Research Analyst, TASIS
India is one of the fastest growing markets for the pharmaceutical industry. It accounts for 8% of total global pharmaceutical production. The size of domestic formulation market is USD 8.7 billion. Exports constitute major portion of sales of the In
dian Pharmaceutical companies (Exhibit 4). India’s exports of drugs, pharmaceutical and fine chemicals is around USD 11 billion for the year ended March 2012, according to data compiled by Pharmaceutical Exports Council of India (Pharmexcil). The major country for export of Indian pharmaceutical product is the US which accounts for 22% of total export. It is followed by UK, Germany, Russia and South Africa. The major pharmaceutical companies of India are focussing the generic drug market in these countries. The major exporters to these countries are Dr Reddy’s, Sun Pharmaceutical, Ranbaxy, Lupin and Cadila Healthcare.
dian Pharmaceutical companies (Exhibit 4). India’s exports of drugs, pharmaceutical and fine chemicals is around USD 11 billion for the year ended March 2012, according to data compiled by Pharmaceutical Exports Council of India (Pharmexcil). The major country for export of Indian pharmaceutical product is the US which accounts for 22% of total export. It is followed by UK, Germany, Russia and South Africa. The major pharmaceutical companies of India are focussing the generic drug market in these countries. The major exporters to these countries are Dr Reddy’s, Sun Pharmaceutical, Ranbaxy, Lupin and Cadila Healthcare.
Below we give snapshot of the pharma industry business model before moving to the market analyses.
Generic: Drug produced and distributed without any patent protection is known as Generic. It is the low cost version of patented drug, and the companies produce generic version once the patent period for a drug expires. Introduction of generic drug in the market provides the medicines to the consumer at affordable prices. Indian pharmaceutical companies are faring well in the generic market.
Generic generic or unbranded generic market is prominent in the US, UK and some other Europeans countries. In these countries Doctors instead of prescribing the brand, prescribes the molecule for a particular disease. More than 90% population in these countries have medical insurance, therefore the insurance company decides the drug to be used. Obviously they pick up the low cost drug.
The main market for branded generic is India, Brazil, Russia, Mexico etc. Here the doctors prescribe the brand name of a drug for a particular disease. For e.g. in India doctor will prescribe either Crocin or Metacin or some other brand name for molecule Paracetamol. Consumers prefer to buy the exactly prescribed brand.
- NCE (New Chemical Entities): It is the discovery of new drugs which requires great time and huge investments. Indian Pharmaceutical companies are not very active in the area due to lack of resources.
- CRAMS (Contract Research and Manufacturing services): It is like outsourcing; major world pharmaceutical companies outsource their manufacturing works to reduce the cost so that they could focus on new drug discovery and strategies. India is emerging as the potential CRAM market. The estimated market size of CRAM in India is USD 4 billion. Multinationals like Astra Zeneca, Pfizer, Eli lily, GSK, Merck, Allergan, are the major companies which outsource their demand from Indian CRAM companies.
Domestic Market:
The Indian domestic pharmaceutical market is around USD 8.7 billion. It is growing at CAGR of 14-15% over the past 5 years. Currently India is the third largest market in the world in terms of volume and 14th largest in terms of value. According to PWC report the Indian pharmaceutical industry will reach USD 74 billion by 2020. Rising household income, changing lifestyle and increased penetration in smaller towns and rural areas are the major factors for growth of the domestic pharmaceutical market. 100% FDI in this sector has been approved which promises greater potential for the industry.
On the basis of therapeutic areas, the pharmaceutical market could be divided in two segments:
- Acute Segment: Includes the disease which last for short duration. It includes the therapies like anti-infective, pain killers etc.
- Chronic Segment: The diseases are of recurring in nature and the major causes of such diseases are the lifestyle of human being. In most of the cases, the patient requires regular consumption of medicine. The therapies under chronic segment are anti-diabetics, cardiovascular disease, cancer etc.
In India Acute segment captures 73% of the total pharmaceutical market (ICRA). With the changing lifestyle, this market is expected to grow as there will be rise in the chronic disease. According to IMS health report, the chronic segment will comprise more than 50% of the market by 2020.
Foreign Market:
US with the market size of more than USD 323 billion is the largest market for pharmaceutical industries. It provides huge opportunity for the generic market. According to ICRA (Indian pharmaceutical Sector Industry Update March 12), patented drug worth of USD 100 billion will expire in US in the next five years. This would give huge opportunity for the Indian pharmaceutical industry to expand their generic market base in US. Also the US government healthcare reform which aimed at reducing the spending on healthcare and providing cover to larger section is the stimuli for growth of generic market. To grab the opportunity many Indian companies have filed Abbreviated New Drug Application (ANDA) for selling generic product in US. The table below gives the details of ANDA filing status of Indian Pharmaceutical companies.
Company
|
Filed
|
Approved
|
Pending Approval
|
% Pending
|
Sun Pharma
|
377
|
225
|
152
|
40%
|
Ranbaxy
|
205
|
135
|
70
|
34%
|
Aurobindo
|
197
|
133
|
64
|
32%
|
Dr Reddy’s
|
179
|
103
|
76
|
42%
|
Lupin
|
148
|
48
|
100
|
68%
|
Cadila
|
130
|
65
|
65
|
50%
|
Glenmark
|
109
|
69
|
40
|
37%
|
Exhibit 2; Source: Indian pharmaceutical Sector, Industry Update, ICRA, Mar 2012
The European generic market is different from that of US generic market, it is more diverse. UK, Germany and Netherland have relatively high penetration of generic market whereas France, Italy and Spain have low penetration. Due to the current uncertainty in the EU, governments have introduced austerity measures which aim at reducing the health care spending by substantial amounts. This has led to a shift from branded drugs to unbranded generics. How far this opportunity can be capitalised by Indian pharma companies is the million dollar question. Among leading players, Wockhardt has the highest exposure to Europe with over 37% contribution to its revenues, followed by Dr. Reddy’s 21% contribution (owing to its acquisition of Betapharm in Germany), Ranbaxy, Cipla and Intas Pharma have considerable presence in the European markets.
Japan is the second largest pharmaceutical market in the world. The penetration of generic drug in Japan is low (23%) and ranks sixth largest generic market. Healthcare reforms initiated by government is gradually opening the market for generic drug. Among Indian companies, Lupin, Ranbaxy, Torrent Pharma and Cadila Healthcare are among the front runners in this market. While Ranbaxy (by virtue of its Japanese parent, Daiichi Sankyo) is exploring a hybrid model for the Japanese market, Lupin has recently strengthened its presence by acquiring another company in the injectables segment. The other emerging market for generic drugs is Russia, Brazil, and South Africa.
The future of Indian pharmaceutical industry looks favourable as there would be increased demand for the generic drugs both within India as well as foreign markets. Below tables give the performance detail of the Pharmaceutical Industry and some of its top players.
Ratios
|
2012
|
2011
|
2010
|
EBITDA Margin (%)
|
21.38
|
22.08
|
21.75
|
ROA (%)
|
10.57
|
18.39
|
11.06
|
ROE (%)
|
13.28
|
27.77
|
18.46
|
Asset Turnover(x)
|
0.91
|
0.9
|
0.95
|
Sales/Fixed Asset(x)
|
1.74
|
1.83
|
1.88
|
Working Capital/Sales(x)
|
5.89
|
3.21
|
2.21
|
Net Sales Growth (%)
|
15.5
|
15.94
|
14.95
|
Exhibit 3; Source: Ace Equity
Company Name
|
Year
|
Net sales (USD million)
|
PBDITA (USD billion)
|
EBDITA/ Net Sales
|
Export/ Net Sales
|
Ranbaxy Laboratories Ltd.
|
31-12-2011
|
1,525.55
|
321.70
|
21%
|
72%
|
Cipla Ltd.
|
31-03-2012
|
1,393.28
|
361.84
|
26%
|
53%
|
Dr. Reddy’S Laboratories Ltd.
|
31-03-2012
|
1,335.12
|
373.88
|
28%
|
74%
|
Lupin Ltd.
|
31-03-2012
|
1,070.53
|
230.44
|
22%
|
59%
|
Aurobindo Pharma Ltd.
|
31-03-2012
|
855.38
|
61.85
|
7%
|
70%
|
Mylan Laboratories Ltd.
|
31-03-2012
|
789.39
|
163.98
|
21%
|
87%
|
Jubilant Life Sciences Ltd.
|
31-03-2012
|
526.08
|
93.97
|
18%
|
52%
|
Cadila Healthcare Ltd.
|
31-03-2012
|
517.26
|
183.98
|
36%
|
52%
|
Wockhardt Ltd.
|
31-03-2012
|
510.72
|
146.05
|
29%
|
54%
|
Sun Pharmaceutical Inds. Ltd.
|
31-03-2012
|
480.08
|
432.96
|
90%
|
61%
|
Glaxosmithkline Pharmaceuticals Ltd.
|
31-12-2011
|
475.55
|
216.58
|
46%
|
3%
|
Ipca Laboratories Ltd.
|
31-03-2012
|
469.42
|
104.53
|
22%
|
58%
|
Torrent Pharmaceuticals Ltd.
|
31-03-2012
|
414.70
|
93.82
|
23%
|
39%
|
Divi’S Laboratories Ltd.
|
31-03-2012
|
368.67
|
152.33
|
41%
|
88%
|
Exhibit 4; Source: CMIE
Note: This article was published in BSE Broker’s Forum Newsletter” Forum Views”, Vol. 1, Issue No:9, Mumbai, December 2012.
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