A second wave of generics opportunity

Posted AtEquitymaster.com

Generic companies thrive when a large number of drugs lose patents. This largely holds true in the US generics market. After all, it is the biggest pharma market in the world. At the same time, because of the big opportunity there, many generic companies have made a beeline for the US. And the result -competition in this space has intensified. And prices have crashed.

The only way to survive in this market then is to keep up the flow of product launches. And also identify products that have limited competition. The years 2006 and 2007 were particularly good for the global generics industry. This is when a large number of blockbuster drugs went off patent. After a lull, another generics opportunity now beckons especially for Indian pharma companies.

Between the years 2011 and 2013, a large number of drugs are expected to lose patents. These drugs represent US$ 80 bn in innovator sales. Thus, even after factoring in for competition and price erosion, the opportunity available is still better than what would have been otherwise.

Making the most of it

So how are Indian pharma companies geared to capitalise on this opportunity? The crux is ‘products with limited competition’.

In this regard, Dr. Reddy’s, Ranbaxy, Sun Pharma, Lupin, and Glenmark have some opportunities lined up. The biggest, however, seems to lie with Dr. Reddy’s and Ranbaxy.

• Dr. Reddy’s: The company has made a conscious effort of focusing on niche products so that revenue and profit potential is higher. The company has several such opportunities lined up over the next three years. These are products with exclusivity periods. Products which are difficult to manufacture. Products for which it has settled legal suits with innovator companies among others. Little wonder then that the domestic pharma major has touted the US market to be a major growth driver going forward. The company has envisaged generating sales to the tune of US$ 3 bn by 2013. And the US is expected to be a big part of it. The major challenge then to Dr. Reddy’s in this market will be delay in receiving approvals for all these products.


• Ranbaxy: The company had outlined a strategy of launching one product with the exclusivity window every year. And it was also able to strike deals in this regard. For instance, GSK Plc's 'Imitrex' was an opportunity in 2008. Then there was 'Valtrex' in 2009. 'Flomax' in 2010. And the biggest of them all 'Lipitor' in 2011. Not just that there is another opportunity in the form of 'Nexium'. The latter is the second largest drug in the world. The biggest problem for Ranbaxy is its ongoing troubles with the US FDA. And so even with an ompressive product line up, the launch of some them is uncertain. Take 'Imitrex' for example. The company lost out on the opportunity to capitalise on this drug as the approval from the US FDA got significantly delayed. The silver lining in the cloud is that it was able to launch 'Valtrex' on time. And thus amass substantial revenues from the same. Now ‘Lipitor’ beckons next year. Even though one can reasonably assume that Ranbaxy will do all that it can to make this launch happen, its fate will finally be decided by the US regulator.

It is becoming increasingly clear that Indian pharma companies will have to do something extra special. This is more so if they want to sustain their revenues and profits in the highly competitive US generics market. No longer is it a simple case of competing in the market only on the basis of price.

July 13, 2010