Pharma cos may have to shift business strategy due to slow growth: Report

MUMBAI: Indian drug makers, who have historically built their revenues by selling generic drugs to developed markets, might have to shift their business strategy as an overcrowded US market and peaking opportunities threaten to slow down growth from these markets, says a report by Jeffries, a New York-based securities and investment banking firm.

"With opportunities peaking and competition rising in the developed markets, we believe emerging markets (EM) will drive future growth," the report said.

The North American market is one of the biggest pharma markets in the world at $345 billion, with a growth rate of 2.4%, according to figures available with IMS Health; and in that region the United States dominates the market with $323 billion.

In the last three years, Indian drug makers have relished the opportunity emerging from patent expiry of blockbuster drugs such as Lipitor.

However Jeffries says the patent cliff, which will see drugs worth $80 billion going off patent, will last for three years, which will put the profitability of traditional products under pressure. "Companies will need to shift their focus to niche therapies which are difficult to break in," says Jeffries.
Mumbai-based Sun Pharma, which has the maximum number of Abbreviated New Drug Applications, or ANDA, filings in chronic diseases, says the US generic market historically has not grown fast and is likely to see low single-digit growth in the future. However, it says the impact of this on each of the Indian company depends on the products they have filed.

Increased competition also means companies venturing out of their comfort zone and looking for areas which generate revenues less than blockbuster drugs, but with less competition.

"We want to look at 10 new therapy areas every year," says Nilesh Gupta, group president and executive director, Lupin. The company in the last two years has been growing aggressively in oral contraceptive products in the US markets. Gupta says there are still areas such as asthma and specialised injectables that Indian companies can explore.

EMERGING MARKETS: THE SWEET PILL

However, as the developed markets slow down, companies with a large presence in emerging markets (EMs) will drive the sector. "EMs are growing much faster than developed markets, and companies will have to tailor their future strategy for EMs," says Ranjit Kapadia, vice-president at Centrum Capital.

Jeffries has estimated the EM pharma market to grow at 19% in the next two years. China, Brazil, India, Russia and South Africa make a giant market at $150 billion, with each registering 15-20% growth.

Jeffries concludes that the emerging market focus, coupled with niche therapy areas, will ensure that growth becomes less volatile for the companies and product portfolio and marketing will matter more than individual launches.