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Pharma: Riding the biotech wave - Views on News from Equitymaster

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Pharma: Riding the biotech wave

Dec 7, 2006

The 1990s was the most productive period in the history of the global pharmaceutical market, as the number of patented products in the pipeline every year was anywhere between 40 and 45. That number has reduced considerably at the turn of the century (25 to 30 on an average). To compound the problem, a significant chunk of blockbuster drugs are moving out of the patent purview in the next five years. Global companies are also receiving flak due to ballooning R&D expenditure with no corresponding drugs in the pipeline. In light of these developments and as the focus shifts to personalised medicine, involving disease specific treatment and better diagnostics, biotechnology offers significant growth opportunities to both innovator as well as generic companies in the pharmaceutical industry. The global scenario
The biopharmaceutical market especially has undergone rapid expansion since its emergence 30 years ago. The 2005 biopharma market was estimated at US$ 71 bn, having recorded a 17% YoY growth. This double-digit growth rate is expected to continue to the end of this decade. The biopharma market by 2010 is expected to represent 17% of all prescriptions written compared with 12% in 2004 (Source: Biocon Annual Report).

The Indian scenario
The biopharmaceutical segment, contributing 75% to the Indian biotech industry’s revenues, has been the key growth driver (the biotechnology sector crossed revenues of US$ 1 bn mark in 2005). The current Indian biopharma industry focuses on

  • Vaccines and other speciality products such as statins,

  • Therapeutics, and

  • Diagnostics for the prevention, treatment and more accurate assessment of the disease.

Biopharma: Key players
Product Indication Market size Players
    (US$ m)  
Vaccines Tetanus, Polio, DPT, Typhoid, 379 GSK Pharma, Aventis, Wockhardt,
  Hepatitis B   Shantha Biotechnics
Insulin Diabetes 55.8 Novo Nordisk, Eli Lilly, Aventis,
      Wockhardt and Biocon
Erythropoietin (EPO) Kidney related applications 16.7 Wockhardt, Shantha Biotechnics
Streptokinase Cardiovascular 17.8 Bharat Biotech, Shantha Biotechnics
Human Growth Hormone   N.A Novo Nordisk, Eli Lilly
Granulocyte Colony Stimulates the production of 5.6 Biocon, Intas Pharmaceuticals,
Stimulating Factor (GCSF) white blood cells   Emcure Pharma
Interferon Leukemia, Hepatitis C, 12.2 Shantha Biotechnics, Fulford India
  Multiple sclerosis    
Monoclonal antibodies Oncology N.A Biocon has launched its product
      BIOMAb EGFR' for the treatment of head
      and neck cancers.
Source: IBEF, Equitymaster research

Status of biogenerics in the international markets
Semi-regulated or less regulated markets: Like India, these markets do not have strict regulations and it is relatively easier to launch biogeneric products here. At present, both Biocon and Wockhardt are in the process of registering their products in these markets. For instance, Wockhardt’s revenues from the Rest of World (ROW) region i.e., excluding US, Europe and India, recorded a 25% YoY growth in CY05 largely driven by its biotechnology business. The company has received 26 approvals in 18 countries and has over 60 registrations pending. Similarly, Biocon has started exporting insulin formulations to 2 countries (looking to target 10 countries by FY08) and insulin bulk to 10 countries. In 1QFY07, the company entered into an agreement with Bayer Healthcare to sell insulin in the Chinese market.

Regulated markets: According to Datamonitor (leading agency for pharma research), six key product types will form the most important commercial opportunities for the ‘first wave’ of biogenerics, which are EPO, insulin, human growth hormone, GCSF, interferon alpha and interferon beta. Biogeneric sales are expected to reach US$ 2.2 bn by 2010 (Source: Datamonitor). The regulatory pathway with respect to launch of biogenerics in the US market still remains unclear. That said, Datamonitor expects the biogenerics to be launched in the US by 2009. However, in Europe, EMEA have spelt guidelines for four biologicals, namely insulin, GCSF, HGH (human growth hormone) and EPO. Both Biocon and Wockhardt are gearing up for these opportunities in the European region. While Wockhardt’s focus is insulin and EPO, Biocon’s area of focus is insulin and GCSF. That said, new product launches in Europe are unlikely before 2008.

To conclude…
Considering the growing need across the globe for more accurate therapy and personalised form of medicine, the demand for biotech products is expected to increase going forward. Also, since it is a niche area, entry barriers are high both for patented biopharma drugs and biogenerics resulting in relatively lesser competition. For biogenerics, the high barriers to entry are in the form of stringent regulatory process, conducting truncated clinical trials as opposed to bioequivalence studies required for other drugs and high level of investment both on the manufacturing and marketing front. We believe that going forward, Wockhardt and Biocon have an edge over their domestic peers in the biotechnology space. Having said that, both these companies face stiff competition from MNC players such as Novo Nordisk and Eli Lilly in the insulin segment and from Aventis and GSK Pharma in the vaccines segment.

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