Q1FY21 Review: Pharma cos posted stellar results but industry not out of the woods, says JM Financial

The research report further explained that the emergence of multiple sectoral tailwinds arrived from increased traction from the rest of the world (RoW) markets especially the US where companies benefitted the most.

However, secondary sales growth data for July indicate that a broader domestic recovery itself is likely to be a more gradual and protracted phenomenon. Even as the demand for Covid-related drugs (Remdesivir, Favipiravir, et al.) should help partly offset the decline in acute therapies, with competition now having intensified and the products likely to be margin-dilutive, the contribution of the Covid portfolio is unlikely to be meaningful for most players, stated the report.

In Q1FY21 earnings, the US market performance remained resilient due to supply disruption-related opportunities (China), faster pace of product approvals by US FDA and improving pricing outlook, added the global brokerage.

It feels that the momentum will continue to get triggered across the board due to the global China de-risking strategy, fairly bullish management comments and stronger-than-expected US performance.

As the majority of pharma companies have begun their R&D on the COVID drug, the competition amongst peers will also intensify, warned the brokerage. Therefore, it feels that the outperformance will be seen in the large players and the ones with domestic market leadership in chronic therapies. Hence, JM Financial placed its bets on Sun Pharma and Cipla, and a higher US skew i.e. Strides Pharma and Cadila Healthcare.