North Indian based pharmaceutical companies are passing through a wringer and their margins are under tremendous pressure. The present scenario is likely to continue in 2012-13 on account of economic conditions, volatile exchange rates, interest burden, stringent approval norms in regulated markets and stiff competition. The continuation of poor financial performance for the first nine months ended December 2012 has shaken the investors confidence and several scrips lost momentum on stock exchanges. The year 2012-13 will be more difficult for having better return on investments from North based pharma companies.
However, investment in R&D, higher product filings, investments in expansion, entry into new markets, contract manufacturing and collaborations may help in recovery in the next financial year. Though the companies are investing in R&D, the final approval remained low during 2012. The restriction from USFDA on Ranbaxy and that from WHO on Panacea, and FCCBs have put additional burden on overall working.
As per the Pharmabiz sample of 15 major companies, with registered office in North India, the net profit of nine companies declined sharply and few companies went into huge losses during the first nine months of 2012-13. This has given a severe jolt to investors as the market capitalization has taken a major hit in January and February 2013.
Though Ranbaxy Laboratories, Jubilant Life Sciences, Fresenius Kabi Oncology, Venus Remedies, and Ahlcon Parenterals have shown improvement in financial working, Surya Pharmaceuticals, Ind-Swift Laboratories, Ind-Swift Ltd, Parabolic Drugs, Panacea Biotec and Medicamen Biotech have suffered heavy setback with huge net losses.
The net profit of Nectar Life, Jagsonpal Pharma, IOL Chemicals and Pharmaceuticals declined, while Morepen Laboratories managed to reduce its net loss. While a few companies like Jubilant Life Sciences, Nectar Lifescience, Parabolic Drugs, Venus Remedies, Jagsonpal Pharma and Ahlcon Parenterals paid equity dividend , all other companies including Ranbaxy skipped the dividend in 2011-12
Excluding Ranbaxy's financial data, the net loss of 14 companies touched Rs 233 crore during the nine months ended December 2012 as against a net profit of Rs 329 crore in the corresponding period. (Ind-Swift Ltd announced results for six months). EBDITA of these 14 companies declined by 18.5 per cent to Rs 1,379 crore from Rs 1,692 crore and net sales also declined by 7.9 per cent to Rs 8,816 crore from Rs 9,568 crore. Surya Pharma incurred heavy net loss of Rs 243.75 crore as against a net profit of 73.21 crore. Similarly, Panacea Biotec reported higher net loss of Rs 147.38 crore as compared to Rs 88.64 crore.
Ranbaxy's net sales for the first nine months ended September 2012 increased by 54 per cent to Rs 9,580 crore from Rs 6,218 crore in the corresponding period of last year. Its net profit went up to Rs 1,415 crore from Rs 83 crore on account of foreign exchange gain of Rs 51.69 crore as against a loss of Rs 254.21 crore. Ranbaxy maintained leadership in Atorvastatin and Atorvastatin plus Amlodipine post exclusivity in May 2012. It launched pioglitasone hydrochloride as an authorised generic for Actos of Takeda. It also launched authorised generic Cevimeline Hydrochloride 30 mg capsules in the US market during third quarter. The company received approval from Malaysia for setting up a greenfield manufacturing facility.
Ranbaxy is negotiating towards a settlement with the Department of Justice of the US for resolution of potential civil and criminal allegations. It provided Rs 2,648 crore ($500 million) towards liability in the year ended December 2011.
In November 2012, Ranbaxy Pharmaceuticals Inc, the U.S. subsidiary of Ranbaxy Laboratories Ltd, had initiated a voluntary recall for select batches and strengths of Atorvastatin calcium tablets only in the US. Ranbaxy which is working with the U.S. FDA have identified and implemented multiple corrective and preventative actions (CAPA). As a part of the first step in initiating the manufacturing process to resume supplies to the U.S. market, it has commenced the production of the drug substance for its Atorvastatin product.
The R&D expenditure of of eight companies from the Pharmabiz sample improved by 13.5 per cent to Rs 1,133 crore during the year 2011-12 from Rs 999 crore in the previous year despite lower R&D spend by Ranbaxy and Fresenius Kabi Oncology. Ind-Swift Laboratories' R&D spending went up by 40 per cent to Rs 136.35 crore from Rs 97.35 crore and that of Parabolic Drugs moved up by 36.8 per cent to Rs 94.34 crore from Rs 68.97 crore. Even Jubilant Lifesciences, Panacea Biotec and Venus Remedies achieved strong growth of over 20 per cent in R&D expenditure during 2011-12.
North-based pharma companies have established strong presence in the international market and are spreading their business operations in several new countries. The export earnings of 10 North- based companies increased by 30.5 per cent to Rs 8,746 crore during 2011-12 from Rs 6,701 crore in the previous year. Ranbaxy's standalone exports earnings went up by 61 per cent to Rs 5,411 crore from Rs 3,360 crore. Jubilant Lifesciences also recorded exports of Rs 1,356 crore as against Rs 1,136 crore, a growth of 19.5 per cent and Ind-Swift Laboratories posted strong export growth of 45 per cent to Rs 580 core from Rs 399 crore.
The overall profitability was under pressure during the first nine months period ended December 2012 due to poor performance by Surya Pharma, Panacea Biotec, Ind-Swift Laboratories and Ind-Swift Ltd. Surya Pharmaceutical is in red on account of lower sales and interest burden. It incurred a net loss of Rs 244 crore as compared to a net profit of Rs 73.21 crore as its net sales declined to Rs 57 crore from Rs 1,426 crore in the corresponding period of last year. Panacea Biotec suffered a major setback and its net loss increased to Rs 147.38 crore from Rs 88.64 crore in the similar nine months of previous year due to delisting of DTP based combination vaccines by WHO.
Venus Remedies, a Rs.400 crore plus pharma company, has signed exclusive marketing rights for its novel antibiotic product Potentox with Adcock, a South African pharma giant. This deal will take its research product to its meaningful stage in South Africa. Adcock will have exclusive marketing rights of the product in South Africa over a period of 15 years. The product will remain under patent protection till 2025 in African territory and is expected to be launched by mid of 2015 after getting due regulatory approvals. Venus will supply this product from its EU GMP approved manufacturing facility at Baddi. The product is growing with a CAGR of 25 per cent since past three years. The company is in discussion for the strategic tie-ups on Potentox with other international pharma companies in regulated markets as well.
With poor financial performance during the first nine months of 2012-12, the shares of nine companies declined continuously during last two months and is now quoted near to their 52-weeks low levels. However Jubilant paid a handsome equity dividend of 300 per cent as against 200 per cent in the 2010-11.