Pharma Sector Update

(Sector Analysts: Kanika Singh, Neha Kumar, Ravi Karanam)

Pharma expected to record strong growth in Q2
The pharmaceutical companies are expected to register strong growth figures for the July - September
period with growth of 18% in revenues ,22% EBITDA and 18% earnings, according a report by Edelweiss
Securities. Steady growth in the Indian market and price hikes for certain products are seen as the major
reasons for the expected robust growth. Gross margin has been rising for the last few quarters with more
product launches in the US and the Indian business bouncing back, leading to higher investment in R&D
and sustained improvement in EBITDA margins. According to the report, Sun Pharma, Ranbaxy and
Torrent are expected to report strong earnings owing to price hike by Taro, subsidiary of Sun Pharma,
Ranbaxy getting First-to-File status for Diovan in July 2014 and Torrent's earnings expected to capitalize
on Cymbalta going off patent by the year end. Cipla is also expected to gain from its partnership with
Teva for the sales and distribution where Cipla Medpro will exclusively market Teva's pharmaceutical
portfolio in South Africa.

Abbott Laboratories sets up its first greenfield plant in India with an investment of Rs.
450 crores
US-based pharmaceutical and healthcare products company, Abbott Laboratories has set up its first
greenfield plant in Bharuch district of Gujarat. The company which has an annual turnover of $22 billion,
currently sells 10 nutrition products in India out of which initially it will manufacture six products at the
newly set up plant. It plans to further expand its portfolio depending on the need in the market. Abbott
healthcare has become a major player in the Indian pharma market ever since it acquired Piramal
Healthcare's domestic formulations business in 2010 and captured 6-7% of the market share. The new
facility is said to have created 400 new jobs. Abbott Laboratories has 69000 employees spread across
150 countries with India having the largest number of employees after U.S. The new facility is Abbott's
third manufacturing plant in India with the other two in Goa and Himachal. It also has two research and
development centers, one in Mumbai , acquired from Piramal and the second one in Bangalore set up in
2012. Abbott expects to expand in the nutrition segment with the setting up of the new plant. The
company plans to locally source 80% of the raw materials for the new plants products which until now
was imported from their Singapore and European facilities.

Ranbaxy agrees to settle a lawsuit over its participation in Texas Medicaid program for
$40 million
Ranbaxy Laboratories agreed to pay $39.75 million to the State of Texas to end a litigation related to the
manner in which Ranbaxy has historically reported data to Texas Medicaid, for certain drugs. Texas
Medicaid program is a US healthcare program focused on people with low income. The settlement will be
completed by August in installments and is not expected to have any impact on Ranbaxy's earnings as it
had already created a provision for the same in its previous quarter results. But trouble does not end here
for the U.S. subsidiary of Ranbaxy. Within months of Sun Pharma agreeing to acquire Ranbaxy from
Japan's Daiichi Sankyo for $4 billion, at least 5 senior executives have resigned. Such exodus, was
however expected as with the merger of the two companies, there would have been lot of duplication of
roles at the senior level and many of the senior executives at Ranbaxy earned significantly higher salaries
compared to industry standards, as a result, ever since the merger was announced, rumors about senior
level restructuring have been doing rounds.

Cadila Healthcare voluntarily recalls 5,400 bottles of anti-hypertension drug in US

Cadila Healthcare has initiated a voluntary recall of 5,400 bottles of anti-hypertension Atenolol tablets in
U.S. on grounds of failure to meet specifications. According the USFDA the recall falls under Class II, a
situation in which use of or expose to a product may cause temporary or medically reversible adverse
health consequences. The recall was made after a complaint was reported by a pharmacist who noted
that several tablets were noticeably thicker in appearance.

Glaxo group fined for delay in disclosures on its aggregate shareholding

The Securities and Exchange board of India (SEBI) has slapped a fine of Rs. 25 lakhs on Glaxo group for
delay in making disclosures about its aggregate shareholding to the company and the stock exchange.
The fine has come after SEBI found violation of several norms by the Glaxo group, which as a promoter
group entity was under an obligation to disclose the aggregate shareholdings to BSE, NSE and Glaxo
Smithkline Pharmaceuticals India for 2007. But the disclosures were made after a delay of 60 days.The
group was also supposed to disclose its shareholding for the year 2012 and 2013 which again saw a
delay of 158 days. According to the SEBI's takeover regulations, a promoter of a listed company has to
disclose the aggregate shareholding and voting rights as on March 31, within a prescribed time to the
relevant stock exchange as well as the company.

Pharma Sector loses Rs. 200 crore after Hudhud

The pharmaceutical industry, primarily located at Paravada, Pydi Bheemavaram, Achyuthapuram,
Nakkapally and Chippada on the outskirts of Visakhapatnam, has faced the wrath of cyclone Hudhud.
Many pharma units here have suffered extensive damage due to Cyclone Hudhud with damages ranging
from manufacturing units to factories and raw materials being completely washed away. According to
preliminary estimates, the loss could be about Rs 200 crore. As the Pollution Control Board had denied
permissions to these pharma companies to expand their units in Hyderabad, they had moved to placed
around Hyderabad like Vishakhapatnam, Srikakulam and Paravada. At the Paravada Pharma City, set up
on the outskirts on Vishakhapatnam, expansion activities had been severely hampered by Hudhud.
About 110 companies have received approvals to set up manufacturing units at the Pharma City and 40
units have started production and 20 have started development. Due to Hudhud, all this has come to a
standstill now. The units at Pharma City have incurred a loss of around Rs 50 crore. With the power
supply to the units is expected only after 10 days, this loss could go up further.

Pharma patent regime may get stricter, say experts

In order to boost dollar inflows in pharma sector and establish stronger IPR regime, government may
affect patent amendments. The joint statement issued on September 30 by the US and India to establish
an annual high-level Intellectual Property (IP) working group has inevitably led to a debate on whether the
government would bow down to the US pressure. A section of the pharmaceutical industry feels that the
government may give importance to increasing the dollar in-flows through Foreign Direct Investments
(FDI) rather than pushing the case of a "diluted" intellectual property rights (IPR) regime that the country
followed so far. According to an industry expert, the government may choose to bow to the US pressure
since it is keen on having more foreign companies investing in India. Early last month, commerce and
industry minister Nirmala Sitharaman had said the government will soon come up with a policy on IPR
which will be open for public discussions. But on how soon India may have a new IPR policy, S V
Veerramani, president, IDMA, said, "The government is currently reviewing it and will seek public views
on it. There have been some initial discussions on this."