Caught In The Middle

A big transformation is happening in the global generic pharmaceutical industry. As a result, stocks of most major drug companies have done badly in the past one year.

- P.B. Jayakumar

KAMAL K. SHARMA, Advisor and former vice chairman of India’s second-largest drug company, Lupin Ltd., uses the transformation of India’s two-wheeler market to explain the ongoing global disruption that is giving the country’s pharmaceutical companies a hard time.

“When our roads were bad, the Bajaj Chetak scooter became a hit. Over the years, motorcycles gained popularity, and when roads became better and more motorable, electric scooters became popular and obliterated many popular scooter/motorcycle brands and models. Value migration happens in every industry at some point or the other. The generic industry is going through such a transition,” he says.

That is why the pharmaceutical and healthcare sector –considered to be broadly insulated from market swings and regarded as a safe investment for stock investors – is the only sector that destroyed investor wealth (it fell 2.6 per cent) in October 2017-September 2018 over the year-ago period. Its average market capitalisation fell from 7,17,453 crore in the October 2016 to September 2017 period to 6,98,896 crore during the October 2017 to September 2018 period. Half the top ten companies in the sector registered growth in market capitalisation. The fall in the average market cap was primarily led by heavyweights Sun Pharmaceutical and Lupin Ltd. Sun’s market value, for instance, fell 11.25 per cent from 1,48,534 crore to 1,31,816 crore. Lupin fared worse; its market capitalisation fell 34.22 per cent from 59,049 crore to 38,842 crore. Similarly, Dr. Reddy’s Laboratories’ market cap fell 17.72 per cent. The other losers in the top ten were Zydus Cadila (-7.47 per cent) and Aurobindo (-6.67 per cent). The gainers were Biocon (66.49 per cent), Cipla (6.14 per cent), Divis Laboratories (34.07 per cent), Emami (5.25 per cent) and Alkem Laboratories (11.44 per cent).