Indian pharma grows on acquisitions, outsourcing

27 March 2007 10:38 [Source: ICIS news]

SINGAPORE (ICIS news)--India’s pharmaceutical companies are on a roll. While generic drug makers are acquiring overseas assets, active pharmaceutical ingredient (API) and formulation makers are eyeing the burgeoning outsourcing market.

India’s Glenmark Pharmaceuticals said on Monday it bought a majority stake in Medicamenta, a Czech generic drug company with operations locally and in Slovakia. Glenmark declined to disclose the cost of the acquisition.

Other Indian pharmaceutical companies on the acquisition trail include Ranbaxy Laboratories and Cipla, which have submitted bids to buy the generic unit of Germany’s Merck KGaA.

“We expect this trend to continue in the mid-term,” said London-based Jamie Davies, head of pharmaceuticals at Business Monitor International (BMI). “Indian drug makers are looking at under-penetrated and high-growth markets to generate revenue.

Indian companies enjoy low costs and are able to tap their target companies’ local knowledge, which allows them to realise higher margins than generic drug makers from developed countries, Davies adds.

Davies said Medicamenta owns and sells generic brands such as Ataralgin, Medipyrin and Superpyrin in the Czech Republic and Slovakia. He predicted the brands to post compound annual growth rates of 9.1% in the Czech Republic and 7.4% in Slovakia up to 2011.

Other markets that Indian generic drug companies have been expanding into include Brazil and the Middle East, where they compete with established pharmaceutical multinational companies.

In 2006, generics accounted for more than half of the volume of pharmaceutical products sold in seven key global markets, including Canada, France, Germany, Italy, Spain, the UK and the US, according to a recent report by pharmaceutical consultancy IMS Health.

The study also said India’s pharmaceutical industry was one of the world’s fastest growing markets last year, with sales jumping 17.5% from a year earlier to $7.3bn (€5.5bn).

China and India are the Asia leaders in API manufacturing and formulations as low costs and the availability of technical expertise attract multinational pharmaceutical drug companies, with European and North American API manufacturers losing business to their Asian counterparts.

For Nicholas Piramal India, API manufacturing and formulations combined is the company’s “single largest driver of growth”, accounting for about 40% of the company’s annual sales, said Michael Fernandes, executive director of its custom manufacturing business.

The global outsourcing market for APIs and formulations is worth about $15bn, Fernandes added.

Nicholas Piramal sources its raw material in China because of lower costs and manufactures APIs for its clients in India, he said.

India’s booming pharmaceuticals industry has also attracted diversified US chemicals company FMC Corp. The company said last week it plans to set up its first factory near Hyderabad to manufacture organolithium compounds used in the bulk drugs industry.

Other potential areas of growth include offshore research and development as well as biosimilars, or medicinal products developed through biotechnology such as insulin and the human growth hormone.

“Biosimilars are our top growth prospect,” said BMI’s Davies. “With a total value of $20.2bn in annual global sales – insulin, epoetin, interferon alpha and interferon beta – are all now susceptible to competition from biosimilars.”

Analysts said lax patent protection and strict price controls in India could spook multinational drug companies from increasing investment in key areas such as R&D.

Novartis is challenging the Indian government’s patent law following the latter’s decision to decline a patent for its cancer drug Glivec.

The impasse mirrors the situation in Thailand surrounding Abbott Laboratories. The US drug maker said earlier this month it would not launch new drugs in the country after the Thai government decided to revoke its patent for its AIDs medication.

Still, BMI’s Davies is optimistic that the situation in India will improve. “We expect India to fall in line with respect to international intellectual property standards,” Davies said.

The full article will be published in the 2 April issue of ICIS Chemical Business.

($1 = €0.75)

By: Cheok Soh Hui
+65 6780 4359

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