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The next big thing for global Pharma - Views on News from Equitymaster
 
 
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  • Oct 15, 2009

    The next big thing for global Pharma

    Emerging economies have been garnering a lot of interest of late as far as investments are concerned. Not only are the developed economies mired in a recession but the prospects also do not look too enthusing in the near future atleast. In stark contrast, emerging economies led by China and India are expected to post strong growth rates, a phenomenon which will be witnessed in the global pharmaceutical industry as well. Thus, in this article, we shall take a look at what is driving the growth of branded generics in these emerging markets.

    Domestic pharma's branded focus

    Indian pharma companies were at the forefront in capitalising on the branded generics opportunity. As a result, their exports strategy not only revolved around selling generic medicines in the developed nations of the US and Europe but also in the semi or less regulated markets of Asia, Africa, Russia and the CIS. The latter especially were lucrative because generic medicines there can be branded and hence pushed through doctors. This could not be done in the US and Europe, which are heavily regulated. Here, generic medicines cannot be branded unless companies can show that their versions are more effective due to superior technology or a superior delivery mechanism. However, in the semi or less regulated markets, generics can be branded just like they are in India. But since they are not subject to price control as in India, the revenue and profit potential is that much higher.

    Domestic companies such as Ranbaxy, Dr.Reddy's, Sun Pharma, Glenmark, Lupin, Cadila and the like are looking to enhance their presence in these regions especially when the US and European generics markets in recent times have been marred by intense competition and price erosion.

    Global innovators jumping the bandwagon

    Another breed of pharma companies have also realized the potential of branded generics and are looking to grab a slice of the branded generics pie. We are talking about the global innovators such as Pfizer Inc., GSK Plc, Sanofi-Aventis and the like, which previously focused on developing patented drugs. There are various reasons for wanting to dabble in generics as well. First is that their own research pipelines are drying up with not much to show for the amount of money invested in R&D. Secondly, many of their blockbusters are going off patent which would mean a huge drop in sales and profits. Thirdly, governments across the world are looking to cut healthcare costs by encouraging the use of generics. Little wonder than that Big Pharma which hitherto was averse to generics, is now finding itself joining hands with Indian generic players to foray into emerging markets. Case in point would be Pfizer Inc.'s partnership with Aurobindo Pharma and GSK Pharma's alliance with Dr.Reddy's amongst others.

    Going forward...

    We believe that branded generics will play an important role in driving the growth of the global pharmaceutical market. This is not to say that the US generics market will not witness growth as there are many patent expiries on the anvil. But because margins in the US are low, the emerging markets will form an important business for domestic pharma companies. As far as the global pharma markets are concerned, while the US pharma market is projected to register a decline of 1%-2% in 2009, the top five European markets (France Germany, the UK, Italy and Spain) are forecast to grow at 3%-4% in 2009.

    This means that emerging markets (including India and China) will be the next frontier and these markets, which logged in a healthy growth of 12% in 2008, are expected to grow collectively at 13% to 16% up to 2013. Infact, the seven emerging markets (China, Brazil, India, South Korea, Mexico, Turkey and Russia) are expected to contribute 40% to the global market growth from 2009 to 2013 (Source: Dr.Reddy's annual report). Thus, akin to other industries, the pharma industry in the emerging markets hold huge potential and Indian pharma companies which are firmly entrenched in these markets stand to benefit immensely from the same.

     

     

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    1 Responses to "The next big thing for global Pharma"

    santushta

    Oct 28, 2009

    I have nt at received Midcapselect recommendatio for this wednsday 28/10/09

    Like 
      
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