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Pharma: A dull November but... - Views on News from Equitymaster
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  • Dec 6, 2006

    Pharma: A dull November but...

    November 2006 was a lacklustre month for the pharma sector with the BSE Healthcare index having under performed the BSE-Sensex. While the performance of most of the pharma stocks under our coverage left a lot to be desired, certain stocks bucked the trend and captured the investors' fancy. In this write-up, we shall take a look at the top four performers (under our coverage), which have outperformed the BSE Healthcare index and the reasons behind this buoyancy.

    Company Price on
    Nov 30, 2006 (Rs)
    Price on
    Nov 01, 2006 (Rs)
    BSE Sensex 13,696 13,033 5.1%
    BSE Healthcare 3,721 3,637 2.3%
    Glenmark 555 410 35.3%
    Sun Pharma 1,015 913 11.1%
    Nicholas Piramal 235 225 4.6%
    Biocon 378 363 4.0%

    Glenmark: Glenmark's gains of 35% in the month of November have been nothing short of meteoric. The September quarter results were robust with the company's core businesses having recorded a strong growth and beating the management's expectations. The company's agreement with Merck for out-licensing the former's anti-diabetic molecule for milestone payments of around 190 m euros further fueled the optimism in the stock.

    Sun Pharma: Investors continued to flock to Sun Pharma, which posted gains of 11% during November. The company has been relatively conservative in charting its growth path in comparison to its more aggressive peers Ranbaxy and Dr.Reddy's and this strategy seems to have reaped benefits. The company's focus on speciality and niche product segments have entrenched its hold over the domestic market and is expected to stand the company in good stead in the regulated markets as well. Besides this, the company has reported strong performances in the US market too through its subsidiary Caraco, despite the highly competitive conditions in the US generics market.

    Nicholas Piramal: Nicholas Piramal continued to gain ground in November registering gains of 4.6%. The optimism with regards to the stock can be attributed to the increasing contribution from its custom manufacturing business (with global innovator companies) to total revenues. Nicholas' strategy involves partnering with global pharma majors to drive its custom pharma sales rather than focus on generics. The company has been active on the acquisition front too. Besides the Avecia acquisition in December 2005, Nicholas Piramal acquired Pfizer's Morpeth facility in the UK to further bolster its custom manufacturing revenues.

    Biocon: Biocon registered gains of around 4% during November. The company had recently launched its anti-cancer drug 'BIOMAb EGFR' in the Indian market and this seemingly spurred the interest in the stock. Besides this, 2HFY07 is expected to be better for Biocon (as compared to 1HFY07) as the company begins its bulk drug supplies of 'Pravastatin' and 'Simvastatin' in the US market post the expiry of the 180-day exclusivity. Having said that, a larger chunk of Biocon's revenues still come from statins and pricing pressure is expected to affect realisations from these two drugs in the long-term. Thus, the company's focus on other biologic products will be the key in driving growth going forward.

    To conclude...
    While we have commented on the performance for the month of November, investors need to follow a long-term approach while investing in pharma stocks. Also, the investment philosophy in this sector has to be based on the growth prospects of the sector, the ability of a company to capitalise on these growth opportunities, strong management, consistency in profitability and the ability to innovate in this highly dynamic industry. Thus, investors need to research each company thoroughly and should certainly not base their decisions on a single event (for instance, the success or failure to win a patent challenge for a drug).



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