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Home >Markets >Mark To Market >Moderation in US sales drags shares of Alembic Pharma

Alembic Pharmaceuticals Ltd’s December quarter performance came as a disappointment, with a pause in its US sales growth story. US sales saw a decline of 1% in Q3, compared to 33% growth registered during the first half of the year. Investor sentiment was bound to get impacted, and the stock has corrected by more than 8% in the last two trading sessions.

The softness in US sales, however, was compensated by the ex-US formulations business, which reported growth of 14%. Similar growth was seen in the domestic market. Active pharma ingredients growth of 21%, too, came in handy. Overall, revenue grew 9% and net profit was up 25% year-on-year.

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The strong India growth rebound indicates that efforts on portfolio realignment are finally yielding results, said analysts. The chronic drugs business remains a key driver as acute segment sales are also improving, after the disruption seen during H1FY21.

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But it’s important for the US business to gain traction, as it can drive margin expansion and earnings growth. The company had been benefiting from the strong product launch momentum and drug shortages in the US in the recent past. The stock has more than doubled from levels seen in March 2020 as a result of the strong growth in the first six months of FY21.

The company’s US pipeline remains strong, but the pricing pressure on Sartans (hypertension treatment drugs) has led to the pressure in US sales. It plans to launch more than five products in the US market in Q4FY21. The benefits from the recent niche launches will also be reflected fully in the coming quarters. Even so, analysts, for now, are lowering their forward earnings estimates looking at the pricing pressure on Sartans.

Analysts at Jefferies India Ltd said the decline in US sales is not over and launches are unlikely to offset the decline until new facilities get inspected by the USFDA.

Alembic has filed for more products on the shortage list in the US and approval for launches hinge on successful inspection of its facilities. “We lower our EPS estimate by 3%/4% for FY22/FY23, factoring in price erosion in Sartans on account of peers’ re-entry and the delayed commercialization at the injectables facility," said analysts at Motilal Oswal Financial Services Ltd.

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