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Pharma: Its all about ‘niche’

Nov 17, 2006

India’s edge in the generics market lies in its low cost advantage (not only in manufacturing but also in terms of quality manpower) and superior reverse engineering skills. These two factors combined with drive by developed economies to reduce healthcare costs are the foundation stones of the Indian generics story. Besides this, revenues from generics also enable domestic pharma majors in funding their R&D budgets. As a result, domestic pharma companies are increasingly turning their attention to the global generics market. This is further reinforced by the fact that India accounts for 25% of the ANDAs filed in the US market (the largest generics market in the world). Having said that, CY05 was an eye opener for domestic pharma companies, which were at the receiving end due to the intense competition and brutal price erosion witnessed in the global generics market, especially the US. This trend is likely to continue for years to come. Besides, competition is not just from domestic companies but also from global generics players. In such a scenario, we believe that a host of factors such as scale, geographical spread, niche area focus and a strong marketing and distribution network will be critical in driving growth in the long-term. In this article, our focus is on the niche therapeutic areas that have potential going forward.

Injectables: For generic drugs as a whole, cost has been an important factor in their development, particularly for oral drugs that are relatively cheap to produce and can be introduced to a market at a fraction of the price of the original drug. That said, given the fact that oral drugs are facing increased competition and pricing pressure, generic companies are now beginning to look for higher profit margins and injectable drugs potentially offer such opportunities. This can be gauged by the fact that injectable drugs (non-biological) worth US$ 12 bn are expected to lose patent protection in the US by 2010 (Source: Espicom). The entry barriers for injectable formulations are high due to the high level of investment and stringent regulatory norms as compared to other dosage forms. Also, these formulations are generally sold to institutional companies such as hospitals, which are relatively few in number and where the marketing strategies are comparatively different. Indian players, as yet, do not have a significant presence in this field and are gradually stepping up their investments into the same. Global players in this field include Teva (after acquiring Sicor and Ivax), Hospira and Baxter Healthcare amongst others. We have enumerated some of the key areas where injectables offer significant potential:

  • Oncology – Cancer is one of the leading causes of death in the world (both in the developed and developing nations) and this can be gauged by the fact that oncology projects formed around 30% of the total industry research pipeline in CY05. In the generics oncology space, the extent of competition is limited with prices eroding by around 75% on day 1 of patent expiry (as against 95% for plain vanilla generics). In the global market, Mayne Pharma, Teva (through Sicor), Baxter Healthcare amongst others are strong players in this field. In India, Dabur Pharma with its dominant focus on oncology will be making a foray in the US market and has tied up with Hospira, which is a leading injectables company in the US, to introduce products in that region. Dabur Pharma recently received its first ANDA approval for ‘Carboplatin’ (size of US$ 200 m) and will be launching the product in 1HFY07.

  • Anti-infectives – In the global anti-infectives market (US$ 30 bn), cephalosporins account for US$ 9.7 bn. Out of this, the market for injectable cephalosporins has been valued at US$ 2.6 bn (Source: Espicom). Between March 2000 and September 2006, the US FDA approved 28 ANDAs for injectable cephalosporins. In India, Lupin is a strong player in this field. The company was one of the first players to receive approval for generic ‘Ceftriaxone’ (Roche’s ‘Rocephine’), which had a market size of US$ 756 m in CY05. Again, competition being relatively lesser, prices eroded by around 70% upon patent expiry. Other strong global players in this field are Sandoz, Baxter Healthcare and India-based Orchid.

Immunosuppressants: This is another niche area that offers opportunities to Indian players due to the high entry barriers that exist in this segment. Immunosuppressants are drugs used in transplantation to prevent the rejection of the organs that have been transplanted in the body. The market size of these drugs has been pegged at US$ 2 bn (Source: Biocon annual report). Currently, Biocon has the edge in this segment. The company currently is marketing two drugs in this area ‘Mycophenolate Mofetil’ (MMF) and ‘Tacrolimus’ in the domestic market. That said, this segment offers significant growth opportunities during 2008 to 2010 in the global market consequent to the patent expiry of ‘MMF’ and ‘Tacrolimus’.

Biosimilars: Globally, generic companies are beginning to take considerable interest in some of the older high value biopharmaceuticals such as erythropoietin, recombinant insulin, interferon, human growth hormone and GCSF. However, while it is easier to launch biosimilars products in the semi regulated markets, in the regulated markets of US and Europe, once regulatory hurdles are overcome, the potential rewards for generic companies in this area are likely to be immense. While the first approval of a biosimilar product has yet to happen in either the US or the EU, the new EMEA guidelines in Europe can be seen as a step in the right direction. In the US, the regulatory pathway as of now remains unclear. In India, Biocon and Wockhardt have significant edge over its peers in this space. However, both these companies are currently deriving revenues from biopharma from the domestic and less regulated markets. Likely product launches at least in the European region are not likely to take place before 2008.

Focus on niche products has assumed importance due to high entry barriers in terms of technology, investment and therefore, relatively lesser competition leading to higher realisations and margins. Since plain vanilla generic products have now become highly commoditised, having a balanced product portfolio with a mix of both plain vanilla generics and niche generics has become crucial to drive growth in revenues. While we have not enumerated all the niche therapeutic areas, domestic companies are making increasing efforts to gain an advantage in certain niche areas. For instance, Glenmark is making strides in the dermatology segment, Dr. Reddy’s has also identified biosimilars and oncology as focus areas, Ranbaxy is planning to foray into injectables and so forth. Thus, despite the increased challenges in the global generics market, we believe that those companies focusing on niche segments will be able to withstand the competition better in the long-term.

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