Indian Pharmaceutical Industry€¦ · ICRA RESEARCH SERVICES Generic opportunities outweigh...

Indian Pharmaceutical Industry

Emerging Economies Offer Attractive Growth Opportunities

ICRA RESEARCH SERVICES

ICRA RATING FEATURE

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What’s inside?

I. Executive Summary

II. An update on Emerging Markets with perspective on growth drivers & market potential

III. Impact of regulatory developments & market dynamics

IV. The Road Ahead… Annexure I: Snapshot of Indian companies in RoW markets


Executive Summary

INDIAN PHARMACEUTICAL INDUSTRY

Emerging Economies Offer Attractive Growth Opportunities Industry Update September 2015

ICRA RESEARCH SERVICES

ICRA RATING FEATURE Generic opportunities outweigh challenges emanating across emerging markets

With approximately 20% contribution to revenues of leading pharmaceutical companies, Emerging markets have

evolved to become an important market segment for Indian pharmaceutical industry. Although United States remains

the key growth driver, pharma companies have steadily expanded their presence across some of the key emerging

markets. Supported by acquisitions, geographic expansion and steadily expanding product portfolio, the top-10

pharma companies from India have achieved a CAGR of 21% in revenues from emerging markets over the past five

years (i.e. FY 2011-15).

Driven by improving affordability levels, government’s commitment to expanding healthcare access and rising

prevalence of lifestyle related disorders, the spending on pharmaceutical products in these markets is estimated to

touch almost to ~US$350-390 billion by 2019 according to IMS1. Much of this growth is likely to benefit the generic

segment which would gain traction on back of government-supported programs and cost competitiveness in markets,

which rely heavily on out-of-pocket spending for healthcare.

While the growth prospects in emerging markets remain undisputed, pharma companies also face their fair share of

challenges. Frequent regulatory changes, government’s intervention in drug pricing (to contain healthcare costs) and

efforts to promote usage of un-branded generics are some of the common themes influencing industry prospects. In

some countries, the regulatory framework has also evolved to favour local industry by implementing measures like

higher import duties, creating price differentiation and incentives to invest in manufacturing facilities, locally.

The impact of weakening macro-economic environment and political instability across some countries has further

added to set of challenges, which has got accentuated by the sharp correction in crude oil prices and its adverse

impact on exchange rates of some of the oil-dependent economies like Russia and Venezuela. The recent downgrade

for Brazil is also negative from the perspective of foreign exchange scenario. These trends are likely to impact margins

of companies in the near-term given the intensity of currency de-valuation and limited ability to implement price

hikes.

The competitive intensity in emerging markets is also on the rise. While on one hand, local players are moving up the

ladder in terms of R&D skills, MNC pharma companies are also increasing their focus on emerging markets in view of

single digit growth expectations in mature markets. Besides access to portfolio of innovator drugs, their presence in

emerging markets is also characterized by well established marketing network, a factor that is critical for developing a

branded generics business. 1 IMS Health is a leading global information and technology services company engaged in providing solutions in healthcare industry


Executive Summary

Despite challenges, Indian pharma companies would however continue to benefit from the growth opportunities that

emerging markets offer. With cost competitive manufacturing capabilities and many of the characteristics (i.e. high out-

of-pocket expenditure on healthcare and preference for branded generics) similar to the Indian market, Indian firms

remain in an advantageous position. Additionally, their relatively low market share also provides scope for market

traction going forward.

In the following report, we have presented an update on key emerging markets of Brazil, Russia, and South Africa along

with an update on Japan’s generic drug industry, which is going through another phase of government-led mandate to

increase generic penetration. With several key drugs also expected to lose patent protection over the near-term, the

pro-generic reforms provide adequate opportunities for generic drug manufacturers. At present, Indian companies

have relatively limited presence in Japan given the stringent regulatory framework. However, we expect them to

increase their focus going forward.

The report concludes with likely strategies that Indian companies would pursue in emerging markets. In our view,

acquisitions will play an important role given the long gestation period involved in establishing branded generics

business. To address competitive pressures, companies would also shift their focus towards niche therapy areas,

biosimilars and segments like OTC that offer greater pricing power. As regulatory framework in some markets supports

local manufacturing presence, we expect Indian companies to invest in Greenfield facilities as well in select markets.


Special Comment

Key Pharmaceutical Markets in Emerging Economies


Emerging Markets: Growth drivers & market potential

Key Pharmaceutical Markets

Economic development and efforts to improve healthcare access are likely to drive growth As per IMS, the spending on pharmaceutical products in emerging markets is estimated to almost double to ~US$350-390

billion by 2019 aided by improving affordability and government's commitment to expanding healthcare access. Despite some

of the key emerging markets currently going through a phase of slowing economic growth, pharmaceutical products in these

markets are expected to grow at a faster pace vis-à-vis developed markets given the relatively low spending on healthcare and

enhancement in public healthcare provisions. The growth in emerging markets is also expected to be driven by increasing

prevalence of lifestyle related health disorders. The generics segment is likely to be the key beneficiary in emerging markets as it

is expected to gain traction on back of government-supported programs and higher affordability especially in markets, which

depend to a great extent on out-of-pocket on healthcare spending.

US$ 271 billion Rest of the World markets in 2014

US$ 350-390 billion Rest of the World markets in 2019

5.5-7.9% Expected CAGR over 5 years

------------------------------------------------

Growth Drivers Improving affordability levels

Government reforms gradually

increasing reach and quality of

healthcare systems

Improving prevalence of

lifestyle related health disorders

Source: IMS Market Prognosis, 2015

Within RoW, some markets are defined as ‘Pharmemerging’ markets as those with US$ 1 billion+ absolute spending growth over

2013-17 and with a GDP per capita of less than $25,000 in terms of purchasing power parity. IMS has classified these markets as:

Tier 1 has China; Tier 2 comprises Brazil, India and Russia, and Tier 3: consist of Mexico, Turkey, Venezuela, Poland, Argentina, Saudi

Arabia, Indonesia, Colombia, Thailand, Ukraine, South Africa, Egypt, Romania, Algeria, Vietnam, Pakistan and Nigeria

Brazil Mexico Venezuela Argentina

South Africa Egypt Algeria Nigeria Saudi Arabia

China India Indonesia Thailand Vietnam Pakistan

Russia Poland Ukraine Romania Turkey


Emerging Markets: Snapshot of Key Markets

Abundant opportunities exist across markets… In the following exhibit, we have presented a comparative profile of some of the key emerging markets where Indian companies

currently have presence or have plans to expand their focus given the favorable growth prospects. While markets differ in terms

of growth potential and the extent of regulatory developments, some of key characteristics such as a) high out-of-pocket

spending on healthcare, b) greater usage of branded generics, c) physicians influence on buying decision and d) greater focus by

governments to enhance healthcare programs are common across most of the markets.

Exhibit 1: Comparative profile of various EMs

Key Indicators Brazil Russia South Africa MENA* Japan Indonesia

Market Size (in CY 14) US$ 26-30 Billion US$ 25 Billion US$ 3.5 Billion US$ 11-13 Billion US$ 88 Billion US$ 6.5 Billion

CAGR – 5 Years^ 17% 12-13% 8-10% 8-10% 12%

Nature of Market Branded Generics Branded Generics Branded Generics Branded Generics Branded (Patented) Branded Generics

Healthcare Spending

(As % of GDP)# 9.7% 6.5% 8.9% ~2-6% 10-11% 3.1%

Generic Share (%) ## 22% - ~27% - 25.9% 8% (Pure Generics)

75% (Brand Generics)

Out of Pocket Spending ~70% ~75% ~85% 75-90%

Regulatory Environment Pro-generic

Pro-generic;

Supports local

players

Pro-generic; Govt is

in the process of

implementing NHI,

which will support

generic penetration

Gradually evolving in

some markets,

becoming favorable

in favour of generics

Government plans to

increase generic

penetration to 80%

(in volume terms) by

2021

Govt. aims to

implement NHI,

which will cover 48%

of population in the

first phase

Local Competition

Branded generics is

dominated by local

players but MNCs have

strong presence in

innovator segment

Foreign players

dominate the

market with almost

3/4th of the market

South Africa has a

well established

local industry with

top-3 players being

domestic companies

Local competition is

limited in select

markets like Egypt;

All others are

dominated by MNCs

Entry of foreign

generic companies

has resulted in

consolidation

Relatively

developed

Pricing Mechanism

Govt. controlled;

Adjustments are annual

and linked to CPI

Free market pricing

for out of pocket;

Reference pricing for

FRP

Follows reference

pricing for generics

Varies across

countries but

generally reference

pricing

Price of generic drugs

are revised every two

years

-

Key Trends

Delays in product

approvals;

Competition from local

players is increasing

Government’s thrust

on increasing local

manufacturing

Pricing pressure in

the generic segment

is fairly common due

to benchmarking

Geopolitical

instability has been a

key issue off late

Pro-generic reforms

along with off-patent

opportunities driving

growth

Industry is likely to

benefit from govt.

roll out of national

healthcare program

Source: Industry, ICRA’s Research; ^ in local currency terms; * MENA – Middle East & North Africa (data for top-9 markets); # Data pertains to CY 2013; ## in value terms

In Russia, FRP refers to government procurement programmes


Trend across Key Emerging Markets

Key Trends in Russia & Brazil

Russia: Sharp currency depreciation impacted performance of Pharma Companies During CY 2014, the Russian Pharmaceutical market slowdown considerably on account of price controls and slowdown in

the overall economy that is heavily dependent on the Oil & Gas Industry. According to IMS Data, market grew by a

marginal 1% in volume terms, one of the lowest in recent years. However, in value terms, the market grew by 13% driven

by price hikes in the Retail and OTC segments.

Among Indian Pharma companies, Dr. Reddy’s and Sun Pharma (following Ranbaxy’s merger) have sizeable presence in

Russia and the CIS region. In FY 2015, Dr. Reddy’s generated revenue of US$ 284 million from Russia, which along with the

CIS region accounted for 58% of its business from EMs (excluding India). While Dr. Reddy’s journey in Russia has been

supported by focus on gaining traction in top-brands and building a strong OTC portfolio (36% of revenues), going forward,

it aims have presence in niche segments like oncology and biosimilars. In FY 2015, the company continued to outperform

the industry, registering a growth of 5% (in volume terms) and 13% (in value terms). However, in INR terms, its revenues

declined by 10% to Rs. 17.7 Billion primarily due to 22% depreciation in Russian Ruble.

Brazil: Growth momentum improved as companies adapted to changing business dynamics With an estimated market size of US$ 25-30 billion, Brazil is other major market within the EM space. Over the past five

years, the Pharma market in Brazil has grown at a CAGR (%) of 17% driven by improving access to healthcare (on back of

Government-led programmes), pro-generic reforms and improving affordability. Notwithstanding the growth potential,

the operating environment in Brazil has however turned challenging for Pharma companies over the past few years on

account of delays by regulatory agency in granting product approvals and increasing competition from local players.

Further, the increasing share of drugs falling under Government’s procurement programme and a shift towards un-

branded generics has hurt profitability in the branded generics space. The industry is also going through a phase of supply

chain consolidation with the entry of large wholesalers and acquisition of small pharmacy chains by bigger ones.

Among Indian Pharma companies, Torrent, Cadila Healthcare and Glenmark have sizeable presence in Brazil and other

LATAM markets. Till FY 2012, the aggregate revenues of these entities from Brazil grew at a healthy pace however it hit a

roadblock in the subsequent years primarily on account of lack of approvals (by ANVISA) and increase in competitive

intensity from domestic players.

The scenario improved in FY 2015 as company tweaked their business strategies and started focusing on scaling up

presence in other LATAM markets. For instance in FY 2015, Torrent’s revenues grew by 14% (in INR terms) as it gained

traction in some products (after implementing price correction), scaled-up generics business and also received new

product approvals. For Glenmark, the growth of 89% in revenues was driven by scale-up in Mexico, Venezuela and

Caribbean subsidiaries.

During FY 2015, performance of

Indian companies in Russia was

impacted by sharp depreciation of

Russian Ruble.

Among the leading players, Dr.

Reddy’s revenues from Russia & CIS

region declined by 10% in INR

terms but grew by 13% in local

currency terms

In Brazil, the delays in product

approvals by ANVISA, increasing

pricing pressure and a shift in favor

of Government procurement and

pure generics have surfaced as the

key challenges for branded generic

companies

To address these challenges,

companies have tweaked their

business models through greater

focus on niche launches, foray into

pure generics and diversification

into other LATAM markets


Trend across Key Emerging Markets

Key Trends in Japan & South Africa

Generic substitution in Japan has

improved from 33% (in 2005) to

47% (in 2013)

Government aims to achieve 80%

penetration by 2021

As per industry estimates, patented

drugs worth US$ 14-16 billion are

expected to go off-patent in Japan

Adverse impact of forex fluctuation

is mitigated to some extent by the

fact the domestic players operating

in South Africa also depend on

imported APIs, which become

costlier owing to currency

depreciation

Japan With a market size of US$ 88 Billion in CY 2014, Japan is the second-largest pharmaceutical in the world, behind United

States. However, usage of generics in Japan (47% in volume terms in 2013) is lowest among developed countries where it

ranges between 70-90%. This has largely been due to lack of pro-generic incentive programmes till 2002.

However, as part of its effort to reduce its healthcare spending, the Japanese Government has initiated series of reforms

from 2002 onwards to increase in generic penetration. The recent roadmap (implemented from April 2014) aims to further

increase generic usage to 80% by 2021 vis-à-vis 47% in 2013, which along with sizeable off-patent opportunities present

strong growth prospects for generic companies.

The generic pharmaceutical market in Japan is largely dominated by Japanese firms. However, over the years, generic

majors like Teva have increased their focus in Japan through in-organic investments. Among Indian firms, Lupin is the only

major player to have sizeable presence, which it has established through acquisition and further strengthened through

new product launches and backward integration into India. With revenues of Rs. 13.2 billion (10% of sales), Japan is the

third-most important market for Lupin after United States and India.

While growth prospects remains strong, the generic segment is Japan is exposed to biennial price cuts. During the last two

schedules, the prices of generic drugs were revised downwards by 6.3% (in 2012) and 2.7% (in 2014).

Apart from regular price cuts, stringent regulatory process for approvals is another key challenge of operating in Japan and

the primary reason for low participation of Indian firms. Given the long gestation period and country-specific nuances, we

believe acquisition is most preferable route for generic players to gain presence in the Japanese market.

South Africa Although a relatively small market (US$ 3.5 Billion in FY 2015), South Africa features among the top-3 export destinations

from India, behind United States and Russia. Over the past five years, pharmaceutical exports to South Africa have grown

at a CAGR (%) of 24% and were estimated to be around US$ 475 million in FY 2014 (8% of India's pharma exports).

Similar to other emerging markets, 'out of pocket' spending on healthcare accounts for almost 85% of industry sales in

South Africa. Nearly 40% of the private market is prescription driven, while OTC and generics contribute almost 27-28%

each. Driven by government's pro-generic reforms, the share of generics has however been rising steadily and is poised for

steady growth on back of gradual implementation of National Health Insurance (NHI) scheme.

Among Indian firms, Cipla is one of the leading players in South Africa owing to its acquisition of Medpro. Cipla Medpro is

the 2nd largest player in the generic segment and 3rd largest overall in South Africa. Apart from Cipla, Lupin also has a

considerable presence in South Africa by virtue of its acquisition of Pharma Dynamics (PD).

Although generic segment is poised for steady growth, weak economic fundamentals are likely to put pressure

pharmaceutical sales given the dependence on-out-of pocket on healthcare spending. The depreciation of South African

Rand is likely to further add to pressure on margins of pharma companies. Over the past 12 months, the Rand has

continued to trade weaker, declining by ~11% against major currencies.


Impact of regulatory developments & market dynamics

ment

Frequent regulatory interventions and price corrections have been common themes The operating environment across many of the emerging markets have become challenging over the past few years. Frequent

regulatory changes, government's intervention in drug pricing (to contain healthcare costs) and delays in product approvals

have become regular features. In certain emerging markets, the regulatory framework has also put in place barriers to support

domestic manufacturers against foreign competitions. These involve raising import duties, creating price differentiation and

other interventions to promote locally manufactured drugs. As a result of these factors, companies have taken longer than

expected to scale-up operations in some of the key emerging markets.

More recently, the impact of sharp correction in crude oil prices on macro-economic environment (leading to sharp currency

fluctuations) has further increased risk of operating in countries like Russia, Venezuela, and Nigeria. While economy related

headwinds may abate gradually, the impact of evolving regulatory landscape is likely to have longer-term impact on the

industry. Some of common developments that have been observed across markets include:

Exhibit 2: Key Developments across markets & its impact

Countries Key Developments Impact Analysis

Brazil

Slow pace of regulatory approvals by regulatory agency (ANVISA)

Increasing competition from local players, growing focus towards unbranded

generics and higher proportion of market coming under government tenders

Delays in product approvals has impacted scale-up for generic

companies, which along with increasing competition has led to

price erosion

Russia

Initiation of “Pharma 2020” strategy aimed at promoting local manufacturing

Tougher regulations on interaction between pharma companies and doctors

Weakening macro-economic environment & its impact of currency

Sharp depreciation of Ruble over the past couple of months is

likely to impact earnings of pharma companies operating in

Russia; Presence in the OTC segment provides opportunity for

companies to offset its impact by taking price hikes

Romania Introduction of higher “claw back” tax from 2012 onwards Increase in claw-back tax in Romania has impacted profitability

of pharma companies

South Africa Introduction of international benchmark for pricing, prohibition of medicine

supplies on incentive schemes and low price hikes on essential drugs

Relatively subdued price hikes on essential drugs and currency

depreciation impacts margins due to high import dependence

ASEAN Region Support for local manufacturing in Malaysia

Sharp price cuts led by government in Indonesia

Japan Regular price cuts every two years and stringent approval process

Impacts profitability

Stringent process delays approval process and sourcing from

low cost units

Australia

Sharp price cuts in generic drugs and implementation of price disclosure

system

Proposal to announce a co-pay of AU$ 7/per visit to doctors (at present – nil)

Despite several drugs going off-patent, the growth generic

segment was muted in CY 2013 due to sharp price erosion

Introduction of co-pay mechanism will impact prescriptions

and in turn demand for medicines

Source: ICRA’s Research


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US$ : Russian Ruble

US$ : Brazilian Real

US$ : South African Rand

US$ : Venezuelan Bolivar

US$ : Indian Rupee

Weakening macro-economic environment and sharp currency fluctuation could hurt earnings in the near-term

Emerging market currencies have weakened sharply vis-à-vis US$

Exhibit 3: Trend in currencies rates of key markets vis-à-vis US Dollar

Shift in favor of un-branded generics and increasing competition from local players and MNC pharma

companies could impact margins across emerging markets over the longer-term A bigger risk for branded generics business also stems from increasing focus on unbranded generics, tender-driven procurement

system and reference pricing mechanism to cut healthcare costs. Such interventions are expected to intensify going forward

and, therefore, may affect global pharmaceutical companies.

The competitive environment in emerging markets is also steadily increasing on back of rising interest levels of global majors

and strengthening capabilities of local companies. Although global majors operate primarily in the innovator segment but they

are steadily tapping the branded generics space through in-house generics arms and partnerships with local players. In most of

the emerging markets, such companies have been present for fairly long period and during this course they have developed

strong front-end presence.

Among key currencies, Russia’s

Ruble has depreciated by almost

50% over the past one year

Increasing focus in some markets

towards un-branded generics is

likely to add to profitability

pressures

Source: Bloomberg, ICRA’s Estimates


The Road Ahead…

Exhibit 4: Key acquisitions by Indian Companies in Emerging Markets (Indicative list)

Company Target Company Market Time Period Acquisition Rationale

Cipla Cipla Medpro South Africa July 2013

With the acquisition of Medpro, Cipla gained direct marketing presence in South Africa as

against its contract manufacturing relationship earlier.

Cipla is positioned as the 2nd

largest generic company in South Africa

Torrent Elder Pharma* India December 2013

Focused on acquiring key brands – Shelcal, Chymoral and Carnisure

Allowed Torrent to strengthen presence in the therapeutic areas of Women Healthcare,

Nutraceuticals and Pain Management

Lupin Laboratories Grin Mexico March 2014 Foray into the Mexican market

Acquired entity is the positioned as the 4th

largest player in the ophthalmology segment

Lupin Mediquimica Brazil May 2015 Foray into the Brazilian market

Lupin Biocom Russia July 2015 Foray into the Russian market with access to a local manufacturing unit

Source: Company Data, ICRA’s Research; * Acquired key brands of Elder Pharma

Acquisitions are likely to play an important role in scaling up presence in emerging markets Despite challenges, the emerging markets remain an attractive market segment for Indian pharma companies owing to

abundant growth opportunities. As most of these markets are branded generic in nature and structurally similar to India in

many aspects, the nature of the business is familiar to the Indian companies. Nonetheless, emerging market strategies need to

be tailored to country-specific nuances and evolve with changing regulatory landscape and competitive environment.

We believe the acquisitions will play an important role in scaling presence in emerging markets given the long gestation

period involved in establishing branded generics business. Indian companies have been scouting for medium-sized

assets that provide an established front-end marketing presence, complimentary product or therapy exposure and an

experienced management team with understanding of local dynamics. The exhibit below illustrates recent acquisitions

within the EM space by Indian companies:

Over the years, pharma companies have also relied on partnering with global majors to penetrate emerging markets. A

JV/alliance with leading MNC pharma companies can be win-win situation as both partners can capitalize on each

other's strengths. While Indian companies offer their product development and manufacturing capabilities to these

partnerships, global majors leverage on their strong R&D, marketing and distribution network.

After an initial thrust on acquisitions, such partnerships have become fairly common in emerging markets for both

medium as well as large Indian firms. Among leading players, while Dr. Reddy's tied-up with GSK to market over 100

drugs in select markets, Sun Pharma also formed a JV with Merck to develop and sell drugs in EMs.


The Road Ahead…

Though these strategic partnerships are positive for the companies, given the regulatory framework for product

approvals and initial gestation period, upside for Indian firms have taken longer than expected. Some of the companies

have also clearly laid out plans to build their own front end in some key markets.

As regulatory framework in some markets favors local manufacturing presence, we expect companies to also pursue

investments in setting-up units locally in markets that are strategic to their long-term plans. Among key companies,

Ranbaxy has been setting-up local manufacturing units in some markets in Africa as well as Asia Pacific. We believe this

trend is likely to gain pace especially in markets like Russia, Brazil etc which have implemented measures to promote

local manufacturing.

To address competitive pressures and increasing thrust on un-branded generics in many markets, companies are also

gradually shifting their focus on niche therapy areas that have limited competition owing to high entry barriers on

account of complex development or manufacturing techniques. Glenmark for instance is focusing on expanding its

pipeline with respiratory and dermatology products to offset pricing pressures in Brazil, while companies such as Dr.

Reddy's, Cadila and Biocon are focusing on scaling up their biosimilars portfolio in emerging markets. After introducing

its first biosimilars (Rituximab) in India in 2006, Dr. Reddy now markets a portfolio of four biosimilars in markets like

Peru, Sri Lanka and is in advanced stage of introducing its portfolio in Russia & CIS region.


Annexure I: Snapshot of Indian pharma companies in RoW markets

Exhibit 5: Comparative profile of Indian companies in RoW markets^

Company Cadila Healthcare Cipla Dr. Reddy’s Glenmark IPCA Labs.

RoW Revenues (in FY 2015) Rs. 6,676 Mn Rs. 35,694 Mn Rs. 27,178 Mn Rs. 13,915 Mn Rs. 8,149 Mn

Revenue growth – CAGR (FY 2011-15) 8% 19% 21% 20% 20%

RoW (as % of total revenues) 7% 39% 21% 24% 20%

Key Markets Brazil (37%)

Mexico

South Africa (34%)

Rest of Africa

LATAM

Russia & CIS (58%)

Venezuela

S. Africa & Australia

LATAM (48%)

Russia & CIS

Africa (53%)

CIS (24%)

Asia Pacific (9%)

Cadila Healthcare:

Cadila generates nearly 37% of its RoW revenues from Brazil. In line with changing market dynamics, the company’s performance in Brazil has been impacted by

delays in product approvals and pricing pressures. Accordingly, the company has initiated several steps to optimize its cost structure, sales force effectiveness and

inventory management. Cadila also entered Mexico in FY 2014 and is currently in the process of expanding its presence in the CVS and primary care segments.

Apart from Brazil, the company’s revenues are fairly well spread across Asia Pacific, Middle East and Africa. Cadila also has a tie-up with Abbott for some of the EMs

Cipla:

Among leading pharma companies, Cipla has the highest exposure to emerging markets. With the acquisition of Medpro (in FY 2014), South Africa became the most

important market for Cipla among EMs. Cipla Medpro is positioned as the 2nd

largest generic company in South Africa with market share of ~16% (as on June 2013)

Apart from South Africa, the company has also fairly strong presence in the rest of Africa with portfolio focused on ARVs, Anti-Malaria and Gynecology segments.

Traditionally, Cipla has confined itself to low risk partnership model for exports business. However, recently, the company has changed its strategy and has started

investing developing front-end presence across markets. Medpro’s acquisition was a step in this direction.

Dr. Reddy’s:

For Dr. Reddy’s, Russia & CIS is the most important market segment after U.S. and India. It generates almost 60% of its RoW revenues from the region. So far, DRL

has focused on increasing market traction in its key brands (i.e. Omez, Nise, Ketorol, Ciprolet etc.) and building a strong OTC portfolio (36% to its revenues from

Russia). However, going forward, it aims to build a portfolio of ‘differentiated’ and ‘complex’ products with focus on oncology and biosimilars.

Some of the other markets where DRL has direct presence include – Venezuela, South Africa and Australia. In South Africa, it is positioned among the top-10 players

in the generic segment. For other EMs, the company’s presence in marked through its alliance with GSK.

Glenmark:

Glenmark generates slightly over 1/5th

of its revenues from RoW markets with Latin America contributing almost 48%. The key market for Glenmark within LATAM

is Brazil wherein it is in the process of expanding its portfolio in some of the niche/difficult to develop therapy segments like Oncology, Respiratory and

Dermatology. The company is also expanding its business in other LATAM markets like Mexico and Venezuela.

IPCA Labs:

For IPCA, Africa is the most important market within RoW. Over the past six years, the company’s revenues from Africa have grown at CAGR of 18% driven by

expanding market penetration and product portfolio.

Source: Company Data, ICRA’s Research; ^ RoW Markets exclude – India, United States and Europe


Annexure I: Snapshot of Indian pharma companies in RoW markets

Exhibit 6: Comparative profile of Indian companies in RoW markets^

Company Lupin Sun Pharma Torrent Pharma Wockhardt

RoW Revenues (in FY 2015) Rs. 24,522 Mn Rs. 60,646 Mn Rs. 9,930 Mn Rs. 3,120 Mn

Revenue growth – CAGR (FY 2011-15) 28% 72% 15% 10%

RoW (as % of total revenues) 19% 22% 22% 7%

Key Markets within RoW* Japan (54%)

South Africa (17%) Not Available Brazil (61%) Not Available

* Figures in bracket represent revenue contribution to RoW sales

Lupin:

After U.S. and India, Japan is the third-largest market for Lupin, contributing 10% to its sales. Over the years, the company has scaled-up its presence in Japan on

back of two successful acquisitions, product portfolio expansion and sourcing from its Indian units. Apart from Japan, Lupin also has presence in South Africa,

Philippines and Australia. In all these markets, the company made its presence through acquisitions and has gradually scaled-up its presence through portfolio

expansion.

In FY 2014, the company also ventured into Latin America, a region where it do not have meaningful presence. It acquired Laboratories Grin S.A. (Grin), which is

positioned at 4th

largest ophthalmic player in Mexico. More recently, Lupin also forayed into the Brazilian market with the acquisition of an entity – Mediquimica. In

CY 2014, Mediquimica had revenues of US$ 31 million with business mix spread across branded generics, pure generics and OTC. In its pursuit to expand presence in

EMs, Lupin also recently ventured into Russia following the acquisition of a company called – Biocom. The acquisition provides Lupin both ready portfolio of

branded generics (with focus on CVS, CNS and Anti Microbial) as well as manufacturing footprint.

Sun Pharma:

Post merger with Ranbaxy, Sun Pharma’s emerging market presence has got strengthened given Ranbaxy’s strong and well diversified presence across many of the

markets in Africa, Asia Pacific, and Russia & CIS region. In FY 2015, the RoW segment (which includes revenues from Western Europe) contributed 22% to Sun

Pharma’s revenues as compared to 12% in FY 2014.

Torrent Pharma:

Among EMs, Torrent has strong presence in Brazil, which contributes nearly 60% to its revenues from RoW region. Like others, Torrent’s performance in Brazil has

also been affected by industry-wide factors like delays in product approvals and pricing pressures. To offset the impact of these issues, the company has started

diversifying its presence in Brazil by entering the pure generics segment, institutional sales as well as taking price cuts to compete more effectively.

Source: Company Data, ICRA’s Research; ^ RoW Markets exclude – India, United States and Europe


Analyst Contacts

Name Telephone No. E-mail Id

Shamsher Dewan +91 124 4545 328 [email protected]

Ravi Kabra +91 20 2556 0915 [email protected]

Kinjal Shah +91 22 6169 3326 [email protected]

Gaurav Jain +91 20 2556 0195 [email protected]

Khushboo Shahani +91 22 6169 3365 [email protected]

Purva Paranjpe +91 22 6169 3359 [email protected]







ICRA Contact Details

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BANGALORE Mr. Jayanta Chatterjee Mobile: 9845022459 'The Millenia', Tower B, Unit No. 1004, 10th Floor, Level 2, 12-14, 1 & 2, Murphy Road, Bangalore - 560 008 Tel: +91-80-43326400, Fax: +91-80-43326409 E-mail: [email protected]











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