For Indian pharma, Europe's now bigger than the US

NEW DELHI: European market is becoming more lucrative than the US for Indian pharma majors. While increasing pricing pressure in the US continues to squeeze margins, a string of acquisitions in Europe seems to have changed the overseas market dynamics for Indian pharma companies. Already, biggies like Ranbaxy and Wockhardt are selling more in Europe than in the US while others look on course to do the same.

Over the last couple of years, Indian pharma majors — who made their fortunes in the US during the nineties — have been busy spreading their wings to other markets, particularly Europe, in the wake of cut-throat competition making American operation almost unprofitable. The results are here to see.

For the first time in its history, Gurgaon-based drug major Ranbaxy Laboratories recorded more revenues from Europe than the US in the quarter ended March 2007 — thanks mostly to its back-to-back acquisitions of Ethimed of Belgium, Terapia of Romania and GlaxoSmithkline’s generics business in Italy in March 2006. Its European sales stood at $93 million in the first quarter against $86-million sales in the US.

It’s not alone. Europe accounts for nearly 50% of the revenues of Wockhardt Laboratories which acquired Pinewood Laboratories in Ireland last year. Aurobindo Pharma — which bought Pharmacin international BV of the Netherlands last year — may soon see its fast-growing European sales overtaking its American revenues.

Industry experts believe Europe presents a big growth opportunity for Indian pharma companies. “Unlike the US, where volume penetration is about 55%, in Europe, it is around 22% in most markets. The price erosion in the US is also much higher,” points out ChrysCapital managing director Sanjiv Kaul. “Also, it is a good risk mitigation strategy to have an equally robust market to the US. With the new acquisitions kicking in now, revenues of Indian pharma companies from the US and EU are equal,’’ he adds.

Agrees PWC’s pharma analyst Sanjay Shetty: “The pricing pressure in the US will intensify and unless Indian pharma companies get exclusivity period, margins will get squeezed further. The generic substitution in many European countries have started. The fact that all the major acquisitions by domestic companies have taken place in Europe underlines the opportunities in Europe.”

A Mumbai-based pharma analyst, however, warns that the kind of pricing pressure existing in the US would spread to Europe soon. But that is for the future. Right now, Europe is the most happening place for Indian pharma companies.

Check out the numbers. Ranbaxy reported a 78% year-on-year jump in European sales at $93 million in the first quarter while its revenues from the US market grew a meagre 3% to $86 million ($91 million for North America). Europe, including CIS countries, accounted for 32.3% of Ranbaxy’s sales as against North America’s 32.3% contribution. “We believe that Europe, including CIS, would be a key growth driver for the company,” a company spokesperson said.

Europe accounts for nearly 50% of Wockhardt Laboratories revenue. During the quarter ended March, the company’s revenues from that region grew by 93% to Rs 250 crore from Rs 130 crore in the year ago quarter. All the three key markets of Pinewood Laboratories — the UK, Germany and Ireland — registered healthy growth for the company which launched 10 new products during the period.

Aurobindo Pharma too saw its European sales growth outpacing the rise in the US although in terms of revenues the US stays slightly ahead of Europe. Sales in Europe, for the quarter ended March, grew by 121% to Rs 228 crore compared to 79% growth at Rs 246 crore from the US. The company’s acquisition of French company Negma Laboratories for $265 million last month will further increase the company’s revenue from Europe. Aurobindo acquired Pharmacin international BV, Netherlands, a profit making generic company extending its European presence last year.

But for Dr Reddy’s Laboratories, which acquired Betapharm for Rs 2,550 crore in 2006, US remains the mainstay of its revenue. Sales in the US grew to Rs 740 crore against Rs 341 crore at the end of March 31, thanks to a 180-day exclusivity for one of its products. For the financial year 2006-07, revenues from North America stood at Rs 2,833 crore against Rs 1,483 crore from Europe.