Need and Significance

During volatile times or uncertain environment, investors gets

attracted towards less risky investments as debt.

There are certain equity investment which are considered as non

cyclical i.e. whose product market is not affected by the business cycles.
The stocks which are considered non cyclical in India are FMCG (Fast

moving consumer durable) and Pharmaceutical

Such Noncyclical stocks forms an important part of portfolio

management in mitigating risk

Objective
To carry an historical analysis of the pharmaceutical stocks

performance during different business cycles, so as to check the ability of the stocks to pay stable returns at good times as well as bad times.
To understand the fundamentals of the pharmaceutical business,

which make investing in pharmaceutical stocks an optimal strategy in current time of stagflation

Study Design
To check the fitness of pharmaceutical stocks to the definition of

cyclical and non-cyclical. To understand the stability of the pharmaceutical stocks in terms of risk and return profile. To understand the investors confidence about the pharmaceutical stocks.
To analyse the pharmaceutical business in India.

Data Processing
Part 1
Beta Value
1.40

1.20
1.00 0.80 0.97

1.20

0.60
0.40 0.20

0.61

0.00
BSE AUTO BSE HC BSE CD

Data Processing
Part 2.a Returns
Mean Monthly returns
10.00% 8.00% 6.00% 4.00% 2.00% 0.00% -2.00% -4.00% -6.00% -8.00% BSE AUTO BSE HC BSE CD

BSE AUTO BSE HC BSE CD F.Y. 07-08 -0.42% 0.77% 1.72% F.Y. 08-09 -2.45% -2.01% -5.99% F.Y. 09-10 8.50% 5.53% 9.10% F.Y. 10-11 1.83% 1.16% 3.52% F.Y. 11-12 0.96% 0.87% 0.47%

Data Processing
Part 2.b Risk
0.18 0.16 0.14 0.12 0.10 0.08 0.06 0.04 0.02 F.Y. 07-08 BSE AUTO 0.06 BSE HC 0.08 BSE CD 0.15 0.00 F.Y. 08-09 0.12 0.10 0.14 F.Y. 09-10 0.12 0.05 0.15 F.Y. 10-11 0.07 0.05 0.07 F.Y. 11-12 0.07 0.04 0.07 BSE AUTO BSE HC BSE CD

Data Processing
Part 2.c Investment performance
Sharpe Ratio
0.25 0.20 0.15 0.11 0.10 0.05 0.19

0.12

0.00
BSE AUTO BSE HC BSE CD

Data Processing
Part 3 Investment trends
% Volumes @ BSE
1.00%

0.80%

0.60%

0.40%

0.20%

0.00% F.Y.07-08 F.Y.08-09 F.Y.09-10 F.Y.10-11 F.Y.11-12

Part4. Sector Analysis

Market Structure

Part4. Sector Analysis

Revenue Streams
API/Bulk Drug Pharmaceutical Formulation Generic Generics Authorized Generics Branded Generics

Products Biologics

OTC

Products

Business Structure

Biopharmaceutical

Biosimilars

Patented Products

CRAMS Services Clinical Research

Vaccine

Part4. Sector Analysis

Growth Drivers
Domestic Market Population Export Market Multiple regulatory approved pharmaceutical manufacturing facilities Filings of DMFs Filings of Abbreviated New Drug Applications Mergers and Acquisition

Changing lifestyle and Disease profile GDP growth Medical infrastructure Health Insurance Government Expenditure R&D expenditure

SWOT analysis
Strengths
Growing market Multiple compliance Highest number of DMF and ANDA approval 100% FDI High number of non-infringing process patents

Weakness
Low share of patented products Low margins as a result of stringent price controls R&D expenditure as a percent of total sales low as compared to global standards Indian companies are predominantly generic Very fragmented industry with high competition
High entry barrier in terms of cost and regulatory framework Existing generic market can be cannibalised Cases of non compliance at international levels may hamper image of Indian companies Policies like NPPP (National pharmaceutical pricing policies), Patent amendment act 2005 Big companies moving towards generic business Cost cutting R&D budget

Opportunities
CRAMS Biotechnological generics Number drugs going off patents around US$171 billion Increased M&A activities Opening up of new markets with fast approvals and low insurance intervention Partnership on R&D front

Threats

Move from branded market to tender driven market

Findings
Key points while investing in pharmaceutical stocks Pharmaceutical Business Mix Geographical Mix Product pipeline or Product portfolio age Regulatory policies Market Capitalization Financial track records For MNC or a subsidiary

Parent Outlook and Strategy Contribution to topline and bottom line

Company SUN Pharma

Business Mix Indian Branded Generics 36% US Formulation 43% International Generics 14% API 7%

CAGR Geographical Mix 20% 46% 41% 14% Focus on India, US, emerging markets like China, Brazil, Mexico

Indian Market Share = 4.6% with Leadership in Chronic Diseases Subsidiaries contribution = Carco 14%, Taro 27% Total Approval for US generic Business = 250 New Approval in pipeline = 147 ANDA Drug Master File = 154 of 225 approved Market Capitalization = 63828 Cr
2007-08 Net Sales Net Profit R&D Spend EPS 33,565 14,869 2,859 14.4 2008-09 42,723 18,177 3320 17.6 2009-10 40,075 13,511 2,631 13 2010-11 57,229 18,161 3,313 17.5 2011-12 80,057 25,873 4,449 25 CAGR 19% 12% 9% 12%

Generic Name Brand Atomoxetine Rfvastigmine Memantine Imatinib Pregabalin Strattera Exelon Namenda Gleevev LYrica

Innovator Lily Novartis Forest Novartis Pfizer

Market Size ($ mn) Probable Launch 446 150 1,100 1,088 1,600 2012 2012 2015 2015 2018