[January 16, 2006]

Pharma cos may record modest growth in Q3

(Ecomonic Times, The (India) (KRT) Via Thomson Dialog NewsEdge) Jan. 16--MUMBAI, India -- The pharmaceutical sector in India is expected to report a modest growth in the quarter ended December '05. While mid-sized companies are likely to post a good set of numbers, the aggregate for the industry will be weighed down by lacklustre performance of biggies such as Ranbaxy.

According to estimates of industry watchers, Ranbaxy could register an over 50 percent dip in net profit with flat sales. The company has witnessed a drop in revenue from its US business, which is its largest market.

"The year '05 was a tough year. Pricing pressure in the US has been brutal," Brian Tempest, CEO and MD of Ranbaxy, told analysts recently. To compound its problem, Ranbaxy has not had any significant launches and its legal expenses have mounted. Among Ranbaxy's 32 Para IV filings, 7-8 are currently in litigation. The rulings for Actos, Valtrex, Fiomax, Provigil and Tricor are expected in the coming months.

Dr Reddy's Lab, which had gone through a rough patch a few quarters ago, is likely to be better off than Ranbaxy. After having posted a Rs 4.3 crore loss in the December quarter of FY05, the company is expected to register a modest growth in sales in the third quarter of this fiscal, driven by an improved revenue from the European region.

Domestic companies Cipla, Sun and Nicholas Piramal are expected to be among the better performers for the quarter. Cipla and Nicholas Piramal, being companies that follow a partnering strategy for the regulated markets, are relatively insulated from the pricing pressures of these markets. Both these companies also have a significant domestic business that are likely to witness an above average growth. Revenue increase is expected to be between in the low double-digits for the two companies.

Sun Pharma could see a strong growth in the domestic dosage form sales. According to ORG-IMS, the company has been one of the fastest growing among the top 10 players in the domestic market. However, Sun Pharma's US business has witnessed a fate similar to that of Ranbaxy and Dr Reddy's impacting the overall revenue. According to ICICI Securities, the company is likely to report a 27.2 percent growth in profits with a 31.1 percent increase in revenue.

If mid-cap companies are likely to record mixed results as margins remain under pressure, companies such as Lupin, Glenmark Pharma, Matrix Labs and Divi's Labs are still likely to report good performance for the quarter ended December '05."Overall, we are upbeat about our performance and expect to maintain our revenue," said Kamal Sharma, MD of Lupin, in a recent interview with ET.

Glenmark's export should drive growth this quarter, while Matrix's efforts to develop its anti-retrovirals (ARVs) segment should pay off. The ARV opportunity, with huge unmet demand in the non-regulated markets, is primarily driven by western funding and relaxation in IPR regulations.

Matrix has tie-ups with Aspen, Cipla and Ranbaxy, three of the largest players in the market. Finally, unlike most companies, Divi's Labs enjoys a stable generics business due to the strong position some of its mature products enjoy. Moreover, the company is well posed to benefit from the contract research and manufacturing (Cram) opportunity.

Multinational companies should also report steady performance this quarter. GlaxoSmithKline has launched blockbuster drug Avandia and two in-licensed products, Rabeprazole of Esai and a nutritional product, in the current year. The combined sales of Avandia, Augmentin and vaccines are likely to boost Glaxo's overall revenues growth. Aventis is likely to report good growth too, mainly due to a surge in outsourcing by its parents.

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