Pharmaceuticals & Biotech. share price target

Hindered by various issues recently, the pharma sector is trading at a four-year low valuation (and at par with its 10 year average). Blue chip pharma companies have been beaten down by the concerns around pricing, compliance issues and a fear of shrinking growth in the large US market. In this note, we have tried to distinguish between the truth and hype surrounding these pain points.

S&P; BSE PHARMA index has continually underperformed SENSEX in the last 1/3/6/12-months as the sector continues to face headwinds due to 1) fierce competition, 2) shorter time-to-market, 3) expiring patents, 4) slowing sales growth, 5) declining profitability in developed markets. Thus they need to find solutions to beat these challenges. Additional woes adding on the domestic front are the...

3QFY17E will be a mixed quarter for the Indian pharma sector with some companies expected to deliver good operating performance and a few suffering from regulatory headwinds in the US. As a result, we expect muted top line growth (8%YoY) for our coverage universe in 3QFY17E. EBITDA will decline on a high base of 3QFY16, which includes gAbilify profits during semi exclusivity. Adjusted for gAbilify, the EBITDA growth will also be in a low single digit.

The Indian pharma market (IPM) grew 15.3% YoY to ~Rs 94bn in Nov-16 (vs 8.3% YoY in Oct-16) and 12.2% YoY on MQT (moving quarterly total) basis. The strong growth was majorly on account of a buoyant performance of chronic therapies, especially Anti-diabetic (32.6% YoY) and Cardiac (20.8% YoY).

The Indian pharma market (IPM) grew 8.3% YoY to Rs 106bn in Oct-16 and 13.0% YoY in 2QFY17. Slow and steady recovery continues post updated NLEM list and confusion over the FDC ban. Notably, volume and price growth was relatively flat at 2.6% and 2.2% YoY respectively in Oct-16.

The Indian pharma market (IPM) grew 12.6% YoY to Rs 98bn in Sep-16 and 12.8% YoY in 2QFY17, continuing steady recovery post updated NLEM list and confusion over the FDC ban. Most notably, volumes grew 6.5%YoY in Sep-16 along with new product growth of 3.4%YoY. Normalcy is being restored with IPM growth numbers returning to the long term average of 12-13% approximately

We expect muted top line growth (7%YoY) for our sector universe in 2QFY17E, largely driven by on going US FDA issues, increased competition in profitable products and lower number of ANDA approvals. EBITDA will decline on a high base of 2QFY16, which includes gAbilify profits during 180 days exclusivity. We believe the situation will improve substantially in 4QFY17/1QFY18 with US FDA issues getting resolved for most of the companies.

Pharma companies have had a dream run over the past few years (FY11-15) with the industry clocking a revenue growth of 41% in the US led by large patent expiries..

The Indian pharma market (IPM) grew 15.3% YoY to INR 96.4bn in Aug?16, bolstered by superior growth in seasonal therapies like Anti-infective, Acute Respiratory and Gastro-intestinal. The performance has been encouraging amidst prevailing confusion over FDC products and frequent changes in NLEM list.

We expect steady earnings growth in Q1FY17 on favorable sequential currency movements resulting in stronger US generics sales and recovery in ROW business. Continued impact of exclusive opportunities (gGleevec and gGlumetza) and...