Torrent Pharma, Sun Pharma preferred picks of Citi Research: Cipla axed, watchful on Aurobindo, Dr Reddy’s

Stock Market Today: Despite a slew of Indian pharmaceutical companies benefitting from generic opportunities in the US, which boosted their earnings growth, Citi Research has included only Torrent and Sun Pharma among its preferred picks as pricing pressure weighed on the domestic pharma sector.

Sun Pharmaceutical Industries Ltd, Dr Reddy's Laboratories, Lupin, Cipla, Torrent Pharma have benefitted from generic opportunities in the US, boosting their earnings growth, though pricing trends remain a major worry, Citi Research analysts said, citing the National Average Drug Acquisition Cost (NADAC) trends.  They point out that the data provided a clear picture of pricing trends in FY24, indicating a steep double-digit reduction in prices during April–June’24 (2.5 months) compared to the March’24 quarter. 

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The NADAC trends are based on a survey of actual invoices between pharmacies and wholesalers. It is published by US Medicaid weekly.

Around 80% of the top-20 baseline products of Aurobindo Pharma, Cipla, Dr Reddy's Laboratories, and Lupin, are declining by double digits on a quarterly basis in Q1FY25, Citi Research highlighted. 

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India and China-based pharma companies are pushing volumes that could drive unfavourable pricing trends, and the latest NADAC trends, if these hold, may corroborate their thesis, said Citi Research. The main cause of the supply disruptions in US generics, which led to brief price stability, was import warnings at some manufacturing facilities of certain pharma companies. But other Indian manufacturers and a few Chinese players are increasing the volume.

Citi Analysts have introduced downside 90-day catalyst watches for Aurobindo Pharma & Dr Reddy's Laboratories, and removed Cipla Ltd from its preferred picks.

Lupin may surprise negatively, but the recent launch of the overreactive bladder medication Myrbetriq may mask the potential weakness in pricing, the Citi Research analsyts said.

Citi Research prefers non-US prescription heavy names like Torrent Pharma and Sun Pharmaceutical Industries in their coverage of Indian pharma firms.

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