30 Years Of Covering Mumbai
Home > Business & Investment > Pharma Future

Pharma Future

Monday, July 27, 2015

With a population of over 1.2 billion India represents a major market for pharmaceutical companies. Revenues of the Indian Pharma industry which was at $ 6 billion in 2005 rose to $ 12 billion in 2013 and is estimated to touch $ 55 billion by 2020. India’s pharmaceutical sector is dominated by generic drugs which account for about 72% of the market, followed by over the counter market of 19% and patented products market at 9%. Supplied mainly by domestic companies, generics have helped keep drug prices low and the market is expected to continue expanding rapidly. Although domestic pharmaceutical companies were established primarily to supply to the local market, they have taken advantage of their low labour and research costs to export generic drugs to developed countries, notably the US, its largest export market. India is also a major supplier to other emerging markets. Investors in this defensive sector have seen their portfolios grow manifold over the last several years. Will investors continue to earn superior returns in this sector in the years ahead? Clifton Desilva spoke to Kewal Handa, former Managing Director of Pfizer and  a veteran of the pharma industry. His views...

Why has the US emerged as the largest pharma market in the world?
On an average, the cost of prescription drugs in the US is at least double of what people in other countries pay for the same product and in some cases it can be as much as ten times higher. Americans take the lion’s share of the Research and Development costs for the rest of the world. Therefore, drug companies are forced to charge Americans more to recover what they do not get from other countries.

The cost of drugs in the US are very high and coupled with the fact that most of the citizens are covered by health insurance, it makes the US the largest Pharma market in the world.

India has an efficient pharmaceutical industry which has been making affordable drugs, not just for the Indian markets but has also been exporting them to the world. Yet of late it has been facing rising FDA scrutiny for quality.  Will Indian companies have to raise their compliance to the US FDA regulations standards to  retain their major share of exports from the US markets?
The FDA is the regulatory authority and has the objective of protecting public health in the US. It cracks down on substandard medication. India supplies about 40% of generic and over the counter drugs consumed in the US making it the second largest drug supplier after Canada. Therefore, it is essential that Indian companies raise their compliance to the USA FDA regulations in order to serve the US markets.

Why are blockbuster drugs drying up?
The heydays of blockbuster drugs appear to be over. Pharmaceutical companies have long complained of ever rising R&D costs, while being unable to replace the big sellers, as they reach the end of their 20-year patent, known as the patent cliff. – some of the biggest such as heart medicines Lipitor and Plavix made a combined $14.5 billion in the US market in 2011 alone, yet their patents expired in 2012.

Although Lipitor was the largest blockbuster drug it faced expiration in 2011, the patent cliff did not end with Pfizer, Major Pharmaceutical companies like Novartis witnessed losses after the patent for their blood pressure reducing drug Diovan expired in 2012. Merck had a similar issue with Singulair in the same year, Bristol- Myers Squibb with Plavix in 2011 and Sanofi- Aventis with Lovenox in 2012.

Due to the staggering losses in profits, big pharmaceuticals will face in the coming years, it is evident the patent cliff will have serious implications on the future of the pharmaceutical industry. The most lucrative blockbuster drugs were those that attempted to prevent heart disease followed by those that treat depression

Therefore, the pipeline of new chemical entities (NCEs) or the so-called blockbuster drugs is drying up and the big companies are changing their business models. They are now looking at emerging markets; there are two things of interest – branded drugs and branded generics. India is a branded generics market and MNCs are looking at entering this market via that route.

Despite some drugs being under price controls, how do Indian pharma companies report decent profits?
Until now the Indian Pharmaceutical industry had largely followed a growth model that focused on launching cheap generic versions of branded innovator drugs made by global pharmaceutical companies. But increasingly this is becoming unviable and they may no longer be able to depend on this strategy as most blockbuster drugs will be off patent by the end of this year.

Critical for survival in this era will be an investment in what pharmaceutical industry call limited competition drugs and differentiated products. Limited competition drugs are generic drugs that are either difficult to make or are not made by many players. Differential products are existing molecules, but drugs with different dosage or administration mechanism.

Already, Indian companies such as Dr Reddy's, Sun Pharma, Lupin, Zydus Cadilla have started  doing this and it is one of the reasons why many Indian Pharmaceutical companies showed better profitability and growth in 2013, especially in markets like the US and some branded generics markets like Russia, South Africa, and India.

What does the future hold for the sector?
The Indian Pharmaceutical industry is globally ranked fourth in terms of volume, constituting around 8% of the total world production. Its value is estimated at over $ 17 billion. Thanks to the technological investment, it has been able to mass produce therapeutic groups. It is one of the most attractive industries globally and its growth continues to outperform that to the global industry.

Indian pharmaceutical companies have capitalized on export opportunities in regulated and semi-regulated markets and exports from India grew at a CAGR in excess of 20% from 2006 to 2012. Currently, India is the third largest exporter of Active Pharmaceutical Ingredients (APIs).

With Indian products competing with their global counterparts in terms of quality, India has been able to establish a global footprint. Indian companies operating in the west have been able to do so successfully but, markets such as Japan, parts of South America, the Gulf Cooperation council (GCC) and commonwealth of Independent States (CIS) still remain untapped and can be explored. With the manifold  rise in public healthcare spending, emergence of new hospital formats, enhanced medical infrastructure, rising incomes, greater health insurance coverage, new markets to name a few provide the Indian  Pharma industry huge opportunities for growth.

Which are the pharma companies that could offer growth to investors going forward?
The most important factor for consideration is the management capabilities, expertise and being ethical. Also necessary is a proven track record coupled with popular brands, new product launches, field size, dominance in a mix of sales both domestic and global.

Some of the pharma companies that may be worth considering for long-term investment include – Lupin, Cadilla Health Care, Sun Pharma, Merck, Sanofi, Abbot, GSK, Strides and Dr  Reddy's.

(The interviewer is a highly respected Industry analyst and Director of Altina Securities)

No Comments Posted
City news
Police seek legal opinion for registering FIR aga
Punjab Agriculture Minister Tota Singh sparks a c
After receiving an input that terrorists and anti
I am married since eight months. I love my husban
Dr. Rajan B. Bhonsle, M.D. (Bom)
Consulting Sex Therapist & Counsellor
Dr. (Mrs.) Minnu R. Bhonsle, Ph.D.
Consulting Psychotherapist & Counsellor
Select Sun sign:
Aries (Mar 21 - Apr 20)
Aries (Mar 21 - Apr 20)You are doing well in your career and profession. Yet a feeling of unease creeps in. This is just a passing phase. Bide your time. An interesting proposal from out-of- town may need a trip. Wait until you receive a more concrete offer. Do not show your anxiety. Your attitude may puzzle a person who is ardently drawn to you. Perhaps it has not struck you at all. Discreet damage control is needed.
Tarot for Love
Select Sun sign:
Aries (Mar 21 - Apr 20)
Aries (Mar 21 - Apr 20)What the cards say: Find your feet slowly Path: Connect with the inner and the outer will follow. Don’t get upset. Give time Ally: Libra will make you mellow. Avoid Scorpio and their sting Card for the week: Tarot key no. XVII The Star. Insight and understanding bring new opportunities and growth. Joy and satisfaction
- Advertising -
Kapil Bali is Executive Director and CEO at Yes S
The “stake increase reiterates the trust and comm
Amid concerns over devaluation of Chinese yuan hi
Read More