Pharmaceuticals - Where mid-caps have an edge:: HSBC Research,

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 Mid-caps thrive on Indian domestic
growth and emerging markets
 Shift in focus to chronic therapies as
lifestyle-related disorders increase
 Initiate OW on CDH, N(V) on IPCA and
TRP and N on BIOS. CDH is our top pick
A different path to growth. While Indian large-cap generic
drug makers are banking on the US for growth as patents
start to expire, the mid-caps are taking a different route.
Latecomers to the US, they are thriving in their vibrant home
market as well as fast-growing emerging markets.
India: The lifestyle factor. India’s pharma industry
continues to grow at double-digit rates and is expected to be
worth USD20bn by 2020. As the country gets richer,
demand for pharma products is rising and the number of
lifestyle-related disorders has also increased. Cadila
Healthcare (CDH), Torrent Pharma (TRP) and Ipca Labs
(IPCA) are benefiting from switching their focus to therapies
for these chronic conditions (e.g. cardiovascular, arthritis).
Booming emerging markets. Pharma sales in emerging
markets are expected to double in the next five years. The
growth of CDH and TRP (in Brazil) and IPCA (in Russia)
reflects the strong brand power of their products. Biocon
(BIOS), more of a biopharma player, has signed a deal with
Pfizer to manufacture insulin for emerging markets. We
expect these companies to achieve an average of 20% annual
sales growth in these markets over the next five years.
Prefer CDH. We think CDH, our top pick, is on the cusp of
joining the ranks of the large-caps. It has a strong domestic
business with robust international operations and profitable
joint ventures. Additionally, it has been filing niche products
in the US. We forecast a 30% EPS CAGR over FY10-13.
IPCA has strong domestic sales and has successfully
switched its focus to chronic therapies. TRP is the biggest
Indian player in Brazil and has a strong portfolio of chronic
therapies. Insulin remains the key driver for BIOS