Indian pharma bulls in a corona shop
- Shruti Sundar Ray
- Apr 10, 2020
- 4 min read
Updated: Jul 28, 2020
Drug manufacturing companies based in India witness a growth in stock market prices as interest in coronavirus ‘wonder drug’ hydroxychloroquine ramps up
Amid the global market downturn fuelled by the COVID-19 pandemic, drug company stocks have been outperforming market benchmarks. The Indian pharmaceutical sector has proved to be resilient to coronavirus-related disruptions.
Shares of pharmaceutical companies continued to rise in prices on April 10, 2020 on both major stock exchanges of the country. The Nifty Pharma Index surged over 19% in the last week, beating other sectoral indices as well as the flagship Nifty 50, which rose only by 6% over the same period. Similarly, the BSE Healthcare Index rose by over 11% in the last week, outperforming the Sensex, which rose only 2%.
A March 16 report by S&P Global Ratings noted that the impact of COVID-19 on the medical sector would be mild as compared to other sectors. Investment banking firm Stifel’s Max Herrmann, quoted in the report, said, “We believe healthcare companies that supply critical medicines and other products are best positioned to withstand the impacts of COVID-19, with healthcare service and research tool companies most exposed.”
Demand for medicines is inelastic to economic shifts and typically stays unaffected during a slowdown but the sector has experienced some shocks, including from the dependence of pharma supply chains on raw materials from China, the epicentre of the pandemic.
While the investor interest in pharmaceutical stocks is being witnessed around the world in a defensive market, Indian drug companies have been edging out competitors in share demand in the last week. According to an April 10 report by The Financial Express, Indian firms have topped the list of leading pharmaceutical stocks as tracked by The Bloomberg World Pharmaceuticals Index. While the index gained 4.5% in the last five sessions, Indian pharmaceutical companies gained between 16% and 30%.
The gains by Indian companies are attributed, in part, to a falling rupee since it signals greater profitability for the pharma sector, which earns a bulk of its revenue from exports. Considering the freeze in the Chinese market, Indian companies are also expected to capitalise on the export of generic drug formulations.
But the recent rally is likely related to the positive sentiment surrounding the efficacy of hydroxychloroquine, an anti-malarial drug of which India is the largest manufacturer, as possible preventive medicine for COVID-19. According to a report by The Mint, India produces 70% of the world’s supply of hydroxychloroquine.
After a global surge in demand following United States President Donald Trump’s touting of the drug as “one of the biggest game changers in the history of medicine”, India had added the drug to a list of active pharmaceutical ingredients and their formulations whose export had been restricted. The March 25, 2020 order had seen a drop in shares of top manufacturers of the drug in India—Cadila Healthcare Ltd (or Zydus Cadila), controlled by billionaire Pankaj Patel and Ipca Laboratories, managed by Premchand Godha.
The Indian government decided to partially allow exports of hydroxychloroquine “depending on availability of stock after meeting domestic requirements and existing orders”, amid requests for the drug and a threat of “retaliation” by the United States President.
The stock prices of Indian pharmaceutical companies, and especially of Zydus Cadila and Ipca Laboratories, have seen a meteoric rise since the Indian government’s decision to relax export restrictions on April 7, 2020.
The efficacy of chloroquine and hydroxychloroquine in the fight against COVID-19 have been debated within the medical community but they have been included in the list of four drug combinations being tested for viability in the World Health Organisation’s international clinical trial called ‘Solidarity’. President Trump’s aggressive promotion of hydroxychloroquine as a ‘wonder drug’ has also come under suspicion. A report by the New York Times has noted that President Trump “has a small personal financial interest in Sanofi, the French drugmaker that makes Plaquenil, the brand-name version of hydroxychloroquine” while other reports, such as by the Washington Post, believe that Trump’s advocacy for the drug may be more politically motivated than financially.
Leading Indian manufactureres— Zydus Cadila and Ipca Laboratories—have ramped up production of hydroxychloroquine. According to a report by Business Today, the companies intend to raise monthly production “four times to 40 metric tonnes (MT) by the end of this month and five to six times to over 70 metric tonnes (MT) by next month”. The Indian government has placed an order for 10 crore tablets while the companies have also been reported to have received orders from other countries, such as the United States.
Other pharmaceutical company stock prices, including those of Sun Pharma, Divis Labs, Cipla, Lupin, GlaxoSmithKline and Glenmark have also been rising consistently. Yet, analysts warn against buying all pharma stocks indiscriminately. A report by the Hindu Business Line quoted HDFC Securities’s analysis of possible challenges for the sector—“key risks are an extended lockdown, delay in USFDA plant resolution due to travel advisory, EM markets currency risks and subdued demand, and delay in key approvals.”
MedTech players such as Allied Healthcare Products Inc., Medtronic PLC, ResMed Inc., Philips, Hamilton Medical and others have seen their stocks surge as the demand for ventilation systems has risen with the increase in critical-stage coronavirus patients.
Automobile giants such as Ford Motor Company, General Motors Company and Tesla, Inc. in the United States and Tata Motors Limited and Mahindra & Mahindra Limited in India also witnessed a rise in stock prices after they were roped in by governments to step in to cater to the unmet demand for ventilators emergency.
Manufacturers of face masks and other protective gear, including Alpha Pro Tech Ltd., have also seen profitability in the wake of the coronavirus outbreak.
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