Jun 12, 2007|
MNC Pharma: Where is it headed?
In terms of both the financial performance and the stock price movement, the MNC pharma companies, as compared to their domestic counterparts, seem to have gone on the backfoot. In this article, we shall analyse the reason for the same and what the future holds for these companies going forward. For the purpose of this article, the focus is on the four MNC companies under our research coverage namely, GSK Pharma, Aventis, Pfizer and Novartis.
Financial performance: MNC pharma companies are largely focused on the domestic market as opposed to their domestic peers, whose increasing focus on the exports markets have helped them augment their overall performance. Having said that, even in the domestic market, MNC companies have not really been able to outperform the domestic companies. For instance, on an average, while the domestic companies under our coverage have grown their topline by around 12% to 16% in FY07/CY06, MNC companies have been able to clock topline growth in the range of only 9% to 10%. Various factors contributing to the lower growth have been increasing competition, low number of new product launches, trade related issues, divestment of certain businesses and the like.
Event specific influence: Specific events have also impacted the financial or the stock performance of these MNC pharma companies. To put things into perspective, GSK Pharma divested its animal healthcare business to Virbac to focus on its core business of pharmaceuticals, resulting in a decline in overall revenues both in CY06 and 1QCY07. Similarly, with Pfizer Inc., USA divesting its global consumer healthcare division to Johnson & Johnson, Pfizer India's consumer healthcare business (accounting for 22% of total revenues) is also expected to be spun off in the near future. In the case of Novartis, the rejection of a patent for its anti-cancer drug 'Glivec' in India and the company's subsequent challenge of the same has also probably dampened the movement in the company's stock price.
Product launch status: New product launches from the parent's product stable will be critical for MNC pharma companies going forward, as this is one factor that gives then an edge over their domestic counterparts. Besides this, MNC majors are looking at in-licensing products from other global companies given their strong reach in the domestic market. That said, barring Pfizer, which introduced 3 products at the start of CY06, some of the other MNC companies have not yet made any significant launch. Launch of patented products in the country are unlikely to take place before late CY07 or CY08. Meanwhile, it is the existing products of the companies are driving the current growth in the revenues.
Summing it up...
MNC pharma stocks have been accorded higher valuations in comparison to domestic companies, as the former can rely on their parent's strong research pipeline to launch products in the country and also due to the fact that their revenue streams tend to be relatively more stable. Going forward, while the product patent law in India will mean that MNC companies will be more forthcoming in launching patented products into the country, the prices of these products will most likely be subject to price negotiation as the government looks to make medicines more affordable to the common man.
We believe that despite challenges, the way forward for MNC companies is to keep up the pace of the product launches (either through the parent's folio or through the in-licensing route) and shore up their performance if they want to retain that 'edge' both in the Indian pharma industry and the investor's mind.
More Views on News
Aug 14, 2017
A challenging environment and one-time expense pushes Sun Pharma into a loss in the first quarter.
Aug 14, 2017
GST impact coupled with price erosion in US leads to lower profits for the quarter.
Aug 8, 2017
Profits plunge due to higher raw material costs.
Jun 16, 2017
Here's what you can expect from The 5 Minute Wrapup in the coming months and years.
Jun 23, 2017
Net Profit lower due to exceptional items in the previous year.
More Views on News
Aug 7, 2017
The data tells us quite a different story from the one the government is trying to project.
Aug 10, 2017
Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 7, 2017
Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407