Nov 24, 2004|
MNC pharma: Seek opportunity!
According to newspaper reports, a leading consultancy firm has estimated that the Indian pharmaceutical sector will become a US$ 25 bn industry by the year 2012, up from its current levels of about US$ 6.5 bn. According to the report, while the market in India will expand, further growth will be driven by exports of pharmaceutical products. While Indian companies are likely to grab this opportunity with both the hands, in this article we have tried to understand how MNC pharma companies are poised to benefit from this opportunity by analyzing their recent performance.
There are many MNC pharma companies operating in India. While some of them have really entrenched themselves in the country, others operate merely as a trading entity. Companies such as Aventis, Glaxo and Pfizer have full fledged operations in India, others like Abbott, Sanofi, Novartis are more or less trading companies.
In the chart above, we can see that these companies have shown impressive performance in terms of growth, which is more in line with the market growth rate. While the consolidated growth of these five companies in the first nine-months of 2004 is about 11%, some have outperformed the others. While MNC companies largely have shied away from introducing new products, Novartis and Aventis have taken lead in last two years by launching new products in the Indian markets even before the new patent regime is in place.
However, the new patent regime that will come into force from 2005 will be significant for these MNC pharma companies, which are preparing themselves for the same. Most of the foreign companies have restructured themselves, be it Glaxo, Pfizer or Novartis to take advantage of the new patent regime. Although, the new patent regime will come in force from 2005, we do not see any significant impact in the topline of these companies in first two years (2005 and 2006). But in the long run, these MNC companies will certainly gain market share in high value patented products.
Apart from this, the other opportunity that exists for MNC companies in India is outsourcing. Most companies in western regulated markets are facing severe price competition from the low cost generics manufactured in India. These global corporations are likely to look at cutting costs by out-sourcing their manufacturing to low cost countries such as India and presumably, the best choice for them would be their own subsidiaries. The example of this phenomenon is Aventis, which is already making bulk drugs for its parent company. In fact, 22% of Aventis revenues are from outsourcing activity. Similarly, in case of Glaxo, it is supplying drugs manufactured in India to its parent company.
Be it selling new drugs in Indian markets or supplying drugs to their parent companies in western world, Indian arms of the global pharma giants are in for a change in their growth pattern in next few years. While the markets have realised this, there are still opportunities available for long-term investors to invest in the sector's growth trajectory.
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