Healthcare stocks live up to their name

BSE healthcare index outperforms Sensex in past two years

At a time when the health of the market is suffering, healthcare stocks have emerged as a safe refuge for investors.

The Bombay Stock Exchange Healthcare Index, constituting 17 companies, gained 16.6 per cent in the past two years against a 1.2 per cent loss experienced by the 30-stock Sensex benchmark. Between June 12, 2010, and June 12, 2012, the BSE Healthcare Index rose 930 points to 6,519.5 from 5,589.56. In the same period, the BSE Sensex dropped 202 points, from 17,064.95 to 16,862.

According to experts, better results posted by domestic pharma companies, growth in US sales driven by patent expiries and high domestic growth are among the reasons.

Even shares of debt-ridden pharma major Wockhardt witnessed growth of 542 per cent, to touch Rs 861 from Rs 134 two years earlier. Wockhardt’s shares have been performing well since the company decided to clear all foreign currency convertible bond (FCCB) dues, in line with a high court order here last year. Its shares went up 11 per cent on the day of the HC verdict. The company had defaulted on re-payment of its $110-million FCCBs in 2009.

Other stocks which performed well during the period include Strides Arcolab (78 per cent), Sun Pharmaceuticals (72), Glenmark Pharma (38) and Lupin (36). However, shares of majors like Aurobindo Pharma (-35), Biocon (-27), Cipla (-9.5) and Piramal Healthcare (-8.76) have disappointed investors.

In the American market, drugs worth $61 billion are expected to go off-patent over 2012-15, with $29 billion going off-patent in 2012 alone, making it the highest ever in a single year, according to a recent report by Fortune Financial Services. To grab the opportunity, Lupin and Sun Pharma are leading the first-to-file (FTF) list for such drugs. Lupin has filed 19 FTFs with a market size of $7.9 billion, while Sun has filed 12 FTFs for a total market size of $11.8 billion.

Hitesh Mahida of Fortune said, “After observing some recently launched FTF drug markets, we observed that the holder retains a leadership position even beyond the expiry of marketing exclusivity. Another important observation is that the FTF holder enjoys better margins than late entrants.”

Lupin’s domestic business has posted a growth of 21 per cent in FY12 in comparison to 14-15 per cent posted by the domestic market. Similarly, Sun Pharma's domestic business is growing at 18-20 per cent.

An increase in Abbreviated New Drug Approvals from the US Food and Drugs Administration and entry into newer markets and more product launches in regulated markets help Indian companies keep the momentum.