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Are injectables lucrative for Indian Pharma? - Views on News from Equitymaster
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  • Dec 19, 2012

    Are injectables lucrative for Indian Pharma?

    As the patent cliff nears, the generic companies are working out ways to fuel their top lines. In this, the injectable market has been an area of interest for various companies. Besides Indian generic companies, global generic companies too are entering this segment. For example, Novartis' generic arm Sandoz acquiring Ebewe, which is an injectable focused company.

    Opportunity in the injectable market

    The overall size of the injectable market during 2009 was approx US$ 200 bn. This has grown further by 10% to US$ 220 bn in 2011 with generic penetration being 15%. In the injectable group, the segments of biologics and oncology are relatively more lucrative offering higher upside.

    US, being the world's largest pharmaceutical industry, also accounts for the largest chunk of the overall injectable space. During 2011, US had 38% share in the injectable market of which generic penetration was at US$ 5 bn. It is expected that by 2015 roughly 75 products worth US$ 16 bn could face the entry of generics for the first time. It is also estimated that US generic injectable sales would grow at a CAGR of 10% in the period 2012-2015.

    Source: Sandoz

    How do injectable drugs differ from the others?

    The current strict compliance with respect to manufacturing facilities has resulted in a limited number of injectable manufacturing facilities globally. Due to this, the US too has witnessed strong shortage of injectable products on the back of warning letters issued to many companies and recall of drugs. The number of injectables falling under shortage list increased from 39 to 139 in 2011. By nature manufacturing injectable drugs is complex involving long lead time.

    Historically, the generic approval per injectable has been as low as one. Further, large part of the injectables segment has faced limited competition i.e. around 86% of the products have less than 5 players. This is because majority of the injectables further fall under niche segments like biosimilars and oncology. Thus, overall owing to high entry barriers with longer manufacturing and approval times and limited competition, this segment offers lucrative margins. All these aspects have increased consolidation, some of major ones being - Hospira acquiring Orchid's injectable segment, Novartis acquiring Ebewe and Mylan acquiring Bioniche among others.

    Where do Indian companies stand in this space?

    Among the Indian companies, Cadila has entered into a JV with Hospira for oncology injectables. The company has widened its portfolio and will be incurring capex of US$ 20 m for new products. On the other hand Strides Arcolab, has been a distinctively injectable focused player. The company too has entered into JV and has one division which focuses only on injectable shortages that take place in the US. Sun Pharma too has launched some injectables in the oncology space. Dr Reddy's acquisition of Octoplus Pharma has also been done to tap specialty injectables. Claris Life Science is one more injectable focused company, which recently entered into JV with Otsuka. Biocon has entered into a partnership with Mylan for manufacturing of drugs in the biosimilar segment.

    Our view...

    Given the intense competition and price erosion evident in the US generics segment, Indian generics players have been increasingly focusing on niche segments and Para IV opportunities to bolster revenues and profits from this market. And the injectables segment is one such niche area. Thus, those companies having injectables as part of their portfolios have the potential to improve margins and report decent growth. However, there is a flipside too. Owing to the complexities in manufacturing in this space, the norms are quite strict when it comes to compliance with good manufacturing practices. Case in point is Hospira's. The company too derived considerable revenues from injectables. But a warning letter from the USFDA negatively impacted the company. Overall, a right mix of injectable products in the portfolio, backed by appropriate manufacturing activities will add value to the overall growth of companies.

      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.



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