Who would you say are the high performers in the Indian context and what percentage are these of the pharma industry and at what rate are they growing?
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Sriram Shrinivasan
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Majority of the large Indian pharma companies have done quite well in the last decade or so. They have moved from being primarily India focused to being significant players in the global generics markets especially in the US, RCIS and other emerging markets. Amongst these, firms like Lupin, Sun, DRL etc. are in the top quartile of performance. Top Indian companies have grown at a CAGR of 15+ percentage in last five to six years with Sun at ~27 per cent and Lupin at ~25 per cent.
What is the growth strategy of these high performers? Is it the same as their global counterparts? In light of the recent challenges in term of pricing, regulatory, patents etc. how are companies changing their strategy? What business models are they looking at?
Most of the Indian companies are playing in the generics segment and hence their business strategy is mostly aligned with the global counterparts like Teva, Mylan, Actavis etc. The US continues to be the largest market for the Indian companies followed by RCIS, Brazil, South Africa and other emerging markets. Western Europe remains an elusive market for Indian companies because of the need to adhere to country specific norms, low profitability on account of tender business in countries such as Germany etc. Companies are also making their presence felt in Japan and Australia.
As the patent cliff comes to an end with fewer drugs going off patent in the coming years, Indian companies are also trying to capture the ‘hard to make’ generics markets of sterile dosages, inhalers etc. In fact, quite a few of them have even tried the inorganic route to gain the necessary technical expertise for such products. So far they have used various business models including partnerships, where Indian company supplies drugs to other companies in Western market for marketing and distribution. Cipla which has relied heavily on the partnership model so far, is now looking to go direct in few selected markets. Others include direct presence in the market with a large sales force (DRL in RCIS), use of pharmacies and wholesalers to capture generics market – typically the US and local distributors led market growth e.g. in Southeast Asia.
Are companies bringing the right products along with value focused commercial models and the right level disease focus? How would Indian industry rank on Enterprise Value (EV), Future value (FV) and how much are recent and upcoming launches set to drive growth in absolute terms?
Success of Indian companies is a clear indication that companies are bringing the right products into the market. Few of the important parameters for generic companies are patent expiry schedule, global market size, competitive intensity, competitive medicines, pricing etc. to decide on the product portfolio. Indian companies have also used decades of reverse engineering skills to good use while developing the new drugs for the generics segment. Combination products have helped them to get ahead of the competition along with incremental innovation such as 505(b)(2) filings. Close to 45-50 per cent of the EV can be attributed to the future value of the Indian companies though this has reduced in the recent past (from 65 per cent at the end of FY11).
Are there any outliers in the Indian pharma industry breaking away with science-based innovation strategies?
Indian companies are spending five to six per cent of their revenues annually on R&D, however, none of them has succeeded in bringing new chemical entities (NCEs) or new biological entities (NBEs) to the market as yet. There are early indications of success on that front. Firms such as DRL, Zydus, Biocon, Piramal Life Sciences, Glenmark etc. are pushing this agenda forward and may be able to commercialise one of the pipeline drugs in future. Piramal Healthcare, despite selling off its domestic formulations business, continues to invest into innovative drug related R&D under Piramal Life Sciences and has several times stated the desire to launch innovative products globally. There is a still a long way to go for Indian companies on the innovation front when compared to their Western and Japanese counterparts.
What is the investor sentiment for Indian pharma industry? Are companies with diversified portfolios being rewarded less and those with niche portfolios more?
Investors continue to have a positive focus on the pharma market driven by a robust domestic market (though growth has slowed down in recent past to 10-12 per cent from 15-16 per cent) and rise in exports markets. This is especially true for the large companies in the pharma market. Small and medium enterprises continue to struggle because of constant pressure on margins and slower growth in the low value add products in the global, Indian market. As far as the Indian market is concerned, most of the large players have started playing in multiple segments with diversified portfolios while keeping their high focus on two to three target areas. Cipla is a leader in respiratory segment whereas Lupin is a leader in the anti-TB market. Overall the Indian market continues to be fragmented.
How do Indian companies fare on their launch capabilities, especially when it comes to launching their products in other markets? Have they missed their pre-sales targets/achieved them/over-achieved?
New product development and launch remains a very critical area for pharma companies as it involves coordination with multiple departments – Sales and Marketing, Supply Chain, R&D, Regulatory Affairs etc. Few days’ delay from the launch date can lead to significant loss of revenues, market share for any generic company. Hence, it is a high visibility, high focus area for any Indian company. In fact, in majority cases the owners and Managing Directors are directly involved in making sure that the launch happens on time. Indian companies have traditionally relied on low end project management techniques to monitor the progress of new products but now they are slowly graduating to high end tools, bringing all the stakeholders, decision making on a common platform.
Like any forecast, there is always an uncertainty with new products and hence all scenarios of missing, achieving and over-achieving targets are possible and have taken place in the past. There are multiple internal and external factors which play a role in target achievement and not just adherence to launch time e.g. activity from innovators, competitive therapies/medicines, government actions etc.