Cipla partners Aspen for Australia foray

The move follows a recent buyout by the latter in Australia

Drug maker Cipla is partnering South Africa’s Aspen Pharmacare to cater to the Australian market, it is learnt. Under the pact, Cipla would develop generic products, to be launched by Aspen in Australia.

A source privy to the development told Business Standard, currently, the two companies were identifying products for commercialisation.

The move follows a recent buyout by Aspen in the Australian pharmaceutical space. The company had acquired the over-the-counter and pharmaceutical divisions of Australian drug maker Sigma Pharmaceuticals for $800 million. Analysts suggest such a deal with Cipla could help Aspen augment its offerings, while keeping the development cost low.

Cipla, which has traditionally supplied low-cost generic drugs to foreign partners, may see a rise in its export revenue once the joint venture is operational. In 2011-12, Cipla’s formulation exports stood below expectations, growing a mere seven per cent.

Cipla did not respond to an e-mail questionnaire sent to it.

Shares of Cipla on Tuesday closed at Rs 359.90 on the BSE, up 1.4 per cent from Friday’s close.

Analysts say the deal is significant for Cipla, as this would give the company “the first mover advantage”, since most pharmaceutical companies are still focused on developed markets like the US and Japan. Africa, Russia and Brazil are likely to be the next destinations for Indian pharmaceutical majors. “Not many Indian companies are present in Australia. So, Cipla would have that advantage, and its strategy has always been to look at emerging markets. Though there may not be a significant gain for Cipla in the near future, it will definitely benefit from the deal in the longer term,” a sector analyst said.

Compared to those in the US and other developed markets, the pharmaceutical market in Australia is relatively smaller, at about $20 billion annually, and is growing at single-digit rate. However, analysts say it could be a lucrative market for companies manufacturing low-cost products. “So far, Australia has been largely an innovator-product driven market and has mostly been dominated by multinational companies. But, with a large number of branded drugs facing patent expiry in the immediate future, it presents opportunities for the generic sector. Also, there is an increasing attempt to keep the prices of medicines low,” says Ashish Mehra, managing director, Strategic Decision Group.

As in the US, pharmaceutical benefit managers are promoting generic medicines in Australia to reduce healthcare costs. “They are even incentivising pharmacies to substitute expensive drugs with generics. More than 90 per cent of the doctors are comfortable with this,” says Mehra.

“For a company like Cipla, which has developed brands in generics, this is a very good opportunity. Now, with their new SEZ (special economic zone) manufacturing facility, they can quickly pick up volumes and get operating leverage,” another analyst said. Unlike other Southeast Asian countries that have local generic players, Australia has very few generic drug makers, says Mehra. This creates an opportunity for Cipla, which is among the early entrants there.

According to the source, Cipla was also eying similar deals in the near future.