Pharma Q1 Results: How Indian Drugmakers May Fare In First Quarter

Indian pharmaceutical companies that sell drugs for acute ailments are expected to witness a decline in earnings, while those with a significant exposure to chronic portfolio may be spared in the first full quarter affected by the coronavirus pandemic.

Physicians shut clinics for most of the quarter amid the lockdown, and a decline in elective surgeries—that are scheduled in advance—at hospitals led to a drop in sales of injectables, according to Nirmal Bang Securities. That, it said, either caused part of the demand to get postponed or permanently lost, impacting the acute segment—therapies for severe but short-duration illness. The acute segment, according to market research firm AIOCD AWACS, accounts for 47% of the Indian pharma market.

On the other hand, the nationwide lockdown to combat the novel virus, which has so far infected more than 11 lakh people and killed over 27,000, triggered panic buying of medicines for chronic ailments such as cardiac and diabetes. Such therapies account for 33% of the Indian pharma market.

Also, analysts expect sales in the U.S., the largest market for most Indian drugmakers, to decline sequentially in the quarter ended June as pharmacies and customers stocked medicines in the preceding three months and sales of prescription drugs fell. That will reflect in the quarterly results of the pharma sector with Biocon Ltd. reporting numbers on July 23.

Here’s a look at how India’s top six drugmakers by market cap are expected to far in the first quarter of 2020-21:

Sun Pharma

The U.S. business of India’s largest drugmaker is likely to get impacted as its specialty portfolio took a hit. Also, lower sales of subsidiary Taro Pharmaceutical Industries Ltd. and prescription drugs during lockdown may hurt the top line.

Its margin is expected to get impacted due to an increase in other expenses.

Dr. Reddy’s

New product launches and increased demand for existing products in the U.S. are expected to aid the drugmaker’s revenue, while the acquisition of Wockhardt Ltd.’s portfolio may boost its domestic business. But some of the benefits may be offset by lower sales of prescription drugs on account of an extended lockdown.

Cost cuts are expected to aid the company’s margin in the quarter ended June.

Divi’s Laboratories

A favourable base is expected to aid the drugmaker’s revenue, while its margin may decline on account of high post-operative costs of newly commissioned facilities.

Cipla

The drugmaker may report a flat U.S. business on account of a decline in sales of prescription drugs, and as a generic of Albuterol, used to treat breathing difficulty, is yet to ramp up meaningfully.

Also, a high base led by sales of a copycat version of Sensipar, used to treat kidney diseases, may impact margin.

Biocon

While the company’s revenue may be aided by a favourable base, higher other expenses are likely to hurt margin in the first quarter.

Aurobindo Pharma

A fall in injectables demand due to delay in elective surgeries, lower sales of prescription drugs and price erosion for a generic of Ertapenem—used to treat serious bacterial infections—might impact Aurobindo Pharma’s U.S. sales.

That may, however, be offset by growth in revenue in Europe and other markets, and higher sales of ARV-antiretroviral—HIV and AIDS drugs. The company’s margin may remain flat because of higher research and development spends.

Key things to watch out for:

• Management commentaries on the pace of recovery amid lower-than-expected growth in India and active pharmaceutical ingredient disruption or price increase.
• Impact of Covid-19 on revenue in first quarter.
• Impact of Covid-19 on the prescription generation of specialty products.

(The reasons have been compiled from the research reports of Emkay Global, Centrum Broking, Nirmal Bang, Prabhudas Lilladher, Edelweiss Securities and Narnolia Research.)