Top pharma companies' Dec 2011 quarter preview

We are expecting the pharma sector to post good numbers for the quarter ended Dec 31, 2011. The growth of companies in the sector will be fired due to the combined effect of rupee depreciation, the launch of generic products in the US as well as growth in the domestic markets. We expect margin expansion and higher realisations in this quarter. This, however, would be applicable on a case-to-case basis.

Pharma giant, Sun Pharma, discontinued its contract manufacturing business in the first quarter of FY12. Despite this, the company reported 19% growth in its net profits in Q2 FY12. In the first half, Sun Pharma received various drug approvals. We expect a good growth in its earnings in this quarter as well.

Ranbaxy launched a generic version of the blockbuster drug Lipitor in Dec 2011. As of the 3rd week of Dec 2011, the company had gained over 20% market share of this products, and it still has 5 months of exclusivity ahead. We believe that Ranbaxy will be able to generate over US$ 300-400 million from the sale of this product in the 6 months of the exclusivity period. On the other hand, it has made a provision of US$ 500 million as settlement fee with respect to the US FDA investigation of 2 of its manufacturing plants in 2008. We are awaiting some clarity on the exact amount and payment schedule of this settlement fee.

Ranbaxy has also launched a generic version of Caduet, which will add about US$ 4 million to its earnings in the year. We are neutral on the stock, as the settlement fee would eat into the profits generated by Lipitor. In Q2 FY12, the company suffered forex losses of Rs 400 cr. Besides, as per its annual report, it has Rs 1967 cr of foreign currency loans, which is also a concern.

Lupin has recently received final approval for its drug, Tricor. The company also has acquired the Japanese pharma company, I’rom Pharma, which has a significant presence the injectables segment, and has an annual turnover of US$ 69 million (Rs 330 cr). Lupin expects a growth rate of about 8% in I’rom Pharma. On the back of this, we expect margin expansion and hence, a good quarter for Lupin.

Dr. Reddy’s Labs (DRL) is also eying the launch of Lipitor in FY13. Besides, the company is focussing on the heart disease segment. It has launched a pain treatment cream, Supernova. Towards the end of the last quarter, DRL launched a generic version of Zyprexa in the US, which will show some good impact on its earnings.

Cipla is also expected to show good quarterly results due to increased production from its Indore SEZ manufacturing facility. Hence, we are positive on the stock.

Cadila has acquired Biochem Pharmaceuticals, which will boost its revenues.

Glenmark has launched a generic version of Malarone in the US market in Sep 2011, which will effect an improvement its topline. Besides, it has also received tentative approvals for 2 drugs, viz. Zolmitriptan and Montelukast Sodium, from the USFDA. Apart from this, the company has started pivotal clinical trials for Crofelemer, a first-in-class anti-diarrhoeal drug. In its Q2 results, Glenmark saw forex losses of Rs 132 cr. This, we believe, is a concern in this quarter too, where the rupee remains stressed.

Aurobindo Pharma has witnessed forex losses of Rs 80 cr in the last quarter. Hence, we are not very positive on the stock.

We also believe that over the past 3 months, the markets may have discounted the quarterly results in the scrips of Cipla, Dr. Reddy's Labs and Sun Pharma. Investors may look towards investing in Lupin and Cadila ahead of their quarterly results.