Indian pharma companies seem to be thriving even as large MNCs see a decline in their revenues, reveals GlobalDatas PharmaLeaders: Top 10 Pharmaceutical Companies in India Benchmark Report. Shalini Gupta finds out more in an interview with Adefemi Adenuga, GlobalDatas Healthcare Analyst covering industry dynamics
Sun Pharma has emerged the winner. Why and on what parameters?
| Adefemi Adenuga |
Sun Pharmaceuticals has emerged as the leader based on impressive performances in financial and capital management in 2012.
Which companies have emerged as revenue leaders and revenue growth leaders? Are they the same? If not why?
The revenue leaders were Ranbaxy, Dr Reddy’s and Sun Pharma; while Sun Pharma, Lupin, and Glenmark emerged as revenue growth leaders in 2012. Larger companies like Ranbaxy and Dr Reddy’s possess a broad range of products, having been in the business for a relatively longer time than Lupin and other players. Therefore, it was not surprising to see them emerge as revenue leaders. However, relatively smaller companies such as Glenmark and Lupin are more nimble and aggressively growing as they aim to overtake these larger players. For instance, Lupin and Glenmark witnessed sales increases of 41.7 per cent and 46.5 per cent in the US in 2012.
Which companies rank high on operating margin and which rank low? What does this mean?
Sun Pharma, Wockhardt and Cipla were the operating margin leaders, while Aurobindo, Ranbaxy and Torrent were the laggards. Companies that ranked higher were able to minimise their operating expenses (cost of goods sold etc.) and so recorded greater margins from their operations.
Are there any observations to note when one observes the companies leading and lagging while comparing operating income and operating income year-to-year growth?
Sun Pharma, Wockhardt, and Cipla emerged as leaders in both operating income and operating income year-to-year growth. Dr Reddy’s was the operating income year-to year growth laggard. The company’s operating income declined by 0.4 per cent in 2012. Therefore, the company needs to be more cost-efficient.
How do you see the current pricing policy affecting the competitiveness of Indian players, given that their profit margins are bound to come down?
Competition is expected to intensify domestically as companies will seek to increase volume to boost profit. In addition, there will be an increased focus on international expansion by domestic players and more attention to niche disease areas, where they can potentially generate increased margins.
MNCs have lambasted India’s patent laws. However, what does this mean for domestic pharma, does it stand to benefit or lose? Also, how is the move from being a semi-regulated market to a regulated market going to bode for the Indian pharma?
Undoubtedly, domestic pharma companies, which are primarily generic manufacturers, have and are benefitting from the current state of patent protection in the country. They are able to challenge patents and also obtain compulsory licenses from the government to manufacture generic versions of drugs to treat diseases classified as national emergencies. However, I expect IP protection in India to steadily get stronger over the next few years as the country would need to protect domestic companies involved in developing novel drugs.
Is the investment in new drug development and R&D on the rise? Explain with examples.
R&D focus is increasing in India. In 2012, Ranbaxy successfully launched the country’s first new molecular entity (NME) – Synriam, an anti-malarial drug. Other companies such as Dr Reddy’s, Lupin, and Wockhardt have also increased their R&D investments recently. Dr Reddy’s R&D investment increased by 25.2 per cent from $103 million in 2011 to $129 million, while Lupin’s grew by 21.7 per cent to $118 million in 2012 from $97 million in 2011. Furthermore, Lupin’s Novel Drug Discovery and Development (NDDD) is currently focused on various therapeutic areas, including oncology, pain management, and infectious diseases.
Though India has the largest number of US FDA approved sites outside the US, how does the Ranbaxy incident cast a light on the industry’s competitiveness?
The Ranbaxy incident casts a negative light on Indian pharma, being one of the country’s largest pharma companies. However, this does not seem to be a general trend in the country (despite isolated quality issues here and there). The FDA will possibly pay more attention to drugs being manufactured in India – more frequent inspections, etc. (which is one of the aims of the Generic Drug User Fee Amendments (GDUFA) fees).
How are companies coping up with GDUFA? How has it affected them?
It is still too early to gauge how it has affected companies. However, their margins are expected to be reduced. Larger companies should be able to absorb the added costs but smaller ones may struggle unless they can increase volume to compensate for the increase in expenditures.
Finally, given all the challenges and opportunities in view, how are Indian firms restructuring their business models? What constitutes a winning strategy to stay competitive today and in the future?
Indian drug makers are currently increasing their focus on disease areas and segments (including pain/inflammation and autoimmune diseases). Based on the relatively weak barriers to entering the generics business, price competition has inevitably been decreasing margins. Therefore, companies are hoping to face softer competition in these niche markets and consequently, enjoy greater margins. We are also beginning to see more interest in the development of novel drugs among domestic companies.
Going forward, Indian companies need to tap into the international market, particularly other emerging markets in Latin America and Eastern Europe, to take advantage of the rapidly increasing insurance coverage and economic growth in these regions. Some of the companies such as Lupin and Ranbaxy are already doing this through subsidiaries in these markets.