Pharma sector analysis_reprot_-_sample

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Pharma sector analysis_reprot_-_sample

  1. 1. PHARMA SECTORSeptember, 2011 Domestic• Growth in domestic pharma industry to slow down to 12-13% in 2011 due to weak macro factors and increase in competition from unlisted players and MNC pharma companies• Cut down the domestic growth estimates by 3-7% and earnings estimates by 2-9% for FY12 for Cipla, Cadila, Dr. Reddy, IPCA and WARNING Torrent .• Buy - Glenmark, IPCA Accumulate - Sun Pharma, Lupin Hold - Ranbaxy, Cipla, Dr. Reddy, Cadila, Torrent and Unichem CHALLENGESDeepak Malik AHEADSenior Research Analystdeepak.malik@emkayglobal.com+91 22 66121257Ashish ThavkarResearch Associateashish.thavkar@emkayglobal.com+91 22 66121254Bhavita NagraniResearch Associatebhavita.nagarani@emkayglobal.com+91 22 66242486
  2. 2. Pharma Sector Contents Pharma SectorSynopsis ......................................................................................................................................................................... 3Valuation ......................................................................................................................................................................... 4Domestic Formulations ................................................................................................................................................... 6 Domestic Formulations: Taking a breather .................................................................................................................. 7 Performance of Top Pharma companies ..................................................................................................................... 9 Company specific issues - What management has to say? ..................................................................................... 10 Pharma Industry : Recent Trends ............................................................................................................................. 11Key Factors Driving The Slowdown ................................................................................................................................ 12 Weakening macro factors to impact Indian Pharma growth ................................................................................. 13 Increase in competition has led to ramp-up of sales force ................................................................................... 14 MNCs getting aggressive .................................................................................................................................... 15 Pricing pressure on top brands ............................................................................................................................ 18 Anti-Infective Category – Therapy bifurcation ....................................................................................................... 20National List of Essential Medicines .............................................................................................................................. 22Impact of challanges ..................................................................................................................................................... 25 Indian Pharma growth slowing down .................................................................................................................... 26 Stress-Test on the profile of pharma companies .................................................................................................. 28 Rivision of estimates for domestic growth ............................................................................................................ 32 Significance of domestic business - Cash Cow ................................................................................................... 33 Revise in earnings estimates ............................................................................................................................... 34 Conclusion and Recommendation ....................................................................................................................... 35 CompaniesCadila Healthcare .......................................................................................................................................................... 37Cipla Ltd ....................................................................................................................................................................... 41Dr. Reddys Lab ............................................................................................................................................................. 45Glenmark Pharma ......................................................................................................................................................... 49GlaxoSmithKline Pharma .............................................................................................................................................. 53Ipca Laboratories Ltd ..................................................................................................................................................... 56Lupin Ltd. ...................................................................................................................................................................... 60Pfizer Ltd ...................................................................................................................................................................... 64Ranbaxy Labs ............................................................................................................................................................... 67Sun Pharma .................................................................................................................................................................. 71Torrent Pharma .............................................................................................................................................................. 76Unichem Labs ............................................................................................................................................................... 80Emkay Research 26 September, 2011 2
  3. 3. Pharma Sector Synopsis Last year, Indian Pharma industry grew by 16%, one of the highest growth rates in the world Pharma market. In the first two quarters Indian Pharma market growth has slowed Growth in domestic down to 13% from 16% in 2010. Domestic Indian companies are the ones which are pharma industry to impacted most by this slowdown in growth. slow down to 12-13% in 2011 due to weak In our report, "Domestic Pharma market", we have diagnose the challenges faced by macro factors and the Indian Pharma market, which was valued at USD 12 billion in 2010 and tried to increase in competition answer the following questions. from unlisted players What are the reasons for decline in the growth rate of Indian Pharma industry in and MNCs the first half of 2011? What is the impact of these factors on different pharma companies? Find out which company will outperform the industry growth rate? Our analysis shows that there is a high degree of correlation between macro factors, economic growth and Indian pharma industry growth. When the pace of economic reforms and economic growth slows down it impacts the pharma industry growth. Other reason was, every company has increased the strength of MRs in last two years and as a result there was a spurt of growth last year which is tapering down this year. Impact of slowdown in growth is more pronounced in mid and small cap companies and the companies which have more exposure in GP therapies, which is more susceptible to competition. Competition is increasing from low cost players like Mankind & Alkem labs in the mass product therapies like anti-infective. MNCs which were focused more on acute categories till now are increasingly launching products in chronic space & that too at competitive prices. To analyse the impact of these challenges on pharma companies’ domestic portfolio, we have devised the “4 Step Stress Test “ to find out how various companies will get impacted. Even though domestic business is only 20%-50% of the overall revenues, its contribution to the base business earnings is higher at 50%- 70%. ROCE of domestic business is much higher at 40%-60% compared to other businesses which have less than 20% and as a result multiples are mainly driven by domestic business. Our analysis suggests that Cut down the domestic any change in the domestic revenue has an amplified impact on the earnings and multiples growth estimates by 3-7% of the companies. and earnings estimates Pharma Companies which are mainly focused on domestic business will be the one by 2-9% for FY12 for which will get impacted the most like - Cipla, Torrent, IPCA and Unichem. Other pharma Cipla, Cadila, Dr. Reddy, companies which have sizeable opportunities in form of Para IVs and FTF in US will able IPCA and Torrent to cushion the impact like Ranbaxy and Dr. Reddy. Sun and Lupin have superior portfolio in domestic business with more focus on Chronic category and good opportunities in form of Para IV and FTFs. We have cut down the domestic growth estimates for Cadila, Cipla, Dr. Reddy, IPCA, Torrent and Unichem for FY12 and FY13 by 3% to 7% and earnings growth estimates by 2% to 9% & retained the growth and earnings estimates for Lupin, Ranbaxy, Sun, GSK and Pfizer. Buy - Glenmark and IPCA Accumulate – Lupin and Sun Pharma Hold - Cadila, Cipla, Dr. Reddy, Ranbaxy, Torrent and UnichemEmkay Research 26 September, 2011 3
  4. 4. Emkay Research Valuations Mcap EPS PE(x) EV/ EBITDA (x) ROCE (%) ROE (%) P/BV26 September, 2011 Company Name Rating (Rs bn) FY11 FY12e FY13e FY11 FY12e FY13e FY11 FY12e FY13e FY11 FY12e FY13e FY11 FY12e FY13e FY11 FY12e FY13e Cadila Healthcare Hold 165 33 36 45 25 22 18 17 15 12 29 29 31 39 31 30 7 6 5 Cipla Hold 228 12 14 18 24 20 16 17 15 12 17 18 20 16 16 17 3 3 3 Dr. Reddys Lab Hold 252 73 69 91 20 21 16 16 14 11 24 21 25 31 25 26 6 5 4 Glenmark Pharma Buy 87 17 24 24 19 13 14 18 10 10 11 20 18 21 28 22 4 3 3 Lupin Acc 212 19 22 26 25 22 19 19 15 13 24 25 25 30 27 25 6 5 4 Ranbaxy Labs Hold 200 25 31 41 19 15 12 15 10 8 17 18 22 35 21 22 4 3 2 Panacea Biotech Hold 8 22 15 12 6 8 11 6 7 7 14 10 9 20 13 10 1 1 1 Sun Pharma Acc 482 18 22 27 26 22 17 23 18 14 22 22 23 22 23 24 5 4 4 Torrent Pharma Hold 49 30 36 44 19 16 13 14 12 10 21 23 26 29 30 31 5 4 4 Unichem Labs Hold 13 11 9 13 14 16 11 9 10 7 20 15 19 16 13 17 2 2 2 IPCA Buy 34 18 22 28 15 12 10 11 9 7 21 21 23 24 24 24 3 3 2 Pfizer Acc 40 58 66 79 23 20 17 13 15 12 17 18 19 16 16 17 3 3 3 Glaxo Hold 170 68 78 86 29 26 23 17 15 13 47 48 50 30 32 34 9 8 8 Generics 149.2 31.0 34.2 41.1 20.3 18.0 15.0 15.0 12.7 10.5 21.8 22.2 23.8 25.2 22.9 23.0 4.6 3.9 3.3 Jubilant Life Sciences Buy 32 17 18 25 12 11 8 12 9 7 7 9 11 10 13 17 1 1 1 Divis Lab Buy 96 32 38 46 22 19 16 19 15 12 27 29 30 26 25 25 5 4 4 Aurobindo Pharma Buy 39 18 18 23 7 7 6 9 7 6 18 16 18 24 21 24 2 2 1 Dishman Pharma Acc 5 5 8 10 11 8 6 8 7 6 5 6 7 10 7 8 1 1 1 CRAMS 42.8 18.2 20.4 26.0 13.2 11.4 9.0 11.9 9.6 7.8 14.5 15.2 16.5 17.5 16.6 18.3 2.2 2.0 1.6 Pharmaceuticals 96.0 28.0 31.0 37.5 18.6 16.4 13.6 14.2 11.9 9.9 20.1 20.6 22.1 23.4 21.4 21.9 4.0 3.4 2.9 Pharma Sector Source: Emkay Research 4
  5. 5. Emkay Research Valuations Mcap Sales (Rs mn) EBITDA (Rs mn) EBITDA Margin (%) PAT (Rs mn) PAT Margin (%)26 September, 2011 Company Name (Rs bn) FY10 FY11e FY12e FY10 FY11e FY12e FY11 FY12e FY13e FY11 FY12e FY13e FY11 FY12e FY13e FY11 FY12e FY13e FY11 FY12e FY13e Cadila Healthcare 165 45,925 51,563 60,618 9,885 11,495 13,581 21.5 22.3 22.4 6,733 7,452 9,159 14.7 14.5 15.1 Cipla 228 63,180 71,863 83,325 13,375 15,444 18,765 21.2 21.5 22.5 9,692 11,395 14,169 15.3 15.9 17.0 Dr. Reddys Lab 252 76,558 86,552 97,044 17,121 18,008 22,407 22.4 20.8 23.1 12,314 11,695 15,374 16.1 13.5 15.8 Glenmark Pharma 87 29,491 36,475 39,323 5,923 9,520 9,437 20.1 26.1 24.0 4,532 6,477 6,413 15.4 17.8 16.3 Lupin 212 58,320 67,682 82,022 12,000 13,322 16,680 20.6 19.7 20.3 8,625 9,825 11,435 14.8 14.5 13.9 Ranbaxy Labs 200 85,355 97,660 118,963 14,136 18,602 24,310 16.6 19.0 20.4 10,347 13,147 17,206 12.1 13.5 14.5 Panacea Biotech 8 11,702 10,802 9,777 2,765 2,419 2,233 23.6 22.4 22.8 1,327 939 741 11.3 8.7 7.6 Sun Pharma 482 57,214 73,135 88,099 19,890 25,204 32,364 34.8 34.5 36.7 18,386 22,365 28,250 32.1 30.6 32.1 Torrent Pharma 49 21,825 24,201 28,242 3,652 4,470 5,352 16.7 18.5 19.0 2,536 3,051 3,738 11.6 12.6 13.2 Unichem Labs 13 8,240 9,322 10,846 1,500 1,403 1,915 18.2 15.1 17.7 951 817 1,210 11.5 8.8 11.2 IPCA 34 18,825 21,506 25,567 3,598 4,276 5,336 19.1 19.9 20.9 2,294 2,760 3,489 12.2 12.8 13.6 Pfizer 40 12,446 10,642 12,345 2,589 2,299 2,728 20.8 21.6 22.1 2,294 1,974 2,349 18.4 18.6 19.0 Glaxo 170 21,511 24,229 27,080 8,893 9,987 11,254 41.3 41.2 41.6 5,783 6,566 7,406 26.9 27.1 27.3 Generics 149.2 39,276 45,049 52,558 8,871 10,496 12,797 22.8 23.3 24.1 6,601 7,574 9,303 16.3 16.1 16.7 Jubilant Life Sciences 32 34,420 38,505 46,325 5,541 7,368 8,919 16.1 19.1 19.3 2,711 2,810 3,967 7.9 7.3 8.6 Divis Lab 96 13,181 16,087 19,284 5,025 6,200 7,620 38.1 38.5 39.5 4,293 4,976 6,145 32.6 30.9 31.9 Aurobindo Pharma 39 41,257 47,741 57,047 7,040 8,179 10,263 17.1 17.1 18.0 5,185 5,364 6,725 12.6 11.2 11.8 Dishman Pharma 5 9,908 10,777 11,772 1,622 1,951 2,190 16.4 18.1 18.6 437 648 774 4.4 6.0 6.6 CRAMS 42.8 24,692 28,278 33,607 4,807 5,925 7,248 21.9 23.2 23.8 3,156 3,450 4,403 14.4 13.9 14.7 Pharmaceuticals 96.0 35,845 41,103 48,099 7,915 9,420 11,491 22.6 23.3 24.1 5,791 6,604 8,150 15.9 15.5 16.2 Pharma Sector Source: Emkay Research 5
  6. 6. Pharma Sector Domestic Formulations: Taking a breather Performance of Top Pharma companiesDomestic Formulations Company specific issues - What management has to say? Pharma Industry : Recent TrendsEmkay Research 26 September, 2011 6
  7. 7. Pharma Sector Domestic Formulations: Taking a breather Indian pharma market (IPM), which had grown by 16% in 2010 has slowed down to 13.5% in the first half of 2011. This is as per AIOCD data, which is collected from secondary sources. However, if we see the performance of most of the pharma companies in the domestic space in the first half of 2011, then everybody has shown considerable decline growth. Primary data shows that the decline is much steeper. Most of the pharma IPM growth showing downward trend in the recent months companies have shown considerable 20.0 decline in growth in first 16.2 14.9 14.2 15.0 14.5 16.0 13.9 13.5 half of 2011 12.0 10.4 8.0 4.0 0.0 2006 2007 2008 2009 2010 MAT Q - Mar11 Q - Jun11 Jul11 Source: AIOCD AWACS, Emkay Research Therapy-wise growth trend FY10 Q-Mar11 Q-Jun11 Chronic 19.2 16.0 16.4 Acute 14.9 12.9 12.2 Overall 16.2 13.9 13.5 Source:Company, Emkay Research Slowdown in growth is visible across the Chronic and Acute categories even though the reasons are different for both the categories. In Acute segment, the therapies which are more commoditized in nature have seen Acute segment - The increased competition and price pressures, whereas in Chronic segment, it has been therapies which are more more due to macro economic factors. In the last 2 years everybody has increased its MR commoditized in nature strength and as a result, there is an increase in competition which is now taking its toll. have seen increased MNC pharma companies are expanding very aggressively in India and have very high competition and price aspirations for their Indian businesses. They are rapidly expanding their field force to pressures, whereas in extend their geographical reach. MNCs which have strong foothold in acute therapies, are Chronic segment, it was now aggressively moving into chronic therapies. In some of the products which are not more due to macro core to their business, they are entering with extremely competitive pricing versus Indian economic factors companies. All these factors together with weak macro economic outlook is adding to the slowdown in growth.Emkay Research 26 September, 2011 7
  8. 8. Pharma SectorTop 10 categories growth rate Rs Cr % Share YoY Growth (%) MAT Jul11 MATJul 11 MATJun 11 Jan11 Feb11 Mar 11 Apr11 May11 Jun11 M-Ju111Anti Diabetic 3358 6% 22.0 21.6 19.3 22.4 25.2 24.2 22.1 17.4Anti-Infectives 9681 17% 11.3 11.8 9.9 9.3 8.6 9.6 8.0 5.8Cardiac 6597 12% 18.2 17.1 17.2 17.4 17.6 19.3 17.5 14.6Derma 2813 5% 13.1 12.7 12.0 11.2 13.2 12.0 11.9 9.2Gastro intestinal 6563 12% 13.8 12.5 11.7 11.9 12.1 12.8 7.9 5.2Gynaecological 3538 6% 15.8 12.3 13.2 11.8 9.6 10.8 8.5 10.6Neuro / CNS 3463 6% 14.2 14.3 13.3 12.3 13.6 14.8 12.1 9.5Pain / Analgesics 4488 8% 14.1 19.8 11.1 6.7 10.9 13.6 12.2 7.6Respiratory 4469 8% 11.4 14.7 10.2 12.7 12.2 13.8 7.6 6.3Vitamins / Minerals 4678 8% 13.9 13.7 12.3 10.2 12.1 13.1 12.4 11.5Total 56483 14.5 14.7 13.0 12.4 12.8 14.3 12.1 9.6Source: AIOCD AWACS, Emkay Research If we evaluate the performance of the Indian pharma companies w.r.t different therapies, then anti-infective, pain, gynecology and gastro, show visible slowdown in growth. Anti- infective, pain and gastro which together contribute ~1/3rd of the total pharma market, are Anti-infective, pain, witnessing lot of competition from un-listed Indian companies such as Mankind. MNCs, gynecology and gastro which have strong hold in these categories, are now moving aggressively towards chronic show visible slowdown therapies, due to superior growth rate and higher entry barriers associated with this in growth category.Emkay Research 26 September, 2011 8
  9. 9. Pharma Sector Performance of top pharma companies Performance of top pharma companies Mankind 24% 22% Astra 34% 22% Pfizer 11% 14% Grow th in Q411 & Q112 Aventis 13% 12% YoY Grow th % GSK 11% 13% Torrent 9% 9% Ipca 5% 12% Dr. Reddy 5% 6% Lupin 37% 17% Glenmark 21% 20% Sun 15% 12% Ranbaxy 11% 8% Cadila 23% 8% Cipla 15% 10% Q4FY11 Q1FY12 Source: Emkay Research From the corporate performance of Indian Pharma companies in last two quarters, mid & small cap companies, have been the most impacted. MNC pharma companies continue to grow in line with industry growth of ~13%, except Astra which has grown by more than 20%. These MNCs are aggressively investing in branded generics and moving into newer therapies like CVS, CNS and anti diabetes. In a bid to increase their presence in some of the branded generics, MNCs have aggressively priced their products below their Indian counterparts. While this has not significantly dented market share, it is a precursor to the competitive intensity in the future. In small and mid cap companies - Unichem, IPCA and Torrent are the ones which have been impacted the most. And in large cap companies - Dr. Reddys, Ranbaxy & Cipla have been impacted. For the last 3-4 years barring 2009, most of these companies were growing above or in-line with the market growth on back of strong macro environment. Now unfavorable macro enviroment coupled with intense competition from unlisted players in some therapies of acute segment has made the market even more competitive.Emkay Research 26 September, 2011 9
  10. 10. Pharma SectorCompany specific issues - What management has to say?Cadila PfizerSales in Q1FY12 were lower as the company pushed inventory Above industry growth was led by volume increase (11% growth)into the market in Q4FY11 (registered YoY growth of 23%) in and price increase (3% growth). Although the anti-infectiveorder to achieve US$1bn revenue target. segment witnessed 12.5% growth on account of 3 new launches viz. Getex, Getex Suspension and Cefixime, management hasCipla admitted to increased competition in the anti-infectives andGrowth was below industry rate as the Acute segment the Vitamins/ Minerals segment.witnessed intense competition from industry peers during thequarter. Respiratory segment continues to do well for the Ranbaxycompany. India business (contributed 20%) grew below industry rate at 6% YoY, mainly led by anti-infective and gastro segment, whichDr. Reddys witnessed lower traction due to increased competition from itsIndia business which contributed 15%, grew at a lower rate of peers.6% compared to industry rate of 14% due to ongoing issues ofDCGI on the companys top selling pain brand Nise Sun Pharma(nimusulide). Domestic branded formulations grew 12% YoY due to discontinuation of third party sales and netting of VAT. AdjustingGlenmark for third-party sales, domestic revenues grew by 18% YoY.India revenues grew 20% YoY led by market share gains in keytherapies of anti-infectives, cardiac, respiratory, diabetes and Torrentdermatology & 2 new product launches i.e. Doriglen and Vorth The chronic portfolio, which contributes 60% of domesticTP in orthopedic segment. Management has guided for portfolio reported strong growth of 17-18% during Q1FY12.increased competitive pressures from unlisted players. As a However, acute therapy almost remained flat due to increasedresult, growth going ahead is expected to be in the range of 16- competition mainly in anti-infective and pain segments.17%. UnichemIpca Unichem has initiated inventory rationalization at the distributorLower growth was mainly due to decline in Anti bacterial (down level in order to improve internal processes and reduce inventory13%) and Cardiac segment (up 6%). Regrouping of sales rep by 21-30 days. This has led to 5% YoY decline in domesticand brands and high attrition rate also impacted growth. formulation revenues in Q1FY12. Among the companys top 10 brands, 6 brands reported negative YoY growth. ManagementLupin admits to increased competitive pressures from local as well17% growth was on account of new product launches and as MNC players.improved performance from the companys chronic portfolio.Emkay Research 26 September, 2011 10
  11. 11. Pharma SectorPharma Industry : Recent trendsKey trends Increase in Geographical Shifting disease Acquisition by Strategic tie-ups MR strength expansion profile MNCs Indian companies are Expanding their All companies, including Increasing prosperity & Acquisitions by MNCs to entering in to strategic presence in rural MNCs, have increased changing lifestyle - gain quick foothold in tie-ups with MNCs to markets (67% of the their field force in the propelling higher growth the fastest growing strengthen their product total population) last one year in the chronic segment Indian pharma market portfolioSource: Emkay Research Sun - Merck JV Lupin -Lilly Sun and Merck have formed a JV to develop, manufacture and Eli Lilly India and Lupin have entered into a strategic commercialize new combinations and formulations of collaboration to promote and distribute Lillys Huminsulin innovative, branded generics in the Emerging Markets. The range of products. Lupin will promote and distribute the range partnership will use Sun Pharma Advanced Research of products in India and Nepal and will double the number of Company Ltds proprietary platform technologies, and Sun sales representatives behind the diabetes care product. Pharmas world-class manufacturing network. Merck will use its clinical development and registration expertise to commercialize the products. Under the JV, Sitagliptin and Sitagliptin + Metformin have already been commercialized in the Indian markets. Cadila - Bayer JV Biocon - Pfizer Cadila and Bayer have formed a JV to distribute medicine in Biocon and Pfizer have entered into a strategic collaboration the Indian market. About 600 employees from both companies to commercialize Biocons bio-similar version of Insulin and will work for the venture. The venture will sell brands from Insulin analogue products such as recombinant human both companies, such as Bayers blood thinner Xarelto and insulin, Glargine, Aspart and Lispro. Pfizer will have the Cadilas Euglim for diabetes exclusive rights to commercialize these products globally including co-exclusive rights with Biocon in Germany, India and Malayasia. Universal Medicines- Aventis Sanofi Aventis has acquired Universal Medicines for over US$100mn. This acquisition is in-line with Sanofi-Aventis global strategy to expand its foot-print in the Emerging Markets. Universal Medicare manufactures markets and distributes branded nutraceutical formulations in India, including its popular cod liver oil capsules. This will help Sanofi to boost its over-the-counter business in India.Emkay Research 26 September, 2011 11
  12. 12. Pharma Sector Weakening macro factors Increase in competitionKey Factors driving MNCs getting aggressivethe slowdown Competition from unlisted players Pricing pressure in anti-infectives National List of Essential Medicines - Future impact analysisEmkay Research 26 September, 2011 12
  13. 13. Pharma Sector Weakening macro factors impacting Indian pharma growth IPM has a strong correlation with India GDP growth 10.0% 9.8% 9.5% 15.0% 16.2% 16.0% 9.0% 14.9% 12.6% 14.0% 14.2% 8.9% With rising interest rate, 10.4% 12.0% 7.6% the Indian economy is 8.0% 10.0% slowing down, resulting in 7.4% 7.0% 7.2% slower growth in Indian 8.0% pharma also 6.0% 6.0% 2006 2007 2008 2009 2010 2011 * GDP Gr % (LHS) IPM Gr % (RHS) * Project numbers based on historic GDP average and Emkay Economics Rise in disposable income and favorable income demographies are the major catalyst responsible for the growth of the Indian pharma industry. Within this, increase in disposable income is a larger contributor (approx. 40%). However, with rise in interest rate scenario, the Indian economy is slowing down and is expected to grow by 7.6% during 2011 as compared to 8.9% in 2010. Home loan EMIs are going up, salary growth has slowed down; as a consequence, the disposable income has also got impacted resulting in slowing the pace of the Indian pharma industry. According to Mckinsey report on Indian Pharma, rise in disposable income and upward shift in income demographies account for 40% of the Indian pharma market growth, as depicted below. IPM growth largely driven by rise in income levels 15% Rise in interest rates have impacted disposable 40% 10% income, which is the largest 15% growth driver of the Indian 20% pharma industry Others Increase in prevalence Insurance penetration Medical Infrastructure Income Grow th Source: Mckinsey Report on Indian Pharma With increase in interest rate, the capital expenditure for new medical infrastructure will also slow down as it is a capital intensive segment. Growth in insurance penetration will also slow down resulting in overall slow down in the growth of Indian Pharma.Emkay Research 26 September, 2011 13
  14. 14. Pharma Sector Increase in competition has led to ramp-up of sales force Pharma companies have ramped up their field force... 7500 4.8 Marketing Representatives Grow th Sales per MR Rates in % in numbers (at top of bar) 6000 1 21% . 4 4 3 4500 14% . . 2 Sales Forcce Numbers 13% 12% 47% 6 8 4 3000 3 7% 23% 4% 32% 1500 10% 8% 38% 36% 56% 26% 24% 4% 4% 5% 11% 0 Cipla Ipca Cadila Ranbaxy Lupin Torrent GSK Sun DRL Glen FY10 FY11 ...leading to pharma companies clocking good growth 30000 28 Domestic Revenues in Rs bn Grow th in domestic revenues in % 25000 24 Domestic Sales 14% 19 19 20000 16 16 17% 15000 12 20% 14% 8% 15% 8 8 10000 7 15% 10% 16% 15% 15% 12% 5000 14% 18% 10% 25% 11% 17% 20% 18% 0 Cipla Ipca Cadila Ranbaxy Lupin Torrent GSK Sun DRL Glen FY10 FY11 Some of the initiatives adopted by the Indian pharma companies in the domestic business – Pfizer Ranbaxy The company has launched two new The company launched Project Viraat divisions CNS and Diabetes and has in order to ramp up its presence across added 300 people across two the country, especially in rural areas. divisions. The company plans to launch This included introduction of new insulin products from Biocon’s portfolio products, increasing its field force and in the next quarter. This will help the targeting more than 350,000 doctors. company focus on branded generics and fill portfolio gaps. During the past 2 years, most of the Indian pharma companies have resorted to strong addition of MRs in order to give a boost to its domestic business. For e.g. Ipca Labs has added around 1,800 MRs to its force taking the total to 5,000 MRs, which is one of the highest in the industry. As a result, its domestic formulation business grew by 21% CAGR over FY09-11 to Rs7bn. Similarly, Cadila added around 1,550 MRs to its field force taking the total to 4,500 MRs by end of FY11, resulting in its domestic formulations business growing by 17% CAGR to Rs22bn. In contrast, dispite a meagre addition of just 200 MRs (taking its field force to 2,700) in last 2 years buy Sun pharma, its domestic formulation business has grown by 16% CAGR to Rs24bn. Going ahead, we believe all the domestic companies who have strengthed the field force to spurt up the growth will eventually witness a slowdown in domestic growth rates. In order to sustain higher growth rates of 15-16%, companies will have to increasingly focus on improving MR productivity by expanding to new therapies, newer markets and new launches. Companies like Sun pharma and Lupin with strong brand equity are likely to outperform.Emkay Research 26 September, 2011 14
  15. 15. Pharma Sector MNCs getting aggressive MNC pharma companies continue to growing in line with industry growth of ~13% except AstraZeneca which has grown by more than 20%. Major chunk of the portfolio of these MNCs is from acute category. In acute category, they are able to withstand the competition because of their superior brand strength. Going forward, competition will hot-up even in chronic category as these MNC’s are now increasingly focussing on chronic therapies. Pfizer GSK Pfizers current portfolio derives strength from Respiratory, Anti- GSK derives its strength from anti-infective, dermatology, pain infective and Vitamins/ Minerals segment. The acute segment & vaccines segments. GSK is the leader in the vaccine (contributes 87% of the domestic sales) is growing by 20% segment in India with an effective market share of ~20%. GSKs and the chronic segment (13% of domestic sales) is growing strategy has been to create portfolio of high value products. by 25%. With a view to improve focus on chronic therapy, Pfizer GSK has 4 business verticals namely, Vaccines, Specialties, has recently launched two new divisions - CNS and Diabetes Mass specialties and Mass markets. Glaxo Plc, the parent and has added 300 people across these divisions. The company, has outlined one of the most aggressive growth company will also be launching insulin products from Biocons plans for emerging markets, with India being one of the key portfolio in FY12. This will help the company focus on branded markets. The acute segment (contributes 95% of the domestic generics and fill the gaps in its portfolio. The companys six sales) is growing by 12% and the chronic segment (5% of key brands are in the list of top 100 in the industry. Becosules domestic sales) is growing by 12%. GSK has launched 2 and Corex are ranked # 1 in their respective therapeutic patented products from its parents portfolio i.e. Revolade (drug segments. for low platelets) and Votrient (metastatic renal cell carcinoma) in the oncology segment. Earlier, GSK had successfully launched an Onco product Tykerb in India in May 2008. According to the management, within the first year of its launch it self Tykerb has clocked revenue of Rs70-80mn according to the management and is expected to gain. MNC Pharma - Currently focussed on acute therapy 100% 80% 44% 60% 87% 82% 95% 40% 56% 20% 13% 18% 0% 5% GSK Pfizer Novartis Aventis Chronic % Acute % Source: AIOCD AWACS, Emkay Research MNC pharma companies continue to grow in line with industry growth of ~13%, except Astra which has grown by more than 20%. These MNCs are aggressively investing in branded generics and moving into newer therapies like CVS, CNS and anti diabetes. In a bid to increase their presence in some of the branded generics, MNCs have aggressively priced their products below their Indian counterparts. While this has not significantly dented market share, it is a precursor to the competitive intensity in the future.Emkay Research 26 September, 2011 15
  16. 16. Pharma SectorExhibit 5: MNCs are adopting aggressive pricing strategies in many of the new products Indian Company BrandsMNC Molecules Therapy Brand Name Pricing Company Brand Name Pricing PackGSK Atorvastatin Cardio Lilo Rs43 Ranbaxy Storvas Rs180 10 tablets 10 tablets Intas Lipicor Rs125 10 tablets Dr. Reddys Atocor R Rs110 10 tablets Cipla Atorlip - 5 Rs157 10 tabletsPfizer Rabeprazole Gastro Above 5 Rs24 Intas Raium Plus Rs55 15 tablets 7 tablets Cipla Rabicip - 10 Rs64 15 tablets Dr. Reddys RZ 20 Rs70 10 tabletsSanofi Metoprolol Cardio Sitelol Rs30 Cipla Metolar-XR Rs39 10 tablets 10 Capsules USV Metzok Rs30 10 tablets Sun Pharma ProlometXR Rs40 10 tablets Lupin Topol XL Rs40 10 tabletsSource: CIMS, Emkay ResearchEmkay Research 26 September, 2011 16
  17. 17. Pharma Sector New products launched by MNCs during the last 1 year New Launches Sales (Rs Cr) COMPANY BRAND Therapy MAT July 11 GSK Rosutec Hormones 1.80 (17 pdts) Calpol T Pain 1.53 Ansolar SPF Onco 1.28 Lilo 0.67 Modvate 3 Derma - antibiotics 0.43 Modvate AF Derma - antibiotics 0.22 Metlead Anti-diabetic 0.04 Total 5.98 PFIZER LTD Jetex Hormones 1.34 (29 pdts) Dolonat Derma 1.12 My Pal 0.99 Debrit 0.36 Vicon Iron supplements 0.32 Cytosar Onco 0.23 Maxtorin Hormones 0.21 Prostin VR Hormones 0.16 Atubri 0.12 Tuvace 0.12 Levefree 0.11 IMEDIAB M Anti-diebetics 0.10 Aivo 0.08 Imediab Anti-diebetics 0.07 Bidiab Anti-diebetics 0.04 Felban AL Hormones 0.02 Total 5.42 SANOFI-AVENTIS Solian 1.94 (18 pdts) Rejusite AI 0.59 Telsite h CVS 0.55 Multaq GI 0.52 Cardace Protect CVS 0.42 Amaryl P Anti-diabetic 0.41 Sitelol 0.18 Sofrahext 0.14 Sitestat F 0.11 Vitahext Vitamins 0.07 Menomune Onco 0.06 Fasturtec Onco 0.05 Sitelol am CVS 0.03 Cetapin V Anti-diebetics 0.02 Shanchol AI 0.02 Total 5.11 NOVARTIS Pactel CNS 2.05 (16 pdts) Aclasta Onco 0.86 Onbrez Breezhaler 0.85 Tacsant AI 0.11 Macalvit New Vitamins 0.09 Vingose 0.08 Afinitor Onco 0.05 Tminic Cold 0.03 Sacsecure 0.03 Calc(i)ayur 0.02 Certican 0.02 Calc(c)ayur 0.02 Total 4.20 Source: AIOCD AWACS, Emkay ResearchEmkay Research 26 September, 2011 17
  18. 18. Pharma SectorPricing pressure on top brandsTop Brands Company Year of Therapy Market MAT YoYMAT Jul 2011 Launch Share (%) ‘Jul 11 Gr. %Corex Pfizer 1993 Respiratory 0.5 210 -0.2Human Mixtard Novo Nordisk 1994 Anti-Diabetic 0.4 196 10.4Monocef Aristo Pharma 2001 Anti-Infective 0.3 187 11.9Voveron Novartis 1986 Pain 0.4 185 5.5Augmentin GSK 1992 Anti-Infective 0.4 177 6.1Revital Ranbaxy 1989 Vitamins 0.4 151 10.5Taxim - O Alkem 1998 Anti-Infective 0.3 150 17.7Taxim Alkem 1990 Anti-Infective 0.3 149 11.2Dexorange Franco Indian 1990 Vitamins 0.3 143 9.0Betadine Win Medicare 1990 Derma 0.3 142 10.7Asthalin Cipla 1993 Respiratory 0.3 142 11.5Storvas Ranbaxy-Stancare 1999 Cardiac 0.2 138 7.6Calpol GSK 1995 Pain 0.2 137 6.8Phensydyl Cough Piramal 1996 Respiratory 0.4 134 -25.8Zifi FDC 1999 Anti-Infective 0.3 134 6.2Liv - 52 Himalaya 1989 Gastro 0.3 123 22.4Becosules Pfizer 1989 Vitamins 0.3 119 13.4Zinetac GSK 1986 Gastro 0.2 117 5.3Mox Ranbaxy 1997 Anti-Infective 0.3 115 -2.1Source: AIOCD, Emkay Research Growth in Anti-Infective segment has slowed down during the past 2 quarters due to increase in competition and pricing pressure both from local peers as well as MNCs. Competition in the top 20 brands in Indian Pharma market is also increasing with average growth slowing down to single digit. Most of the products, which feature in the top 20 list belong to acute therapy. Companies like Mankind are increasingly targeting these products and launching cheaper alternatives. Not only Mankind Pharma but even MNCs have been launching many drugs at considerably lower prices. Pricing pressure in Ranbaxys Mox (Anti-Infective) -250mg Pricing pressure in GSKs Augmentin (Anti-Infective) - 15 strip capsules Amoxcillin + Clavulanic Acid combination 90 90 80 80 70 73% premium 70 34% premium 60 24% premium 60 50 25% premium 86 50 40 70 40 30 54 53 67 50 30 20 54 50 10 20 0 10 Mox- Novamox- Moxydil- Lupimox- Glamoxin- 0 Ranbaxy Cipla Solvay Lupin GSK Augmentin-GSK Clavam-Alkem Moxikind-MankindSource: CIMS, Emkay ResearchEmkay Research 26 September, 2011 18
  19. 19. Pharma SectorPricing pressure in NovoNordisks Human Mixtrad Pricing pressure in Abbotts Phaensedyl & Pfizers Corex(Anti-Diabetic) - 70:30 Isophane/ Soluble Insulin Syrup - 100ml SYR 250 80 200 79% premium 60 74% premium 150 37% premium 9% premium 40 100 218 70 64 159 45 122 20 40 50 0 0 Insuman Rapid- Human Mixtard Insugen-Biocon Phensedyl- Corex Ascoril- Codocuf- Sanofi Abbott Glenmark ZydusSource: CIMS, Emkay Research Doctor Visit – Key Notables We visited set of doctors who are providing services in big hospitals in Mumbai and also had their private practice. During our visit to some of the General Practitioners in Mumbai, we found that for most of the infections and general illness, they was prescribing Mankind medicines. E.g. most of anti-infective prescribed belonged to penicillin’s and cephalosporin’s category. During our interaction, we understood that Mankind gives superior incentives for each prescription written by the doctor. If the patients case is very serious, then higher class of anti-infectives i.e. Penem’s were prescribed by the doctors and that too only MNC brands. The reason cited was – MNC brands are original research molecules and so doctors comfort level is usually higher when prescribing these medicines. The line of treatment action begins with prescribing penicillin’s and cephalosporin’s (Mankind is the preferred company in the anti- infective space) and higher treatment uses penem’s where MNC drugs are preferred.Emkay Research 26 September, 2011 19
  20. 20. Pharma SectorAnti-infective category – therapy bifurcation Rs Cr YoY Growth % MAT’Jun 11 Gr. ContributorsGroups MAT’ % MAT’ Sept’ 10 Dec’ 10 Mar’11 Jun’11 Vol Price NP Jun11 Share Jun11 GR GR GRSystemic Antibacterials 8,596 91% 11.7 13.0 12.9 10.4 8.2 6.6 0.3 4.8Cephalosporins 4,191 44% 14.2 19.4 14.6 11.5 10.3 8.8 -0.5 5.9Broad spectrum penicillins 1,618 17% 9.5 14.4 5.1 9.2 9.4 6.5 -0.8 3.8Macrolides and similar types 1,092 12% 14.6 20.0 9.9 14.2 14.8 10.0 0.5 4.2Fluoroquinolones 1,070 11% 4.3 8.6 4.3 5.9 -2.5 -1.2 1.9 3.6Tetracyclines and combinations 123 1% 9.7 14.0 11.8 7.4 5.1 -2.0 2.8 9Others 502 5% - -26.3 71.1 6.8 -0.5 - - -Anti - fungals 237 3% 23.3 15.5 16.6 38.0 27.0 18.8 -2 6.4Antimyco - bacterials 395 4% 10.5 12.7 6.7 11.6 11.0 8.7 1.2 0.6Anti - virals 211 2% 19.1 13.8 15.6 25.2 21.9 8.7 0.2 10.2Total Sales 9,428 100% 12.0 13.0 12.8 11.3 9.1 6.7 0.5 4.8Source: AIOCD AWACS, Emkay Research Growth in anti-infective category is mainly coming from volume growth and new product launches. Failure to launch new products will make it difficult for the companies to match the industry growth. Cephalosporins which contribute ~ 44% to the Anti-Infective category was impacted most. Reasons for the slowdown in Anti Infective category are Weather patterns – Heat wave was not that strong in North Decline in API prices of Cephalosporins due to dumping in China Pricing pressure due to Increase in competition Lower success rate of new product launchesTop Companies in the Anti-Infective Category (Rs bn) Rs bn YoY Gr. (%)Anti-Infective MAT’Jun 11 MAT’Jun 11 Nov’10 Dec’10 Jan’11 Feb’11 Mar’11 Apr’11 May’11 Jun’11Ranbaxy 8.6 13.0 11.7 13.7 25.1 16.8 19.2 25.9 21.3 14.7Alkem 8.4 20.2 20.4 10.6 13.2 9.9 14.8 13.0 14.9 16.2GSK Pharma 6.6 10.0 7.0 4.9 10.0 13.9 8.5 12.7 14.9 10.4Cipla 6.4 8.3 15.7 0.1 3.2 2.2 5.2 -0.7 -7.6 -3.8Mankind 5.4 22.2 27.3 21.4 24.8 19.4 13.2 14.2 17.0 9.2Lupin 3.1 7.8 5.9 4.8 5.9 5.9 6.4 -0.3 3.5 -4.2Glenmark 1.5 10.5 6.8 4.3 9.0 15.1 -2.6 -0.8 11.8 1.1Zydus Cadila 1.2 -6.5 1.2 -7.4 -13.7 -18.4 -15.8 -2.5 -7.0 -8.9Dr. Reddys 1.1 6.7 7.4 8.3 21.3 9.9 6.2 -7.3 -1.6 -6.7Total AI 96.3 12.0 11.6 9.0 11.8 9.9 9.3 8.6 9.6 8.0Source: AIOCD AWACS, Emkay Research Most of the companies in Anti infective category barring Ranbaxy have been erratic in their growth. Ranbaxy, the largest company in category, grew in line with the industry, on the back of higher volumes (driven by increse in field force and new launches). Industry growth is mainly driven by unlisted players like Mankind and Alkem - evident from top 10 brand performance in this catagory.Emkay Research 26 September, 2011 20
  21. 21. Pharma SectorTop brands in anti-infective in Rs bnBrand Company Name MAT Value MAT Value YoY Gr. YTD YTD YoY Gr. June 11 June 10 (%) June 11 June 10 (%)Monocef Aristo Pharma 1.9 1.6 15.5 0.5 0.4 7.6Augmentin GSK 1.8 1.7 5.4 0.4 0.4 11.4Taxim O Alkem Lab 1.5 1.2 19.2 0.4 0.3 18.1Taxim Alkem Lab 1.5 1.3 12.5 0.4 0.3 1.9Zifi FDC 1.3 1.3 6.2 0.3 0.3 4.5Clavam Alkem Lab 1.2 1.0 24.9 0.3 0.2 29.5Mox Ranbaxy Lab 1.2 1.2 -0.3 0.2 0.2 -4.7Mikacin Aristo Pharma 1.1 1.0 10.9 0.3 0.3 -7.3Ceftum GSK 1.0 1.0 9.5 0.3 0.2 12.8Moxikind CV Mankind Pharma 1.0 0.8 20.9 0.2 0.2 20.5Total 96.3 85.9 12.0 22.3 20.3 9.7Top brands of Mankind – Strategic pricing has led to intense competition Other Indian Company BrandsBrand Therapy Pricing Company Brand Name Pricing PackMoxikind CV Anti-Infective Rs114 Ranbaxy Moxclav Rs403 10 tablets 6 tablets Aristo Mega CV Rs99 6 tablets Cipla Novaclav Rs240 6 tablets Abbott Nuclav Duo Rs206 6 tabletsBandy Plus Anti Parasitic Rs6 Zydus Biwom Rs11 1 tablet 1 tablet Lupin Lupibend Rs12 1 tablet Ipca Nemozole Rs12 1 tablet Dr. Reddy’s Rediout Rs35 5 tabletsUnwanted Kit Gynaec Rs335 Cipla MT Pill Rs331 1 tablet 1 tablet Zydus Mifegest Rs370 10 tablets FDC Undo Rs367 3 tabletsNurokind Plus Vitamins Rs36 Lupin Matilda Forte Rs103 10 Capsules 6 Capsules Zuventus Mecovon Rs90 10 CapsulesManforce Stimulants Rs142 Ranbaxy Caverta Rs173 4 tablets 4 tablets Lupin Enthusia Rs108 4 tablets Zydus Penegra Rs124 4 tablets Cipla Progra Rs108 4 tablets Mankind has been pricing its products at relatively lower rates as compared to other pharma companies in India. Mankind is particularly strong in commoditized therapies such as the anti-infectives, gynaecology and gastro which together contribute more than 50% of the domestic revenues. Mankind Pharma - Therapy-wise Revenue breakup Rs bn FY11 MAT MAT YoY % Contr. Jul’11 Jul’10 Gr. Anti-infectives 29.0% 5.4 4.5 19.4% Gastro 13.1% 2.4 2.0 23.3% Gynaecology 10.2% 1.9 1.4 30.8% Vitamins 7.8% 1.4 1.1 26.9% Stimulants 6.9% 1.3 1.1 15.6% CVS 5.8% 1.1 0.8 28.4% Pain 5.0% 0.9 0.8 17.8% Anti-Diabetic 3.3% 0.6 0.4 37.5% CNS 2.8% 0.5 0.4 22.2% Others 99.2% 18.4 14.6 25.7% Acute 86.4% 16.0 12.8 24.7% Chronic 13.6% 2.5 1.9 32.0% Total Sales 100.0% 18.5 14.7 25.7% Source: AIOCD AWACS, Emkay ResearchEmkay Research 26 September, 2011 21
  22. 22. Pharma Sector National List of Essential Medicines What is NLEM? Essential medicines are those that satisfy the priority healthcare needs of majority of the population. The essential medicines list needs to be country specific addressing the disease burden of the nation and the commonly used medicines at primary, secondary and tertiary healthcare levels. The medicines in National List of Essential Medicines (NLEM) should be available at affordable costs and with assured quality. The medicines used in the various national health programs, emerging and re-emerging infections should be addressed in the list. The Government of India, Ministry of Health & Family Welfare (MOHFW) is mandated to ensure quality healthcare by assuring availability of safe and efficacious medicines for its population. In a move that could bring more than half the country’s Rs 65,000-crore medicine market under price control, the health ministry plans to enlarge the scope and size of the National List of Essential Medicines (NLEM). Following a Supreme Court directive to include all NLEM drugs under price control, the central government is working out a new policy incorporating such changes. While the current NLEM list, prepared in 2003, does not have too many drugs to be included in the price control list, the revision will bring about a significant change. According to rough estimate, the government currently controls the prices of about 20 per cent of the domestic drug market. The span of price control will go up to 35 per cent once the drugs mentioned in the current NLEM gets included. Main features of NLEM 2011 The medicines have been categorized according to therapeutic area. Therefore, it is possible that a medicine with more than one indication appears in more than one category.The issue of mentioning the strength of the medicine dose was deliberated. The committee took the considered view that the strength should be mentioned in the NLEM. For essentiality of requirement the medicines have been categorized as follows: - P, S and T denote essentiality at Primary, Secondary and Tertiary levels respectively while P, S, T (U in NLEM 2003) indicates essentiality at all the levels. A total of 348 medicines (excluding repetitions) are present in NLEM 2011. In the NLEM 2011, 181 medicines fall under the category of P, S and T, 106 medicines fall under the category of S, T while 61 medicines are categorized as T only. In comparison to NLEM 2003, number of medicines deleted is 47 and 43 medicines have been addedEmkay Research 26 September, 2011 22
  23. 23. Pharma SectorRecently 43 new medicines added to NLEM ListMedicines Cadila Cipla Dr. Reddy Glenmark Ipca Lupin Ranbaxy Sun Torrent Unichem GSKAmoxicillin+Clavulinic AcidAtorvastatinBetamethasoneCarboplatinCefiximeCetrizenChlorambucilClindamycinClopidogrelDecarbazineDaunorubicinDiazepamEnoxaparinFamotidineFentanylFilgrastimHydroxychloroquine phosphateIfosfamideImatinibIpratropium bromideLeflunomideLorazepamMefloquineMesnaMisoprostolN-acetylysteineOlanzapineOxaliplatinPantaprazolePermethrinPiperazinePremix Insulin 30/70 InjPropofolStavudine+LamivudineTramadolVecuroniumZidovudine+Lamivudine+NevirapineTotal 15 14 6 4 2 10 5 7 6 4 6Source: Emkay ResearchEmkay Research 26 September, 2011 23

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