Pharma stocks tank on fears of poor Q4 nos

It was a rough Tuesday for drug companies at the BSE as the benchmark healthcare index saw rapid sell off before the big guns of pharma declare their quarterly numbers. The shares of companies like Sun Pharma, Cipla, Aurobindo, Biocon sank at the bourses as investors saw red over the resolution of the FDA issues. For Sun Pharma the numbers from its US subsidiary Taro gave an indication about the pain that the company was undergoing with regards to the US markets. Taro’s revenue saw a 26% decline over last year to $196 million and net profit fell by 28%. Sun Pharma will be declaring its quarterly numbers on May 26th.

Analysts also do not seem optimistic about the peers of Sun Pharma.

"We reiterate our Underweight stance on the Indian Pharma sector. Steep price erosion in simple generics in USA, tough stand by US FDA on compliance and non-approval to new filings and the appreciating INR are major headwinds for the industry,” wrote Amar Ambani, Head of Research of brokerage firm IIFL. “The shift to complex generics will be a long process, which will require change in top level mindset, capital commitment and R&D focus. In the interim, companies will have to build scale of business outside of US to deliver modest revenue growth”, Ambani added. IIFL said that valuations for pharma stocks are still “elevated and can correct further”.

The healthcare index on Tuesday closed at 14217 down by 2.17%, as compared to Sensex that closed at 30,365 a marginal drop of 0.67%.