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| Performance-enhancing drugs for your portfolio |
| Ram Prasad Sahu / Mumbai Sep 30, 2010, 00:11 IST |
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Rising share in the US generics market and off-patent opportunities should benefit top Indian drug makers.
The BSE Healthcare index has been one of the star sectoral performers over the last year, giving 37 per cent returns compared with the Sensex’s 18 per cent. A part of this jump has been due to strong domestic demand, increased outsourcing activity and favourable rupee movement, all of which have helped boost revenues and profits of pharma companies. A key growth driver now and in the near future is likely to be the US generic market opportunity, believe analysts.
Large, expanding market
Indian companies have cornered about 15 per cent market share of the US generics market. The market is expected to grow at about 8 per cent annually over the next three-four years. Given that over a third of the total ANDAs (abbreviated new drug applications) filed in the US are from Indian manufacturers and the increasing pipeline of off-patent drugs, expect the share of Indian companies to improve further in the time to come. In the next two-three years, about 26 blockbuster medicines worth over $96 billion are going off-patent in the world’s largest drug market.
Rising market share
IMS data shows that Indian companies have improved their share in the US generics market from 13.2 per cent in August last year to 14.9 per cent in August 2010. Amar Ambani, Head-Research (India Private Clients), India Infoline group, believes that Indian pharma companies would increase their market share driven by patent expiries and measures by the US government to reduce health care costs.
TOP EIGHT INDIAN PLAYERS
IN THE US MARKET |
| in Rscrore |
Sales |
Ebidta (%) |
PAT |
EPS (Rs) |
P/E (x) |
| Lupin |
6,745 |
20.90 |
1,014 |
22.20 |
17.50 |
| Glenmark |
3,410 |
27.30 |
555 |
20.90 |
14.10 |
| Sun Pharma |
5,397 |
34.70 |
1,792 |
86.50 |
23.10 |
| Ranbaxy |
10,787 |
21.20 |
1,060 |
30.50 |
18.20 |
| Dr Reddy's |
9,063 |
21.80 |
1,345 |
79.50 |
18.40 |
| Cipla |
6,979 |
25.10 |
1,344 |
16.90 |
18.80 |
| Aurobindo |
4,862 |
22.70 |
685 |
117.80 |
8.80 |
| Cadila |
5,128 |
22.10 |
787 |
38.50 |
17.20 |
| All figures are 2011-12 Bloomberg estimates |
Ambit Research says the top eight Indian companies, which have grown at a 40 per cent CAGR during FY06-10, will continue their growth momentum despite severe price erosion, the threat from Chinese players and FDA-related compliance issues.
Further, while companies such as market leader Teva are many times the size of Indian companies, the latter have developed sufficient competencies and the scale to compete and gain from the opportunities, believe analysts. Among the top Indian companies, analysts are betting on Sun Pharma, Lupin and Dr Reddy’s owing to their ANDA product pipeline, new product launches, scale and backend integration.
Says Nilesh Gupta, Group President & Executive Director, Lupin, “The Indian Pharmaceutical companies have emerged as the fastest growing generic companies in the US driven by new product launches and market-share gains. As the market expands due to generic utilisation and patent expiries, this share will increase.”
We review the prospects of key players.
Ranbaxy
The stock has been in the news because of the USFDA approval to Ranbaxy ANDA on Alzheimer’s drug Aricept. The product is expected to fetch the company over $230 million and $110 million in revenues and profits, respectively, in the six months following the expiry of patents in November 2010. Emkay estimates that given Ranbaxy’s pipeline and FTF (first-to-file) opportunities, the company could garner revenues of $1.7 billion (during the exclusivity period) over the next few years for drugs including Lipitor, Nexium, Diovan and Actos. The stock, which touched its 52-week high recently, is expensive at current levels. Buy on dips.
Dr Reddy’s Laboratories
New product launches (about 8-10) and market-share gains from Prilosec (for heart burn) is expected to help boost the US generic business of Dr Reddy’s in 2010-11.
Its ANDA pipeline now stands at about 73. Approval of the generic Arixtra (anti-coagulant) in the December quarter and the launch of a couple of products with limited competition over the next couple of quarters will help the company boost its revenue growth in the current fiscal. In addition to about 18 per cent revenue growth in its India and emerging-market business, especially in Russia, the company expects cost-cutting measures at its German business to help it improve operating-profit margins. Expect 20 per cent returns from these levels over the next one year.
Sun Pharma
The stock has been in the news after the company acquired management control in Israel-based Taro Pharma. Taro’s product portfolio of dermatology, topical and OTC drugs is likely to complement Sun’s own generic portfolio in the US market. Further, Taro’s cumulative ANDA count for 2009 stands at 123. While Edelweiss estimates Sun’s core earnings to grow at 34 per cent over the next two years (including incremental sales from new products in the US generics space), the biggest hurdle for the company has been the FDA issues at its US subsidiary Caraco.
If resolved, this could add about $60 million of sales for 2011-12. The stock is trading in the expensive territory. Avoid for now.
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