We expect another muted quarter for the pharma sector led by weakness in US business. USFDA inspections and pricing in US market will continue to dominate the results. Recent comments from global peers have indicated that pricing scenario will likely remain unchanged in 2017. We expect Aurobindo and Natco to report strong results while
DRRD reports muted results.
Another muted quarter: We expect Indian pharma to report revenue growth of 12% and margin decline of 100 bps y-o-y. US business will remain the key focus given regulatory and pricing headwinds. In India, we expect limited impact from de-monetisation for pharma.
FDA inspections to remain in focus: Given the re-emerged FDA headwinds for select companies, we expect FDA inspections to remain in focus especially for companies under warning letters. We expect DRRD and CDH to see inspection in the near-term. Additionally, we will look for commentary from SUNP on Halol resolution.
FDA approvals stable; filings though off the chart: We had earlier highlighted that with GDUFA entering year 5, companies need to increase their quality of filings. Q317 filing rates affirm our view. ANDA filings in Dec quarter at 424 filings were 1.7x vs. quarterly run-rate over the past 3 years. This will put significant pressures on GDUFA timelines and will imply FDA focus will largely be on issuing CRLs. Approval rates will suffer as FDA commitments take precedence and the buck is passed to quality of filings. ARBP is, in our view, the best placed in this regard.
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Commentary on pricing key
The focus in the results and commentary will be the pricing erosion faced by Indian companies in US and outlook going forward.
Sun: We expect Sun to report 14% topline growth and 280 bps y-o-y margin improvement. The key to watch will be Taro margins and management commentary on Halol resolution timelines.
Lupin: We expect Lupin to report 200 bps y-o-y and 120 bps q-o-q margin decline led by pricing pressure and competition in Fortamet. Key to watch will be management commentary on pricing, competition and launches.
Cipla: We expect Cipla to report 300 bps y-o-y margin improvement driven by low base and cost cutting. Key for Cipla will be update on the gSeretide launch in UK.
DRRD: We expect DRRD to report slight q-o-q margin improvement though well below FY16 levels. Key for the stock remains FDA inspection of facilities and resolution of warning letter.
Aurobindo: We expect Aurobindo to report 13% topline growth and 90 bps margin improvement led by US business. Key to watch will be commentary on launches on pending products.
Natco: We expect Natco to report strong results led by gTamiflu profit share. Domestic business could see impact due to demonetisation.