Indian pharma - Transcendent leap ::CLSA

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Indian pharma
Sector outlook
Transcendent leap
Indian pharma firms are investing in new niche segments in developed
markets. And with emerging-market pharma spending forecast to rise
from US$151bn to near US$300bn by 2015, these companies are
collaborating with pharma giants to expand market access. We prefer
Sun Pharma, Cadila and Lupin, based on their extended US pipeline and
strong presence in emerging markets.
Niche growth opportunities
 Indian pharma firms are targeting new, complex generic segments in the USA.
 Limited competition in these segments will allow them sustain growth rates as
patent expiries go down in number and value.
Traditional business to taper off
 Emerging markets are expected to reach 30% of global pharma spend by 2015
from just under 20% currently.
 Innovators are collaborating with Indian generics firms to tap their already
established manufacturing base.
 In turn, Indian firms are gaining access to markets where they previously did not
have a strong foothold.
Well funded for growth
 With strong payoffs from niche US opportunities and a solid base in select branded
markets, we expect these firms to generate strong cashflow in coming years.
 By FY13, their net-cash balance sheets and strong cashflow will them to spend
more on R&D or pursue sizeable M&A opportunities.
Growth visibility critical
 Sun Pharma, Lupin and Cadila Healthcare are well positioned to sustain growth
rates over the longer term.
 We maintain our positive view on Dr Reddy’s, envisaging payoffs from a strong US
pipeline in the near term.
 We believe that companies with longer term growth visibility are likely to sustain
valuations of 20x forward earnings, whereas others could see multiples deteriorate