Pharma gets a US shot in arm

Pharmaceutical stocks continued to gain on Thursday, with Wockhardt, Ranbaxy, Lupin, Aurobindo Pharma, Cipla and Dr Reddy's Laboratories moving between one and 13 per cent intra-day.

The S&P BSE Healthcare Index was the largest gainer among sectoral indices, moving one per cent by close. It outperformed the benchmark indices, the S&P BSE Sensex and the CNX Nifty, that ended weak.

The rally comes on a recent report the US Food and Drug Administration (US FDA) is disputing a study that detected impurity in a number of heart drugs made abroad, saying the investigators contaminated the samples during testing.

WHAT MADE THEM JUMP

• The rally comes on a recent report the US Food and Drug Administration is disputing a study
• The study had detected impurity in a number of heart drugs made abroad
• Ranbaxy, Wockhardt and Sun Pharma's facilities had been recently red-flagged by the US

"The study by Preston Mason, a researcher at the Harvard-affiliated Brigham & Women's Hospital in Boston, was one of the first independent probes into generic heart drugs. Janet Woodcock, the FDA's lead drug reviewer, said Mason's team 'did not use the proper method to extract the active ingredient' from samples 'and so contaminated it themselves'. Mason defended his work, saying he used the same method on all of the drugs, and only the foreign-made had high levels of contaminants. Tests on Pfizer's Lipitor found very low levels," said a March 25 report on Bloomberg.

Under scanner
Ranbaxy, Wockhardt and Sun Pharma's facilities had been recently red-flagged by the FDA.

Wockhardt's plants in Waluj, Chikalthana and Nani Daman are under the FDA scanner, with products from these banned in the US. While Ranbaxy has four plants in India debarred by the US regulator from selling drugs, Strides Arcolab faces US regulatory scrutiny at a plant under Agila Specialities, acquired by Mylan.

Says Sarabjit Kour Nangra, vice-president for pharmaceutical research, Angel Broking: "Nothing substantial has come out of the development. The FDA needs to approve this and, till then, I don't read much into this news development. However, the markets are expecting the FDA to take steps that could positively impact the red-flagged Indian firms."

"Positive steps should be beneficial for Ranbaxy and Wockhardt, impacted the most by the recent decisions. We have a neutral rating on Ranbaxy and a buy on Lupin, Dr Reddy's, Cipla and Sun Pharma. Wockhardt can also be bought from a long-term perspective."

Surajit Pal, an analyst with Prabhudas Lilladher, says Dr Reddy's and Lupin in large-cap and Aurobindo and Glenmark in mid-cap pharma are poised to offer better returns, with quality earnings in the short-to-medium term, based on  analysis of strategies, risks and strengths of core business.

"In the long term, the returns would highly depend on the progress in research and development (R&D), while emerging regulations for evolution of new business would be the key determinant. The FDA's pending regulations on iogenerics/biosimilars (with its view on reference drug) would be the case in point to determine generic companies' quality and quantum of R&D investment."