Shares of pharmaceutical companies plunged on Tuesday with the Nifty Pharma index falling nearly 3.12% to hit a 52-week low of 9,528.95 in intra-day trade, its lowest level since August 2014. The Nifty Pharma index closed the session 310.90 points lower at 9,648.30 points, while the S&P BSE Healthcare index closed the session 2.72 % lower at 14,216.70 points. Shares of pharma companies fell between 0.3% and 6.5% on the National Stock Exchange (NSE).
Poor outlook for the sector laid out by a Credit Suisse report made investors cautious of the overall sector. Credit Suisse said that Indian pharma stocks have de-rated by 10% over the last one year, but with price erosion expected to increase a further de-rating is expected.
A fall in sales of Taro, the US subsidiary of Sun Pharmaceutical Industries, dragged the company’s stock down by 3.87 % on NSE and 4.33 % on BSE. Aurobindo Pharma was the biggest loser among pharma stocks which hit its 52-week low at Rs538. Shares of Aurobindo Pharma plunged 6.11 % on Tuesday closing the session at Rs540 on NSE. Apart from Aurobindo Pharma, Glenmark Pharmaceuticals and GlaxoSmithKline Pharmaceuticals hit their respective 52-week low on the NSE intraday trade.
This price erosion would be triggered by an increase in US FDA’s approval for drugs that will increase competition and impact the financials going ahead. Analysts at Credit Suisse expect the price erosion to increase to 10-12% from 7-8% currently, which will eat into earnings growth of most pharma companies.
Credit Suisse expects Abbreviated New Drug Application (ANDA) approvals to increase from 650 to 1,000 in the next two years. “We stay underperform on Lupin, Dr Reddy’s and Neutral on Sun Pharmaceutical Industries. We prefer Cipla and Cadila, with a lower base and a good pipeline,” said Anubhav Aggarwal and Chunky Shah of Credit Suisse in a report.