X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2019 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Pharma: Besides the US.... - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Pharma: Besides the US....

Mar 20, 2007

While the US generics market continues to be a major focus area for most of the major Indian pharma companies, many of them are looking to de-risk their business model by increasing focus on the semi regulated markets of Asia, Russia, CIS, Central Eastern Europe and Africa. This is largely due to the fact that while the US generics market continues to be the largest in the world, increasing level of competition and brutal price erosion has led Indian pharma companies to focus on other markets to sustain their overall revenue and profitability growth. Advantages of geographical expansion...

Higher barriers to entry:Having a widespread geographical reach is characterised by high entry barriers. This is because different markets have different regulations, which involves a deep understanding of the same if pharma companies want to increase their reach across markets. As per our interaction with a leading domestic pharma company, it is not easy to set up a marketing and distribution network in the country, as this again involves higher investments and good relationships with doctors and distributors. To put things into perspective, in the US and UK, where generics are not branded, the marketing efforts are largely towards the distribution chain, which plays a dominant role in the dispensing of generic medicines. However, in semi-regulated markets where generics are branded, marketing efforts are largely targeted towards doctors, who play a significant role in prescribing medicines.

De-risking revenues:The importance of geographical presence is also highlighted by the fact that difficult conditions in one market can be offset by a healthy performance in some other market. For instance, in 2006, Ranbaxy's performance in the Western Europe (namely the UK, Germany and France) was largely subdued due to various healthcare reforms undertaken by the governments in these countries. Despite this, a stronger performance in the US, India and the Rest of the World markets enabled the company to withstand these pressures.

Some concerns...

Regulatory pressures:As mentioned earlier, different countries have different set of regulations, which could impact a company's performance going forward. Case in point is the new German drug law enacted by the German Government, which states that the price differential between the branded drug and the generic drug has to be a minimum of 30%. Considering that Germany has been a lucrative market for generics due to higher price realisations, this has been a negative for generic companies competing in the higher end of the market. Companies such as Betapharm (acquired by Dr.Reddy's) have undertaken aggressive price cuts in response to the law. Similarly, new healthcare reforms have been enacted in France and Brazil as well, which has affected the performance of Indian companies operating in these regions. While the effect of these policies will even out in the long term, their impact on generics in the medium term is likely to be significant.

Markets on the radar...

For domestic pharma companies, given the highly competitive nature of the US generics market and the pressure on margins, these companies are laying increased emphasis on the semi-regulated markets of Russia, CIS, Central Eastern Europe and Africa. This is because these markets are branded (i.e. companies can brand the generic medicines) resulting in higher margins and profitability from these regions. Also, the pharmaceutical markets of these countries are currently growing at a much faster pace than the US and European markets and thus will play a significant role in augmenting the overall performance of domestic companies in the long term.

To sum up...

Presence across geographies has been gaining momentum across global generic companies. To put things into perspective, Teva (Israel), the largest generics company in the world, which derived nearly 90% of revenues from the US and UK, acquired Ivax for increasing its presence in other markets amongst other reasons. Thus, pre-Ivax, revenues from the Rest of the World (ROW) markets, which accounted for 11% of Teva's total revenues, now account for 16% of revenues post the Ivax acquisition. Given the high barriers to entry, at the end of the day those pharma companies, which have a wider geographical reach, will have the upper edge over their peers in the longer term.


Equitymaster requests your view! Post a comment on "Pharma: Besides the US....". Click here!

  

More Views on News

Aster DM Healthcare (IPO)

Feb 10, 2018

Should you subscribe to the IPO of Aster DM Healthcare Ltd?

Dr Reddy's: Milestone Payment Drives Sales (Quarterly Results Update - Detailed)

Feb 9, 2018

US business was hit by pricing pressure although there was growth sequentially led by new product launches.

Lupin: US market Declines Due to Higher Base Effect of FY17 (Quarterly Results Update - Detailed)

Feb 9, 2018

Price erosion in generic US drugs continues but seems to be bottoming out.

The Power of 5 Minutes (The 5 Minute Wrapup)

Jun 16, 2017

Here's what you can expect from The 5 Minute Wrapup in the coming months and years.

More Views on News

Most Popular

Stocks that Could Be Out of Reach Post Elections(The 5 Minute Wrapup)

Apr 9, 2019

It's a matter of time before the stocks catch the fancy of the markets and big investors.

3 Indian Stocks with Amazon-Like Potential(Profit Hunter)

Apr 10, 2019

We have identified 3 stocks with huge wealth building potential which meet our 'Click of a Button' criteria.

This Company is Making a Big Comeback and You Can Now Profit from Its Example(The 5 Minute Wrapup)

Apr 10, 2019

How Dell got its mojo back.

This is Why the Stock of Jubilant FoodWorks Went Up 1,160%(The 5 Minute Wrapup)

Apr 12, 2019

This critical business strategy has enabled companies to scale their operations faster.

Pocketing Massive Gains with HDFC And HDFC Bank(Profit Hunter)

Apr 12, 2019

Here's how one could have generated gains of Rs 59,250 in 10 days by trading HDFC and HDFC Bank with a capital of Rs 4 lakh.

More

Get the Indian Stock Market's
Most Profitable Ideas

How To Beat Sensex Guide 2019
Get our special report, How to Beat Sensex Nearly 3X Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE HEALTHCARE


Apr 22, 2019 (Close)

S&P BSE HEALTHCARE 5-YR ANALYSIS

COMPARE COMPANY

MARKET STATS