After six years of sharp growth, stocks of pharmaceutical companies came to a halt in 2016. The pharmaceutical sector has been facing challenges because of the strengthening of USFDA regulations, growth downturn in the US and for pricing pressures both in India and the US. Nine of top fifteen pharmaceutical companies in terms of market capitalisation ended the year with loses.The BSE Healthcare Index has underperformed the Sensex in CY2016, with the healthcare index down by about 14.5%, while Sensex has been up by 0.37 % so far this year.
Sun Pharmaceutical Industries, India’s largest pharmaceutical firm by market capitalisation and revenue, plunged over 24%, which is the worst performance since the company’s listing. Price per stock fell to R620.40 on December 27, 2016, from R819.95 on December 31, 2015. The stock price of Sun Pharma has weakened over the last two years after US Food and Drug Administration (USFDA) issued Form 483 for compliance issues in company’s Halol plant in September 2014.
Recently the stock price of pharmaceutical company Divi’s Labs fell by over 30% in last three sessions and hits two-years low, after USFDA found compliance issues against the company’s Chippada Village unit in Visakhapatnam, Andhra Pradesh.
Just like Sun Pharma and Divi’s Labs, even Mumbai-based Aurobindo Pharma came under the scanner of USFDA once in February for company’s unit VII in Mahaboobnagar district in Telangana and again in December this year for the unit I in Hyderabad. On December 16, the company’s shares hit nine-month low after it was named in a lawsuit alleging it colluded with other drug makers to fix prices of two commonly used drugs in the US.
On a brighter side, Biocon has performed well with its stock up 76.4% in CY2016. The company’s share price shot up to Rs 916.45 on December 27, 2016, from Rs 518.05 on December 31, last year.
A Kotak report published on November 10 stated that “The global generics sector has faced significant de-rating in YTD CY2016 with 1-year forward P/E contracting by 34%.This has largely been on worries over the pricing environment in the US and sustainability of growth in the math of aggressive erosion in several high margins, limited competition baskets and price increase led products.”