Citi: Indian Pharma- Key Takeaways from Indian Pharma Mini Conference

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 Indian Pharma 
 Key Takeaways from Indian Pharma Mini Conference, Dec 6-7

Takeaways from Mumbai — Eight pharma companies (Sun, Dr. Reddy’s, Ranbaxy,
Lupin, Glenmark, Biocon,  Aurobindo, Orchid), two healthcare delivery majors
(Fortis H/C & Apollo Hospitals) & one CRAMS company (Jubilant L/S) attended the
Citi Indian Pharma Mini Conference over December 6-7, 2010. We also met with
Piramal Healthcare separately. We present some of the key takeaways below.

India: Aiming for More Penetration — Companies see growing penetration (esp
into Tier 2 cities & rural areas) & sales force expansion as key growth drivers.
Most of them do not seem to mind compromising on near-term sales force
productivity in a bid to reach more doctors. The new IPR regime has not impacted
business much. Most companies appeared unfazed by the fresh talk on widening
the price control net though they acknowledge it cannot be totally ignored.
US: Time to Reap — Upside from the patent expiry cycle (peaking over 2010-14)
is already visible in financials & should continue in the medium term. Most
companies have infrastructure in place, expanded their filings basket & moved on
from plain vanilla generics to target niche/complex areas (P-IVs, injectables,
oncology, oral contraceptives, derma, extended release &c).
Emerging Markets: Different Strategies — Every company appears excited with the
emerging markets opportunity – Latin America (esp. Brazil, Venezuela, Mexico),
Russia/CIS, Middle East & S. Africa being among the favorites. However, opinions
vary on how to target this opportunity, with some (Aurobindo, DRL, Biocon)
focusing on partnerships while others (viz. Sun, Ranbaxy, Lupin, Glenmark) prefer
building a franchise. Most companies agree that competition will be stiffer going
forward, with Big Pharma getting more aggressive in these markets.
Outsourcing: Outlook Improving but Timing Hazy  — Things appear to have
bottomed out in CRAMS, especially on contract manufacturing. There are some
encouraging signs as well viz. stabilization in customer inventory levels, pick-up in
enquiries / RFPs. However, we sense from our discussions that while 2HFY11 will
be better than 1H, any material pick-up would be seen only from FY12 (as against
2HFY11 that we & most companies had anticipated at the beginning of FY11). We
believe near-term estimates continue to be at risk in this space.
Healthcare Delivery: Strong Growth Prospects — Demand remains strong, and
companies continue to see higher occupancy, better case mix and pricing power.
Both have aggressive expansion plans (Apollo: 2,600 beds, 32% of current base;
Fortis: 1,600 beds, 47% of current base). While Fortis is well funded, Apollo
intends to go in for some equity dilution in the near future to fund its plans.
Top Picks — Aurobindo Pharma (ARBN.BO; Rs1,267.70; 1M) is our top pick.
Ranbaxy (RANB.BO; Rs566.65; 1M) is our preferred play among large caps and
we prefer Fortis Healthcare (FOHE.BO; Rs148.25; 1L) in hospitals.