Pharma looks up to fresh opportunities in generics market

At a time when the corporate world is upbeat about the turnaround in the economy, the pharma sector has more specific good news. According to analysts, the generics market is likely to open up fresh opportunities for the Indian pharmaceutical sector. Several pharmaceutical companies such as Lupin, Cipla, Dr Reddy’s Laboratories, Ranbaxy, Sun Pharma, Jubiliant, Piramal and Glenmark are likely to benefit.

“There is some good news in the pipeline. Several drugs going off-patent, some markets such as Japan trying to encourage generics penetration, and the agreements the global pharma companies are forging with the Indian pharmaceutical companies are expected to add strength to the Indian generic pharma story,” a chief operating officer (COO) of a pharma company said on condition of anonymity.

According to analysts, products worth about $150 billion and another $50 billion worth biologics are likely to go off-patent. In addition, the analysts are also pointing at the regulatory changes in key markets such as Japan and Russia. For a company like Dr Reddy’s, Russia is one of the key markets adding to the topline. There are indications from various analyst and research firms that the Japanese government is targeting to get about 30% of its drugs market onto the generics mode by 2012.

“Japan still remains an attractive market, but difficult to penetrate. In fact, many companies are hesitating to risk an aggressive entry into the Japanese market. We have seen the experience of some of the companies such as Dr Reddy’s in the German market. However, if the Japanese government takes a decision to encourage generics, it is an immediate advantage to the Indian companies,” managing director of another contract research and manufacturing company said.

The Russian government is also targeting to embrace US Good Manufacturing Practices (GMP) by 2020, and Brazil is likely to make bio-equivalence compulsory by 2014. Though analysts find this to be a positive move, they feel that changes in regulatory regime in Russia and Brazil would only help the strong companies. “Once these changes happen, these countries will no longer be anybody’s markets. So, the strong companies will have an immediate advantage, while medium size companies will take longer to invest on the facilities to meet the new standards,” the COO said.

Based on Teva’s recent strategy presentation, Credit Suisse analysts reported that Teva would target a growth in sales by 9% and 14% in profits.

Teva expects 2008-15 generic market growth of 8-9% per annum driven by $150 billion brands and $50 billion biologics going off-patent, and strong growth in emerging markets. Taking this guidance as an indicator for the Indian companies too, Credit Suisse research analysts, Neelkanth Mishra, Anubhav Aggarwal and Riya Bhattacharya said in their January 8 report, “Simply put, Indian companies have now considerable experience in several fast growing emerging markets, and also understand the channel in most markets that matter. If a company of Teva’s size can expect a 14% CAGR, our current expectation of 20% plus revenue growth for Indian generics companies is not misplaced, especially as they are starting from a very small base. There should be a separation between the weak and the strong though, as regulations and execution become paramount.”