2020 was the best in recent years with the Pharma index outperforming Nifty by 45%. Jefferies remains positive on India Pharma driven by an average 13% EPS CAGR over FY21-23E. Exporters are set to gain on a stable pricing environment and complex product launches. Jefferies' key concern is the increasing role of price in driving growth in the India market and the emerging threat of e-pharmacies. Jefferies top large-cap picks are Dr. Reddy's and Cipla.

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US generics revenues will continue to be driven by stable pricing and complex launches. Global generic players including our coverage have witnessed lower price erosion in the US over the last several quarters. Product-level price erosion ranges from 0-5%, well below the overall double-digit declines seen during FY17-FY18. The number of ANDA filings has continuously declined for the past 4 years.

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USFDA backlog is back to 2012 levels and ANDA approvals have come down by 12% over FY18/FY20, indicating that FDA has run out of firepower to inject more competition. Jefferies coverage now accounts for 33% of first to market generics, an all-time high. Notably, growth in Dr. Reddy's and Cipla over the next few years will be driven by new launches such as gRevlimid, gNuvaring, gVascepa, gAdvair.

Jefferies roll over their estimates to FY23 for all companies. Jefferies have added Revlimid to Cipla FY23 estimates and increased margin and revenue estimates for Divi's due to improving visibility. Jefferies expects Dr. Reddy's/Cipla to report FY21-23 EPS CAGR of 20%/19% led by US constant currency growth of 10%/8%, ex-Revlimid. Revlimid is expected to add Rs 29/4 EPS from FY23 to Dr. Reddy's/ Cipla and will improve through FY26