Elara Securities’ positive outlook for the Indian pharmaceutical sector, with particular emphasis on the US generics market

Elara Securities expressed an optimistic view on the Indian pharmaceutical sector, with particular emphasis on exports to the US generic market.

In an interview with CNBC-TV18, Bino Pathiparampil, pharmaceutical analyst and director of research at brokerage Elara Securities, highlighted the noticeable growth in the US generic segment over the past few quarters.

He noted that price pressures had eased and stabilized, creating a favorable environment for growth. “The U.S. generic business has really picked up over the last few quarters for almost all companies. The pricing pressure has eased, prices have stabilized and many new opportunities for new generics are emerging,” Pathiparampil said.

Due to high skills in manufacturing low-cost generic drugs and poor R&D capabilities in manufacturing branded drugs, most Indian pharmaceutical companies are deeply dependent on the US high-value generic drug market for revenues and profits. Generic drugs are low-cost copies of patented drugs that are approved on the U.S. market after the patents on the original or brand-name drug expire.

Although the domestic market is showing slower growth, Elara’s analyst expects recovery. “Growth in the domestic market has been weaker over the last few quarters. It is still a bit weak, but we actually expect some recovery,” he commented. While valuations have increased, they are not yet overly inflated, suggesting further growth potential.

He anticipates this positive trend to continue for the next few quarters and potentially several years, helped by the upcoming patent cliff and limited competition.

While discussing Sun Pharma, Pathiparampil highlighted the strategic benefits of Taro Pharmaceutical becoming a wholly owned subsidiary of Sun Pharma. This acquisition allows Sun Pharma to leverage synergies with Taro, a US-based generics company specializing in dermatology, complementing Sun’s own dermatology business. These synergies are expected to improve Sun’s financial performance in the coming quarters, potentially improving margins.

Additionally, Sun Pharma’s specialty business is performing exceptionally well, with significant growth in its core product. New products such as Deuruxolitinib for alopecia are expected to enter the market later this financial year or early next year, further strengthening Sun’s specialist business. Overall, Pathiparampil maintains a constructive approach towards Sun Pharma, considering the potential of both existing and new products.

On June 21, Cipla Ltd announced that the US Food and Drug Administration (USFDA) had inspected its manufacturing facility in Goa from June 10 to 21, 2024, and reported six observations documented on Form 483 .

Pathiparampil expressed disappointment, noting that the facility had been facing a warning letter for over four years and this time the problem was expected to be resolved.

He stated that with the six new comments, it was uncertain whether the problems would be resolved. FDA’s final decision on the facility’s warning letter status is pending and if not made, there may be a slight reduction in current estimates.

You can watch the full interview in the attached video