More Pain

Pharma stocks continue to underperform as policy uncertainty adds to the toll taken by USFDA and market challenges.

- E. Kumar Sharma

The Big Pharma of India is passing through turbulence after hitting the jackpot with generic drugs and ingredient making. On November 7, 2017, Mumbai-headquartered Lupin informed the stock exchanges that two of its manufacturing units in Goa and Indore had received a warning letter from the US Food and Drug Administration (USFDA) and consequently, its shares went into a free fall. The stock hit a 52-week low, losing a market capitalisation of ₹7,871.8 crore in just one day. It was a steep slide from its peak at ₹94,856 crore just two years ago when the scrip traded at around ₹2,000. But even before that announcement, there was a deluge of analyst reports that highlighted the firm’s weak financial numbers.

On October 30, for instance, Credit Suisse analyst Anubhav Aggarwal said in his report (up on the Lupin website), “We factor the weakness of US sales and cut FY18/19E EPS by 4 per cent/7 per cent. We reiterate that Lupin has high risk and FY20 profit is likely to be flat as (1) 10 per cent of FY19 profit is from Ranexa exclusivity; (2) Aurobindo and Nostrum will enter the Fortamet market by FY20; (3) Sun should have entered Glumetza by FY20; (4) we expect more competition in Levothyroxine as well. Therefore, the stock is already trading at 20.5x FY20E EPS.”

Lupin is witnessing falling sales in the US, its key market that accounts for more than $1 billion or over 40 per cent of the company’s total sales). Lupin is the second most valuable company after Sun Pharma, in the BT 500 Pharma and Healthcare sectoral ranking; overall, it ranks 42nd, a sharp fall from the 27th spot last year.