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Pharmaceuticals
Sector Update
Fast ramp up in the US market
Key points
We maintain our positive stance on pharmaceutical
(pharma) companies under our coverage that have
exposure to US generics markets. We estimate a strong
22% compounded annual growth rate (CAGR) for the
US generic business over the next two years which
would be driven by:
Increasing market share of Indian pharma
companies in the US generics segment: Despite
growing competition, an improving trend in market
share was shown by the Indian generic players such
as Lupin (Lotrel-22%), Sun Pharmaceutical Industries
(Sun Pharma; Protonix-25%), Ranbaxy Laboratories
(Ranbaxy; Valtrex-37%) and Cadila Healthcare
(Cadila; Flomax-26%) among others.
Unique opportunities with low competition: Sun
Pharma, Glenmark Pharmaceuticals (Glenmark),
Lupin, Dr, Reddy’s Laboratories (Dr Reddy’s), and
Ranbaxy are focusing more on technically complex
niche product filings. Exclusive products worth
~$25-30 billion are expected to be launched in the
next two-three years by these five companies alone.
Large number of ANDAs pending approval: A large
number of pending approvals for Sun Pharma (147),
Lupin (87), Strides Arcolab (Strides; 87), Dr Reddy’s
(74), Ranbaxy (66), Cadila (57) and Glenmark (47)
indicate their strong positioning to capture a
significant share in the US generics market.
Improved growth visibility from fast paced
approvals: Glenmark received the highest number
of approvals in FY2011E (18 approvals year till date
[YTD]) followed closely by Sun Pharma and Strides
(16 approvals till date each).
Despite the re-rating of the Sharekhan pharma universe
from 18.1x to 19.8x the aggregate price to earning
(P/E) in terms of FY2012E earnings (since our last
report “Strong Defense”), we remain bullish on
selective companies, given the comfortable relative
valuations and improved fundamentals. We continue
to recommend a stock specific approach given the
dominance of company specific issues and rich
valuations.
Our top picks remain Sun Pharma and JB Chemicals.
We also like Glenmark and Strides (not rated) given
their potential to tap the US business and sterile
injectables respectively.
US generics: Indian companies striving for global
presence and scale
Although the domestic market has grown at a fast pace,
the US competitive dynamics have led the Indian pharma
companies to focus more on niches. Indian pharma
companies are choosing high value and low competition
products to break through in the US market. Thus despite
competition, they have been able to maintain a healthy
market share in the US market.
Sun Pharma, Glenmark, Lupin, Dr Reddy’s and Ranbaxy
are focusing more on technically complex niche product
filings. Exclusive products worth ~$25-30 billion are
expected to be launched in the next two to three years
by these five companies alone
With large focus on the US generics market, we anticipate
the US business to give higher returns than overall sales
of the company over the next two years.
With the US being the single largest market for pharma
companies, we bring out the performance of the
Sharekhan pharma universe over the last four years
highlighting their US businesses. The US market accounts
for around 25%+ of the revenues for most of the companies
under our coverage. Though Indian players are small as
compared to their US counterparts, a relatively small
base, together with competencies that can match any of
the leading players, can help Indian players maintain their
high growth rates in the US market in the long term. We
forecast a 22% CAGR growth for the US generics businesses
of the companies in the Sharekhan pharma universe over
the next two years .
Sun Pharma suffered due to USFDA’s ban on Caraco;
however the Taro acquisition provides a strong
abbreviated new drug application (ANDA) pipeline and
drugs like Aricept, Taxotere and Eloxatin could result
in huge growth opportunities.
Glenmark has shown a consistent growth in the past
four years. The growth in FY2010 slowed due to a delay
in approvals. However H1FY2011 reflects improvement
in this regard. Further with four sole first to file (FTFs),
we anticipate a quick scale up in the US market.
Lupin has been one of the consistent performers in
the US market with one limited/less competition
product launch every year. The branded product
portfolio has seen a strong prescription growth in the
last three years. However generication of Suprax and
slow pick up in Antara could pose a risk.
Cadila has witnessed a fast paced growth and is quickly
gaining scale in the US market. With niche filings in
the pipeline, we anticipate the US market to contribute
~22% of total sales by FY2012.
Key approvals in FY2011
As per the latest IMS health report, Indian pharma
companies have been dominating in receiving the USFDA
approvals.
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