Growth in US business likely to boost Q1 revenues of pharma companies

Indian pharma companies may be dealing with regulatory pressure from the US drug regulator recently, analysts, however, expect firms to post double-digit revenue growth in the first quarter of FY20, thanks to the growth in the US business. 

Most brokerages expect the US business growth for Indian pharma companies to be in the range of 21-26 per cent in Q1FY20 on a year on year (YoY) basis. However, it would remain flat on a sequential basis in constant currency. 

According to Edelweiss Securities, pharma sales to grow by 17 per cent YoY as US sales are expected to grow by 21 per cent YoY. The domestic business, however, is expected to clock single-digit growth of 9 per cent or so, according to the brokerage. 

Apart from stable pricing environment in the US, pharma majors like Sun Pharmaceuticals, Lupin and Cipla had one-time opportunities in the US market, along with a good set of launches by Dr Reddy’s Laboratories (DRL). 

Sun Pharma benefitted from a one-time supply opportunity that began in Q4FY19. Brokerages thus expect its US revenues (around $425 million) to decline by 4 per cent sequentially in Q1FY20. Taro sales is also expected to remain flat quarter on quarter at $150 million.
 

Krishnanath Munde of Reliance Securities felt there could be a 1.5 per cent sequential decline in US revenues led by slower abbreviated new drug application (ANDA) approvals. On a YoY basis, Munde expected the US sales of his coverage universe to grow by 26 per cent. Q1FY20 saw 55 ANDA approvals compared to 93 in Q4FY19 and 64 in Q1FY19. Analysts expect pricing pressure in the US to remain at low-mid single digit. 

On the earnings front, analysts are positive about a 22-23 per cent YoY uptick owing to the one-off opportunities in the US. Munde noted prices of active pharmaceutical ingredients moderated during the quarter. 

The domestic pharmaceutical market, which has acted as a cushion for US-focused pharma firms whenever there was pricing pressure, has slowed down in the past few months. The pharmaceuticals market in the country clocked 7 per cent YoY growth in May, the lowest since October 2017, according to the data from AIOCD AWACS. Seasonal factors, slower new product introductions and an overhang of the pricing regulation have dragged the domestic market as such. 

In the domestic business, sales are likely to grow 9 per cent YoY as underlying demand remains weak. Deepak Malik, analyst with Edelweiss, said domestic sales of Sun Pharma were expected to grow at 8 per cent YoY, slightly slower than the Indian Pharma market. Similarly, for Torrent Pharma and Cadila Healthcare (Zydus) the domestic revenues are expected to clock similar growth of 8 per cent this quarter, said analysts. On the other hand, DRL and Lupin are expected to clock better growth in domestic revenues, 12 per cent or so, higher than the IPM growth rate. 

From a long-term perspective, ratings agency ICRA pegged the domestic market growth for Indian pharma at 9-10 per cent in FY20. It estimates that overall growth would be in the range of 11-13 per cent during the financial year. 

Gaurav Jain, vice-president and co-head, corporate ratings of ICRA, said, “The negative growth in Q4FY19 was on account of change in distributor for Sun Pharma as well as muted growth for FDC portfolio after ban in August 2018. The growth in FY20 is expected to be supported by 4.2 per cent WPI linked price hike for NLEM portfolio.