Pharma: Opportunity looms large - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Pharma: Opportunity looms large

Dec 30, 2004

Introduction
The year 2004 was another ‘special’ year for the stock market participants, as the markets see-sawed towards their all time high levels. While almost all the sectors participated in the bull-run, pharma stocks were among the leaders, again outperforming the broader indices after the strong performance in 2003. Against 14% gains for the Sensex, the pharma index gained 20% during the year.

What was different in 2004 as compared to 2003?
The year started well for the industry with robust growth witnessed during the first quarter. A major growth driver for the industry once again was new products introduction as companies tried their hands out on various kinds of products in order to capture largest market share before the new patent regime comes into picture.

The growth in the domestic market was sluggish while revenues from international markets grew at a rapid pace for Indian companies. According to the statistics of Ministry of Chemicals and Fertilizers, export revenues from the pharmaceutical sector are likely to grow at a CAGR of 30% over the next three years (including FY05). The year saw smaller companies like Matrix labs and Divi’s Labs made their way further into exports markets.

The sector outperformer: Aventis
MNC pharma companies were the biggest gainers during 2004 with Aventis emerging the leader. There were two reasons for this out-performance by Aventis. While the performance of the company was very good on profitability front, the markets have also taken a re-look at the valuations. Somewhat similar was the case with other major MNC pharma companies like Glaxo and Novartis. While Novartis saw a rise in its stock price after the announcement by the company that it will try to reach out into a larger part of India. The company has plans to introduce new drugs once the product patent comes into force.

 26-Dec-0327-Dec-04% Change
Aventis 682 1,370 100.9%
Nicholas Piramal 166 292 76.4%
Novartis 432 682 58.1%
Abbott 495 736 48.7%
Wockhardt 259 356 37.6%

Apart from the MNC pharma companies, Nicholas Piramal was amongst the major gainers in the sector. Two important events that marked the year for Nicholas Piramal were the contract manufacturing business picking pace, as well the investment in R&D. The company started a new R&D center with a capital expenditure of about Rs 1 bn making it one of the biggest R&D center in private sector. On the contract manufacturing side, the company was able to enter into three agreements for custom manufacturing of different products. The total size of the three deals is about US$ 50 m which is equal to about 20% of the company’s current revenue.

The laggard: Dr. Reddy’s

 26-Dec-0327-Dec-04% Change
Dr Reddy's 1,423 855 -39.9%
Biocon 484 497 2.6%
Ranbaxy 1,099 1,241 13.0%
Cipla 257 308 19.5%
Pfizer 557 698 25.3%
Glaxo 595 776 30.4%

Despite the strong performance of the overall market, including stocks from the pharma sector, leading Indian player, Dr. Reddy’s witnessed a decline in 2004. The year started on a bad note for the company as a US federal court reversed the lower court decision by its verdict saying that the company’s generic version ‘Amolodipine Maleate’ will infringe upon the patent of Pfizer’s ‘Norvasc’. To add on to this, in the first quarter of 2004, the company also reported operating losses. The dismal performance continued for the rest of the year. Higher sales and distribution and R&D expanses led to the declining margins for the company.

In another important event from the sector, India’s largest biotech company, Biocon, came up with its initial public offering. The biggest event of the year, however, which was keenly awaited both by the industry as well as the markets, was the introduction of the new patent regime. Although, a change in government earlier in the year meant that the new government was not ready with a fresh bill, and hence the recently issued ordinance in order to comply to the WTO regulations. The ordinance on patent (third) amendment act meant that India would transform into the era where the intellectual property rights will be respected and will have a legal framework for enforcement.

What to expect in 2005?
The year 2004 was an eventful year with new companies entering into the bandwagon for pharma exports. However, 2005 is likely to be ‘the’ year of execution for most of the companies. As far as the domestic markets are concerned, the patent ordinance will definitely instill confidence among players in the industry. However, we may not see a sudden jump in revenues and profits of MNC companies as they may approach new product launches with caution.

On the exports front, the US government has intensified its efforts towards usage of generics drugs. Drugs worth US$ 35 billion are going off patent in the next three years and Indian companies are likely to be the biggest beneficiaries of the same. While Indian companies like Ranbaxy, Sun Pharma, Lupin Labs and Dr. Reddy’s are likely to get the benefits directly they might feel competitive pressures as MNC players are sourcing their drugs from India thus reducing the costs. 2005 is, thus, likely to witness greater global acceptance of India as a pharmaceutical power to reckon with!

Equitymaster requests your view! Post a comment on "Pharma: Opportunity looms large". Click here!

  

More Views on News

5 Stocks to Watch Out for Amid the Omicron Outbreak (Views On News)

Dec 3, 2021

As the new variant of Covid-19 emerges, keep an eye on these stocks.

3 Indian Pharma Companies that are Investing Big Time for the Future (Views On News)

Nov 9, 2021

In 2021, R&D of pharma companies roared to life in a never-before-seen way.

Demerger of Financial & Pharma Businesses puts Piramal Enterprises in Limelight (Views On News)

Oct 8, 2021

The company's shareholders will be issued 4 shares in the demerged entity for every 1 held in Piramal Enterprises.

This Stock Just Made a Historical Debut on the Exchanges (Views On News)

Nov 15, 2021

Shares of the company listed at premium of 253% from its IPO price, the highest ever.

Krsnaa Diagnostics IPO Opens Tomorrow: Key Points to Consider (Views On News)

Aug 3, 2021

Krsnaa Diagnostics grey market premium is at around Rs 440 from its issue price of Rs 933-954.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

India's Top 5 Monopoly Stocks to Watch Out for (Views On News)

Nov 30, 2021

These 5 companies dominate their sectors with a huge piece of the pie.

6 Penny Stocks that Rallied 1,000%+ in One Year (Views On News)

Dec 6, 2021

These penny stocks shed their penny status by surging 1,000% or more in the last one year.

The Biggest Winners and Losers in India's Transition to Electric Vehicles (Profit Hunter)

Nov 26, 2021

How India's EV transition could be a major headwind for the incumbents.

More

Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE HEALTHCARE


Dec 8, 2021 11:33 AM

S&P BSE HEALTHCARE 5-YR ANALYSIS

COMPARE COMPANY

MARKET STATS