New threats in the offing for MNC Pharma? - 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?  

New threats in the offing for MNC Pharma?

Sep 24, 2012

MNC pharma companies have always shown their interest in the emerging markets and India is one such preferred destination for the global MNCs. With the introduction of product patent law, the interest of MNC pharma has further grown. The MNCs started launching parent group's product portfolio with high margins in India. Through aggressive product promotions, companies were able to take higher market shares and position their products in the list of top 100 highest selling products.

But is this fact still breathing?

With the changing times; competition intensified, cost pressures increased and new regulations came up to impede the irregularities from various sectors. Plus global economies are going through a phase of downturn. During such times, how can pharma segment be spared? Below are the few challenges which an MNC pharma is witnessing today.

NPPA regulations - Challenges raised by NPPA

Last year, National Pharmaceutical Pricing Policy (NPPA) had proposed a new pricing policy. As per this policy, 348 drugs will come under pricing regulations. As the organization is still working on the methodology of pricing the drugs, the companies' fate remain vulnerable at the outcome of the policy. It's a known fact that a large part of MNCs drugs are among the top selling drugs in India. This means that, their revenues are too exposed to the pricing policy outcome. But this is not the end.

Recently new proposal has been put forth by NPPA - To check the prices of the imported drugs. This means, MNCs have to explain the methodology of arriving at the maximum retail price (MRP) of the drug to be sold in India.

2005 Patent Law - Is it really helping the MNCs?

With 2005 product patent law various MNCs introduced new drugs from their parent company's portfolio in the Indian market. Many of these drugs were very highly priced. Taking advantage of this, some of the Indian companies made a similar drug at very lower price, by using ways like non infringement or compulsory licensing.

The generic version of drugs like Tarceva and Nexavar were introduced, by local manufactures in the market much before their patent expiry. These companies have not only launched the drug but have also been successful in proving that their launch was ethical, under the various grounds. Some said that the innovator drug was highly priced; others that the generic drugs do not infringe the innovator's patent.

On the other hand MNCs articulated that they are charging for the innovation of a new drug and it was their cost pertaining to the R&D done in order to bring new drug in market.

Growing inorganically - No longer easy

In past, MNCs made many acquisitions in order to tap larger market share India. The classic examples being; Piramal Enterprises by Abbott India, Ranbaxy by Daiichi Sankyo, Shantha Biotech by Sanofi, Dabur Oncology by Fresinius Kabi.

After a chain of acquisitions, in order to protect the interest of the country, the government has put up a proposal for a diligent scrutiny of any such acquisitions. Thus any FDI investment in brownfield projects will have to be passed through more stringent process than earlier. Further, even after acquisition the related authorities will keep a check on the activities of acquired Indian entity. So that there is no misuse of the acquired entity by mispricing of certain drugs or creating artificial shortage of essential drugs.

Higher dependence on Acute Segment- Will diversification happen?

Various MNC companies generate large part of their revenues from acute segment viz; anti infectives, gastro intestinal, pain, dermatology etc. However, due to changing lifestyles, there has been increased occurrence of disease in chronic segment like cancer, diabetes, and various diseases relating to Central Nervous System (CNS) and Cardiovascular (CVS). Thus the companies whose product portfolio is largely exposed to chronic segment will be able participate in fast growing therapy.

Table 1: MNC companies higher dependence on Acute segment
Company Revenue contr. from acute segment (%)
GlaxoSmithKline Pharma 95
Pfizer India 85
Novartis 75
Abbott India 60
Source: IMS

Though drugs for acute segment accounts for almost 75% of the Indian pharma market, owing to the current trend, chronic segment is growing faster than the acute segment.

Over and above, the MNCs are facing increasing competition from Indian players. Almost all the companies have increased the sales force in order to promote their products. The sales force has gone up at to the levels of 7,000 medical representatives which earlier used to hover at the levels of 2,000-4,000.

It is pertinent to note that so far the MNCs have been surviving the competition and witnessing healthy growth. The MNCs have also been able to take some benefit of growing trends in pharma industry like - growth in GPs (General Practitioners), reaching Tier II -IV cities, increasing awareness of modern medicines etc. But, at the same time challenges are increasing and thus MNC pharma's growth sustainability has become questionable.

To conclude

MNC pharma companies' future performance will be dependent on the outcome of the proposed regulations and the way the MNC companies are able to address the challenges. Meanwhile investors must be very selective about buying stocks of MNC pharma companies, despite their past track record.

Bhavita Nagrani

Bhavita Nagrani (Research Analyst) is a Chartered Financial Analyst (ICFAI) with nearly six years of experience in the field of equity research. She has a deep understanding of the global as well as the domestic Healthcare industry and keenly tracks the developments therein. When it comes to stock investing, she is a strong advocate of the bottom-up approach to stock picking and has a remarkable ability to discern nuances in the business models of companies belonging to the same industry. Bhavita is the contributor to our large cap franchise, StockSelect.


Equitymaster requests your view! Post a comment on "New threats in the offing for MNC Pharma?". Click here!

  

More Views on News

WOCKHARDT Surges by 11%; BSE HEALTHCARE Index Up 2.0% (Market Updates)

Feb 19, 2020 | Updated on Feb 19, 2020

WOCKHARDT share price has surged by 11% and its current market price is Rs 374. The BSE HEALTHCARE is up by 2.0%. The top gainers in the BSE HEALTHCARE Index are WOCKHARDT (up 11.1%) and IPCA LABS (up 5.9%). The top losers are PROCTER & GAMBLE HEALTH (down 0.1%) and SANOFI INDIA (down 0.2%).

ASTRAZENECA PHARMA Surges by 5%; BSE HEALTHCARE Index Up 2.0% (Market Updates)

Feb 19, 2020 | Updated on Feb 19, 2020

ASTRAZENECA PHARMA share price has surged by 5% and its current market price is Rs 2,881. The BSE HEALTHCARE is up by 2.0%. The top gainers in the BSE HEALTHCARE Index are ASTRAZENECA PHARMA (up 5.0%) and TORRENT PHARMA (up 5.1%). The top losers are SYNGENE INTERNATIONAL (down 0.3%) and FORTIS HEALTHCARE (down 0.3%).

WOCKHARDT Surges by 7%; BSE HEALTHCARE Index Up 2.0% (Market Updates)

Feb 19, 2020 | Updated on Feb 19, 2020

WOCKHARDT share price has surged by 7% and its current market price is Rs 362. The BSE HEALTHCARE is up by 2.0%. The top gainers in the BSE HEALTHCARE Index are WOCKHARDT (up 6.9%) and TORRENT PHARMA (up 6.0%). The top losers are SYNGENE INTERNATIONAL (down 0.3%) and FORTIS HEALTHCARE (down 0.3%).

TORRENT PHARMA at All Time High; BSE HEALTHCARE Index Up 2.0% (Market Updates)

Feb 19, 2020 | Updated on Feb 19, 2020

TORRENT PHARMA share price has hit an all time high at Rs 2,286 (up 6.0%). The BSE HEALTHCARE Index is up by 2.0%. Among the top gainers in the BSE HEALTHCARE Index today are TORRENT PHARMA (up 6.0%) and ABBOTT INDIA (up 3.7%). The top losers include DISHMAN CARBOGEN AMCIS LTD (down 0.1%) and SYNGENE INTERNATIONAL (down 0.3%).

AUROBINDO PHARMA Surges by 14%; BSE HEALTHCARE Index Up 1.5% (Market Updates)

Feb 19, 2020 | Updated on Feb 19, 2020

AUROBINDO PHARMA share price has surged by 14% and its current market price is Rs 594. The BSE HEALTHCARE is up by 1.5%. The top gainers in the BSE HEALTHCARE Index is AUROBINDO PHARMA (up 14.5%). The top losers are ERIS LIFESCIENCES LIMITED (down 0.1%) and CAPLIN POINT (down 0.1%).

More Views on News

Most Popular

This Smallcap Stock Could be the Next Titan (Up 1,400% in 10 Years) (Profit Hunter)

Feb 11, 2020

A blueprint to latch on to the next 'Crorepati' stock - and an event I hope you won't miss on any account.

How to Become a One Stock Crorepati (Profit Hunter)

Feb 6, 2020

A little known Indian stock that is set to turn around its own fortunes, and your wealth, if you just have the foresight to get in on time...

Will Algo Traders Take Away All Your Profits? (Fast Profits Daily)

Feb 11, 2020

How to fight back against algo trading systems.

How to Use Stop Losses in Your Trading (Fast Profits Daily)

Feb 13, 2020

There's more to stop losses than just limiting a trading loss. Find out more...

No Change in My Long-Term View on the Rebirth of India Stocks (The 5 Minute Wrapup)

Feb 6, 2020

Why the recent post budget volatility has not affected my bullish view on the Rebirth of India stocks.

More

India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get our special report, Secret to Increasing Your Trading Profits Today Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE HEALTHCARE


Feb 19, 2020 (Close)

MARKET STATS