Is the worst over for pharma stocks?

The pharma index has hugely underperformed the Sensex in CY17 owing to regulatory overhang and FDA issues 

Published 7 years ago on Jul 17, 2017 2 minutes Read

Ranjit Kapadia, Senior VP - institutional research, Centrum Broking

If you are looking at a slightly longer term, say more than a year or so, then this would be a good time to invest in pharma. However if you are a short-term player, the sector might not give a good return. Lupin, Sanofi, Abott, Granules India and Aurobindo Pharma are the five stocks we would recommend. Given the implementation of GST and the pricing pressures faced in the US generics market, this quarter will be a weak one for the sector. But the bright side is that some of the plants that were under the FDA scanner are now receiving clearances as some of their products have been approved by the regulatory authority. The USFDA has also formulated a new policy to expedite the approval of generic drug applications where competition is limited. The accelerated ANDA approvals and resolution of the FDA queries on manufacturing facilities will ensure Indian companies see better revenue growth from the US generics market over the long term.

Prasanth Prabhakaran, CEO, Yes Securities

The sector is facing headwinds in the US from a regulatory and pricing perspective. While there is a big push to ensure that there is increased access to quality affordable medicines in the US, there is still some uncertainty on the regulatory changes the Trump government can bring about on pharma imports. The US generics business is already seeing some price erosion as Indian firms have cut prices to remain competitive, which will impact their profitability significantly. Q1FY18 promises to be a weak quarter for the industry with the domestic business taking a knock owing to GST implementation, rupee appreciation, no big-ticket generic launches in the US and pricing pressure. We believe that valuations will see a further correction. One should wait for another two-three quarters to see how things pan out on the regulatory and pricing front before taking fresh exposure to pharma stocks.