The year 2008 is marked by volatile movements on the stock market with heavy selling pressure by foreign financial institutions and general investors on account of recessionary conditions worldwide. The BSE Healthcare index of 23 major pharmaceutical companies drifted down by 33 per cent to 2966.19 as at the last day of 2008 as compared to 4418.65 points at the end of year 2007. However, the there was small gain across the counters on the first trading day of 2009 with little investors support.
The negative economic indicators such as de-growth in GDP, industrial production and exports have impacted the price movements adversely. Further the fall in profits during the September 2008 quarter also influence the sentiment.
The share prices of leading pharmaceutical companies like Ranbaxy Laboratories, Dr Reddy's Laboratories, Cipla, Sun Pharmaceutical, Cadila Healthcare, Piramal Healthcare, Wockhardt, Aurobindo, Glenmark, etc declined sharply during 2008. Even all MNCs, except GlaxoSmithKline Pharmaceuticals, share moved down in the range of 10-60 per cent. On the domestic front, Lupin and Zandu Pharmaceuticals restricted the fall and both the scrips declined only by 2.5 per cent and 3 per cent respectively during the year 2008.
All the major pharma scrips lost heavily during the year and currently houring around their 52-weeks lowest level. The investor confidence has been shaken quite badly and not likely to revive in short time, though the long term outlook is considered to be steady for pharma shares.
The BSE HC index touched to its peak level at 4602.15 points on June18, 2008 and reached at its lowest level at 2586.71 points on October 27, 2008. The fall in BSE Sensex of leading 30 companies was more profound as the Sensex declined by 52.4 per cent during the year to 9647.31 points from 20,286 points as at the last trading day of 2007. The BSE Sensex touched to its highest level at 21,206.77 points on January 10, 2008 and then declined to its yearly low at 7,697.39 points on October 27, 2008. The Foreign Financial Institutions remained as a major seller on account of recessionary conditions in the world market and domestic financial institutions, including mutual funds, failed to built up confidence.
A leading pharma analyst said that this is a good opportunity for the promoters to buy-back shares from open market and step up their stakes in the companies. The GDP growth is likely to slow down further in the coming months and inflation will decline due to fall in fuel prices worldwide. The recent terror attacks have dampened the sentiment of investors community putting pressure on pharma segment also.
The overall financial performance of the pharmaceutical companies, excluding foreign exchange losses, improved during the first two quarters of the current fiscal. The investment in R&D during 2007-08 increased significantly and exports also saw a positive growth despite appreciation of rupee against US dollars. However, the prevailing poor sentiment in the market impacted the price movements. Foreign Institutional Investors became sellers and several shares lost ground.
The pharma companies shares are getting some support on account of investment in R&D & expansion, tie-ups, aggressive entry into new markets, mergers & acquisitions, filing of higher ANDAs and DMFs in highly regulated markets, changing business strategies and launch of cost effective products. These positive factors are assisting Pharmaceutical scrip and restricting downward trend as compared to other sectors like information technology, infrastructure, reality, metal, automobile, banking & finance etc.
Few incidents like the warning letter for Sun Pharmaceutical's US based subsidiary Caraco Pharmaceutical Laboratories and Ranbaxy on from US FDA during the year regarding quality of products impacted the sentiment adversely. The scrip of Ranbaxy, now subsidiary of Daiichi Sankyo Company of Japan, declined by 41 per cent during the year and now moving around Rs 250 on the BSE as compared to Rs 425.95 at the end of 2007. The acquisition of majority shares by Daiichi did not help the company to build up investors' confidence. The scrip touched to its 52-weeks highest level at Rs 614 as against its lowest of Rs 164.
Similarly, Sun Pharmaceutical share price fall to Rs 1064.95 on last day of 2008 from Rs 1,222 as on December 31, 2007. The company is still battling for acquisition of Taro Pharmaceutical in Israel. The company has extended the expiration date of the tender offer for the purchase of all outstanding ordinary shares of Taro during 2008. The Tel-Aviv District Court had previously ruled in favour of Sun Pharma that a special tender offer was not required.
The pharma analysts pointed out that the fundamentals are strong but the investment sentiment is poor. Indian pharmaceutical segment has put up a good show and established better image in the international market. There are several challenges like stringent approval system in the regulated markets, exchange rates, worldwide rising cost of raw materials, patent laws, limited success on R&D front and stiff competition are likely to play key role in future development of Indian Pharmaceutical segment.
The de-merger of R&D activities by several companies like Ranbaxy, Sun Pharmaceutical, Piramal Healthcare, Glenmark Pharmaceutical, etc will not give any special benefits in respect of profitability. This move has not helped to boost the share price. The final outcome from R&D activity is important for returns from investments, the analyst added.
During the year 2008, several Indian pharma companies acquired companies in foreign countries to expand their market presence. Lupin acquired majority stake in South Africa based Pharma Dynamics, a fastest growing generic company. Lupin also acquired stake in Australian based Generic Health Pty Ltd, an Australian owned and operated generic pharmaceutical company. Further, it acquired Hormosan Pharma GmbH, a German sales and marketing generics company.
Glenmark acquired seven pharmaceutical brands in Poland from Actavis, which will give it fist access to the growing Polish market. Zydus Cadila acquired 70 per cent stake in Simayla Pharmaceuticals of South Africa and Etna Biotech, a wholly-owned subsidiary of the Dutch biopharma company Crucell NV. Jubilant Organosys acquired TrialStat ClinicalAnalytics from TrialStat for a purchase consideration CAD7.50 lakh. Jubilant also acquired Canada base Draxis for US $ 253 million during May 2008. Dr Reddy's Laboratories purchased Jet Generici Sri of Italy and also acquired molecules business of Dow Chemical Company. Piramal Healthcare has acquired polygeline based blood plasma products brand Haemaccel of PlalsmaSelect AG, Germany for a total consideration of Euro 7.7 million.
Strides Arcolab, Opto Circuits, Arch Pharmalabs and Marksans Pharma also acquired companies or brands in the other countries.
The analysts expressed that the current market situation is likely to prolong for another one to two years as recession in western countries is deepening. However, India is recognized as major manufacturing and R&D hub and several international players are likely to enter India through partnership. The investments in cGMP manufacturing facilities by Indian companies will push top line growth through momentum in CRAMS activities. Further, clinical trials segment has better opportunities with easy availability of talent pool and patients. According to analysts, short term outlook is somewhat gloomy for pharma segment, but the long term holds better prospects.
Lower industrial production, credit crunch, lack of demand, rising unemployment, fall in export earnings as well as forex reserves, significant depreciation of rupee in terms of US dollar and law & order situation hit the investors' confidence at the fag end of the year 2008. The Indian economy achieved growth of 7.6 per cent during the second quarter of the fiscal year 2008-09 which is the slowest growth pace in the last 3-4 years. Exports declined significantly despite rupee touched to 50.61 for a dollar recently.
Thus, the important factor like investments in R&D activities and expansion, aggressive entry into regulated markets and higher filing of products will help Indian pharmaceutical companies in the long term and will easily overcome the present gloomy conditions. Confederation of Indian Industry (CII) pointed out in its white paper that the Indian pharmaceutical industry will grow at 19.6 per cent by 2015 on different factors like expansion of middle class, generic and brand development, marketing effectiveness, rural markets and health insurance. This will give better returns to shareholders in long run.