated. The pharma sector being a defensive play was not as affected as some of the other sectoral indices last week. One of the major reasons for the same can be attributed to the fact that notwithstanding a slowing growth in the economy, demand for medicines will prevail in the event of sickness, consequently supporting sales.


  • MNC pharma companies have had a dismal CY07, with the top four companies namely GSK Pharma, Pfizer, Aventis and Novartis reporting either decline in sales or growth in lower single digits. This has been due to various reasons namely supply shortages, lack of visible product launches and price control imposed by the DPCO. Having said that, two of these companies namely GSK Pharma and Pfizer have unveiled plans of launching new products into the country, which is an encouraging sign. Among the patented products, GSK Pharma has chalked out plans of launching 'Tykerb', an anti-cancer drug along with its vaccines 'Cervarix' and 'Rotarix'.

    Pfizer, meanwhile, envisages the launch of its smoking cessation drug 'Champix' in India in the current year. This product was already launched in the global markets in CY06 and amassed revenues of US$ 883 m in CY07 (US$ 101 m in CY06). Similarly, GSK Pharma has already launched 'Tykerb' in the global markets (including the US) in CY07 and the drug has reported revenues of US$ 103 m in that year. Besides this, both the companies have announced plans to launch around two more products each, which will either be from the parent's product folio or through the in-licensing route. That said, these will not be eligible for patents in India and will have to contend with generic players, who have already launched their versions of the drugs. As we have mentioned earlier, while the initiatives taken by the companies to launch patented products in the country can indeed be construed as a positive sign, it remains to be seen as to how these products will be priced in a low priced market like India.

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