The American factor

Over the years, pharma stocks have seen a dream run before they started limping recently. In this interview with Vibhu Vats, Tanmaya Desai of SBI Pharma Fund tells us the inside story of the sector. Pharma stocks have corrected in recent times. What has led to this? The US business accounts for close to 50 per cent of the revenues for the sector as a whole. Over the last one year or so, many Indian pharma companies have faced regulatory issues from the US Food and Drug Administration (USFDA). This has impacted the pace of approvals in the US and hence growth has been lower in this geography. This, coupled with the fact that companies will take some time to resolve the issues, has impacted sector valuations and that has primarily led to the decline in sector returns. Also, growth for companies in rest of the world (ROW) markets has been impacted mostly due to currency volatility in key emerging economies - Brazil, Mexico, South Africa as well as in developed markets like the European Union and Australia. How serious are those concerns? Interestingly, not so long ago, a number of pharma companies of the US origin also faced regulatory hurdles from the USFDA and they emerged out stronger. We believe, for Indian companies too, these issues aren't structural in nature and companies should emerge stronger from this heightened scrutiny as they strengthen their processes and systems, and learn from the current set of inspections. Also, outside the US, Indian companies have the maximum number of plants catering to the US market and they have the maximum number of product filings too for t