The Indian pharma growth story could not have got a more opportune time to unfold. Impending patent expiries, regulated markets gradually opening their markets for generic products and the US passing the much-awaited Healthcare Bill in order to cut down healthcare costs are turning out to be a boon for generic companies in India. And the proof is the way investors are lapping up pharma stocks on the bourses. While valuations of the sector appear to be strained, there is still room for value buying from the current gamut of stocks of small and large pharma companies.
Industry experts have heralded the five-year period between FY10 and FY15 as the golden period for generic companies in view of the patent expiries worth $100-150 billion. Nearly 40 Indian companies are geared up with US FDA approved facilities and Abbreviated New Drug Applications (ANDA) approvals to meet the huge opportunity.
The passing of the landmark Healthcare Bill in the US holds a lot of promise for generic companies. With emphasis on increasing the coverage of health insurance and cutting down costs of healthcare, the Bill is likely to provide a big fillip to the usage of low-cost generic drugs. The Bill seeks to bring an additional 40 million Americans under comprehensive medical insurance. This will lead to large incremental demand for drugs and other healthcare goods and services. Bulk of this incremental demand is likely to be captured by generic drug makers. The Bill may also encourage Americas insured population to increase the usage of generic drugs and curtail the use innovative drugs.
Indian pharma companies — most of them being exporters of generic drugs and intermediates to the US, the world’s largest drug market — are going to gain by the passage of this Bill. While the impact is long term in the form of increase in procurement of generic drugs by US, it is nevertheless a positive sign.
Leading Indian drug makers like Cipla, Dr Reddy’s Labs (DRL), Lupin and Cadila Healthcare have the potential to become leading global generic players. They have healthy para IV pipeline, are geographically well diversified, have lean cost structure and at times have dominance in certain niche segments. However, they are still quite small compared to large global generic players. For instance, Teva, the Israeli generic pharma company with more than one-fourth the share in the US generic market, is more than thrice as big as the combined size of all Indian companies.
The growth opportunities for generic pharma companies are shifting from being US centric to other regulated markets like Europe and Japan and emerging markets in Latin America and the Middle East. Countries like Germany and Japan are opening up their markets for generic companies in a bid to cut down the rising healthcare cost. Many Indian companies like DRL and Biocon have established subsidiaries in Germany and are securing contracts of insurance companies. Companies like Lupin have been early entrant in Japan that is registering good growth in its generic pharma market.
Pharma stocks have seen a lot of positive action in recent times as market has taken cognisance of the aforementioned factors (see the table). The ET Pharma Index has doubled in the past one year – losing its defensive streak and outperforming the Sensex. As a result, most companies are trading at not-so-attractive valuations. However, investors interested in riding the pharma growth bandwagon can consider companies like DRL, Lupin, Cadila Healthcare, Biocon and Sun Pharma with promising business models and growth track record.
Industry experts have heralded the five-year period between FY10 and FY15 as the golden period for generic companies in view of the patent expiries worth $100-150 billion. Nearly 40 Indian companies are geared up with US FDA approved facilities and Abbreviated New Drug Applications (ANDA) approvals to meet the huge opportunity.
The passing of the landmark Healthcare Bill in the US holds a lot of promise for generic companies. With emphasis on increasing the coverage of health insurance and cutting down costs of healthcare, the Bill is likely to provide a big fillip to the usage of low-cost generic drugs. The Bill seeks to bring an additional 40 million Americans under comprehensive medical insurance. This will lead to large incremental demand for drugs and other healthcare goods and services. Bulk of this incremental demand is likely to be captured by generic drug makers. The Bill may also encourage Americas insured population to increase the usage of generic drugs and curtail the use innovative drugs.
Indian pharma companies — most of them being exporters of generic drugs and intermediates to the US, the world’s largest drug market — are going to gain by the passage of this Bill. While the impact is long term in the form of increase in procurement of generic drugs by US, it is nevertheless a positive sign.
Leading Indian drug makers like Cipla, Dr Reddy’s Labs (DRL), Lupin and Cadila Healthcare have the potential to become leading global generic players. They have healthy para IV pipeline, are geographically well diversified, have lean cost structure and at times have dominance in certain niche segments. However, they are still quite small compared to large global generic players. For instance, Teva, the Israeli generic pharma company with more than one-fourth the share in the US generic market, is more than thrice as big as the combined size of all Indian companies.
The growth opportunities for generic pharma companies are shifting from being US centric to other regulated markets like Europe and Japan and emerging markets in Latin America and the Middle East. Countries like Germany and Japan are opening up their markets for generic companies in a bid to cut down the rising healthcare cost. Many Indian companies like DRL and Biocon have established subsidiaries in Germany and are securing contracts of insurance companies. Companies like Lupin have been early entrant in Japan that is registering good growth in its generic pharma market.
Pharma stocks have seen a lot of positive action in recent times as market has taken cognisance of the aforementioned factors (see the table). The ET Pharma Index has doubled in the past one year – losing its defensive streak and outperforming the Sensex. As a result, most companies are trading at not-so-attractive valuations. However, investors interested in riding the pharma growth bandwagon can consider companies like DRL, Lupin, Cadila Healthcare, Biocon and Sun Pharma with promising business models and growth track record.
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