ChrysCapital invested $20 million in dermatology product maker Curatio Healthcare early this week, making it the 10th investment of the homegrown PE firm into Indian Pharma. Sanjiv Kaul, partner at the PE firm, has spent over 40 years in Indian pharma, including a 27-year stint in various leadership roles at erstwhile Ranbaxy Laboratories. Kaul, in an interview with Abhineet Kumar, talks about investment potential of Indian pharma. Edited excerpts:
Which are the key areas of interests in pharma for PE investments?
The formulations segment has traditionally been a thrust area for PE investments in India with emphasis on domestic consumption and generic exports. In recent times, contract manufacturing and Active Pharmaceutical Ingredient (API) have seen some traction, but it is still early to conclude whether the returns here have been as attractive as that for formulations. Lack of affordability, availability and accessibility results in creation of unmet local demand for patients in India. India’s leadership position in cost-efficient manufacturing of generics remains unchallenged.
What is your view on domestic pharma market against the backdrop of increasing price control?
I remain optimistic about the opportunities here in spite of the increasing span of price controls. Take a look at Mankind Pharma and see how well positioned it is in supply of quality drugs at affordable prices in India, simply because of economy of scale. In a developing economy like ours, where less than 50 per cent of the population have access to medicines, there is bound to be price controls. The question is how much? Any policy that has a negative bearing on the domestic business will weaken the industry on the exports front, which earns foreign exchange surplus in excess of $10 billion. Genericisation, alone, will not help if we don’t have the right ecosystem in place to manage it. We have an overburdened regulator, who is unable to effectively monitor as there are many pharma companies.
Indian pharma’s attempt at foreign acquisition has not brought significant results in 2017. What trend do you expect in 2018?
M&A appetite of Indian pharma has always been running high. Intas’ acquisition of Actavis assets in UK & Ireland was a big-ticket item in 2017. It still did not stop them from aggressively pursuing another big-ticket acquisition in the US, early this year. Indian pharma majors have become adept at deal making, which includes foreign acquisition, to bolster their market share or enter new therapeutic areas and complex generics or even acquire branding skills with specialty pharma. I expect 2018 to be no different than the preceding years for Indian pharma majors.
What is your view on pricing pressure on generic drug markets in the US?
It is here to stay for a longer time than we had earlier envisioned. Price erosion has been in excess of 15 per cent last year and will perhaps be at similar levels this year due to sales channel consolidation, US Congress crackdown on price hikes and a spurt in competition from newer entrants. The top four buyers in the US are powerful since they account for nearly 90 per cent of the purchases as compared to 50 per cent six years ago. Pharma companies that had significantly hiked drug prices during the period of shortage have had to face congressional hearings. This has left them scared to think of price increase.
Newer entrants have jumped into the generic market in the US by receiving quicker approvals and the only way they can compete is by reducing prices.
What is the way out for Indian phama companies exporting to the US against the backdrop of pricing pressure on generic drugs there?
While the generic pharma market in the US appears to be in uncertain territory, we shouldn’t forget that generics will typically follow the commodity supply-demand cycle. Excess supply leads to falling prices with lowered margins that results in companies exiting the space. This decline in supply causes unmet demands that leads to higher prices with increased margins. As a result more entrants would be attracted in the space. And so the generic cycle will continue. I expect that 2020 will see the price levels going up. With nearly $60 billion of low competition, high complexity drugs coming off patent in the next three years, new launches should contribute significantly to growth. Biosimilars can be a game changer in the near future but only one or two Indian companies will be poised to take advantage of this.