Resurrecting the Indian pharma growth saga
INDIA'S BEST COLLEGES, INSTITUTES and UNIVERSITIES
While the big guns of Indian pharma struggle to get going, an interesting clutch of mid-sized players are showing the way towards future sustainability and growth. By steven philip warner, Amir Moin & Jayant Mundhra
While industry watchers view with dread a trend of sorts where Indian pharma companies capitulate in front of the competition (with Ranbaxy, Piramal Healthcare, Shanta Biotech, Dabur Pharma and Matrix going for sell off), rise and success of mid-sized Indian pharma seems to provide a welcome sign of relief. But the question remains, what is it that has suddenly catapulted these companies into the limelight? And is their success story sustainable?
To answer this, we first need to look into what's going on with India's big daddies. Further consolidation is anticipated in the Indian pharma industry as even some of the larger players view stake sales to global giants as a very lucrative option. There are a number of reasons for this on either side. Firstly, given the limited growth opportunities in their home markets and the slew of patent expiries, global pharma players are looking for opportunities in the international domain and are willing to shell out the dough quite generously if needed. Moreover, Indian pharma players have been strong competitors for Big Pharma in the past; both in the markets and in the corridors of law. Secondly, given the patent regime that came into power in 2005 and the fact that the big Indian pharma companies have expanded in a crowded market, there is little room to grow. Also, the growing competition has driven margins down to quite discomfiting levels in the generics space; particularly in the lucrative American and European markets. On the R&D front too, the cost of inventing a new molecule is anywhere between $1.5-2 billion and 12-15 years, and Indian companies haven't achieved much success in this area either. They did make some attempts at growing faster, including sizeable overseas acquisitions, but the lure of the exit route seems to have been too strong to resist ultimately.
So where and how did the good times for the mid-sized players begin in this scenario? It all started in 2005 when the patent regime was enforced in India. At that point of time, these companies were small entities and found the going even tougher. On one hand, they were battling the patent regime and on the other, they faced stiff competition from global and Indian giants. Some went into oblivion but others decided to fight hard and reinvent themselves. Necessity ultimately became the mother of invention and these companies began to develop smart business models that thrived as the best were faltering. For example, Arch Pharmalabs became a Rs12 billion entity by manufacturing just three APIs. Similarly, another success story is that of Acharya Chemicals. This outfit was founded in 1974 with an initial capital investment of Rs 40,000 and now it has transformed itself to a company with a turnover of over Rs 300 million and a cumulative production capacity of around 200TPM of Chemical Entities. Aurobindo Pharma is another such case to be discussed. Ever since the company has entered into an agreement with Pfizer in 2009 for contract manufacturing of 39 drugs, it has grown in leaps and bounds. As of August 2010, Aurobindo Pharma expects its revenues from the US to go up to $350 million as compared to the $200 million last year. The crux was that these players carefully chose their areas of competence and pursued them with unbridled aggression. Resurrecting the Indian pharma growth saga Going forward, however, mid-sized pharma companies will now have to leverage on factors such as geographical expansions, foray into different therapeutic areas and optimise operational effectiveness by bringing down costs.
The healthcare sector in India currently stands at $35 billion. It is estimated that the future potential would take it over $75 billion by 2012 and an estimated $150 billion by 2017. A senior analyst at IDFC-SSKI told TSI, 'With the scope of penetration and a wide range of drugs in their portfolio, mid-size pharma companies can increase the momentum of their supply for further expansion in India, but the chances for the same in regulated markets are a bit difficult."
So, while overseas markets have to be viewed cautiously, penetration in the Indian market has to be done with immense vigour and zeal. One of the successful mid-size pharma company, Mankind Pharma, is quite bullish on that front. R.C. Juneja, MD & CEO, Mankind Pharma comments, "We have 6000 people on the field. The variable incentives that they get are the best in the industry. I believe that a highly motivated sales force and strong distribution networks are sure keys to success.' Mankind, which posted a turnover of Rs12 billion last fiscal, is targeting Rs16 billion for the current financial year.
Apart from this, getting into Contract Research and Manufacturing Services (CRAMS) continues to be a viable option for these drug makers. According to a report by 'Tata Strategic Management Group', the CRAMS segment was worth $605 million in 2008 and is expected to grow by $1 billion by the end of this year. The API segment is also poised to be worth $12.75 billion by 2012. In an exclusive conversation with TSI, Satish Menon, Associate Vice President, Advisory, Corporate Finance, KPMG said, 'Increase in the spending power of the Indian middle class coupled with increase in lifestyle-related and other diseases and the growing elderly population are the factors that will fuel demand in the healthcare sector. This will, in turn, lead to demand for quality medicines at affordable prices. This is where the potential for small and mid-sized pharma companies lies."
The classic Darwinian theory of evolution appears to be getting replayed in the Indian pharma sector in the current time. Through a combination of enterprising ability and the sense to operate within their limitations, these players could well represent the future of India's pharma industry.
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While the big guns of Indian pharma struggle to get going, an interesting clutch of mid-sized players are showing the way towards future sustainability and growth. By steven philip warner, Amir Moin & Jayant Mundhra
While industry watchers view with dread a trend of sorts where Indian pharma companies capitulate in front of the competition (with Ranbaxy, Piramal Healthcare, Shanta Biotech, Dabur Pharma and Matrix going for sell off), rise and success of mid-sized Indian pharma seems to provide a welcome sign of relief. But the question remains, what is it that has suddenly catapulted these companies into the limelight? And is their success story sustainable?
To answer this, we first need to look into what's going on with India's big daddies. Further consolidation is anticipated in the Indian pharma industry as even some of the larger players view stake sales to global giants as a very lucrative option. There are a number of reasons for this on either side. Firstly, given the limited growth opportunities in their home markets and the slew of patent expiries, global pharma players are looking for opportunities in the international domain and are willing to shell out the dough quite generously if needed. Moreover, Indian pharma players have been strong competitors for Big Pharma in the past; both in the markets and in the corridors of law. Secondly, given the patent regime that came into power in 2005 and the fact that the big Indian pharma companies have expanded in a crowded market, there is little room to grow. Also, the growing competition has driven margins down to quite discomfiting levels in the generics space; particularly in the lucrative American and European markets. On the R&D front too, the cost of inventing a new molecule is anywhere between $1.5-2 billion and 12-15 years, and Indian companies haven't achieved much success in this area either. They did make some attempts at growing faster, including sizeable overseas acquisitions, but the lure of the exit route seems to have been too strong to resist ultimately.
So where and how did the good times for the mid-sized players begin in this scenario? It all started in 2005 when the patent regime was enforced in India. At that point of time, these companies were small entities and found the going even tougher. On one hand, they were battling the patent regime and on the other, they faced stiff competition from global and Indian giants. Some went into oblivion but others decided to fight hard and reinvent themselves. Necessity ultimately became the mother of invention and these companies began to develop smart business models that thrived as the best were faltering. For example, Arch Pharmalabs became a Rs12 billion entity by manufacturing just three APIs. Similarly, another success story is that of Acharya Chemicals. This outfit was founded in 1974 with an initial capital investment of Rs 40,000 and now it has transformed itself to a company with a turnover of over Rs 300 million and a cumulative production capacity of around 200TPM of Chemical Entities. Aurobindo Pharma is another such case to be discussed. Ever since the company has entered into an agreement with Pfizer in 2009 for contract manufacturing of 39 drugs, it has grown in leaps and bounds. As of August 2010, Aurobindo Pharma expects its revenues from the US to go up to $350 million as compared to the $200 million last year. The crux was that these players carefully chose their areas of competence and pursued them with unbridled aggression. Resurrecting the Indian pharma growth saga Going forward, however, mid-sized pharma companies will now have to leverage on factors such as geographical expansions, foray into different therapeutic areas and optimise operational effectiveness by bringing down costs.
The healthcare sector in India currently stands at $35 billion. It is estimated that the future potential would take it over $75 billion by 2012 and an estimated $150 billion by 2017. A senior analyst at IDFC-SSKI told TSI, 'With the scope of penetration and a wide range of drugs in their portfolio, mid-size pharma companies can increase the momentum of their supply for further expansion in India, but the chances for the same in regulated markets are a bit difficult."
So, while overseas markets have to be viewed cautiously, penetration in the Indian market has to be done with immense vigour and zeal. One of the successful mid-size pharma company, Mankind Pharma, is quite bullish on that front. R.C. Juneja, MD & CEO, Mankind Pharma comments, "We have 6000 people on the field. The variable incentives that they get are the best in the industry. I believe that a highly motivated sales force and strong distribution networks are sure keys to success.' Mankind, which posted a turnover of Rs12 billion last fiscal, is targeting Rs16 billion for the current financial year.
Apart from this, getting into Contract Research and Manufacturing Services (CRAMS) continues to be a viable option for these drug makers. According to a report by 'Tata Strategic Management Group', the CRAMS segment was worth $605 million in 2008 and is expected to grow by $1 billion by the end of this year. The API segment is also poised to be worth $12.75 billion by 2012. In an exclusive conversation with TSI, Satish Menon, Associate Vice President, Advisory, Corporate Finance, KPMG said, 'Increase in the spending power of the Indian middle class coupled with increase in lifestyle-related and other diseases and the growing elderly population are the factors that will fuel demand in the healthcare sector. This will, in turn, lead to demand for quality medicines at affordable prices. This is where the potential for small and mid-sized pharma companies lies."
The classic Darwinian theory of evolution appears to be getting replayed in the Indian pharma sector in the current time. Through a combination of enterprising ability and the sense to operate within their limitations, these players could well represent the future of India's pharma industry.
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posted by IIPM: A Leader in Academic Excellence @ 9:36 AM
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