In my earlier posts, mentioned about the opportunities emerging for CRAMS, the results of DIVIS and Dishman for last two quarters reveal the up-building opportunities... ----
Opportunities back home for Indian pharma, NALINAKANTHI V.
Higher affordability, increase in penetration and greater awareness can drive growth. It is complex, impacted by global factors and subject to litigation — those are usually the reasons why lay investors shy away from pharma stocks. But pharma companies, especially the ones focussed on the domestic markets, could be simply viewed as consumption plays too. The pharma market in India grew at an impressive 17 per cent annually over the last five years. The domestic markets also yield operating profit margins of 30-35 per cent while developed markets yield 20-25 per cent. But can the industry sustain its current growth in future too, you may ask? The answer is yes, for three reasons. Low drug use Despite India being the third largest pharma market by volume, only a third of the country’s population has access to medicines. With over 70 per cent of the country’s population residing in the rural areas, pharma penetration in rural India is abysmally low at 17 per cent.A vast majority of the people living in these areas are either undiagnosed or continue to rely on conventional treatments, including siddha, ayurveda and homeopathy. This provides enormous scope for pharma companies to widen their geographical coverage. Though expansion into the rural markets isn’t a short-term exercise, it can accelerate volume growth for the industry over the next few years. Companies such as Ranbaxy Labs, Torrent Pharma, Sanofi Aventis have attempted to widen reach into the pan-urban and rural markets by adding dedicated sales force. Sanofi, for instance, is reaching outto rural India through its ‘Prayas’ initiative. The company adopts a differentiated branding strategy in these markets by launching an extension of its established brands at a lower price point.The caveat here is — the efforts to scale up in the rural markets are yet to pay off for most companies. Nevertheless, these should help companies sustain growth over the medium term. But, operating profit margins in these markets are likely to be lower in the near term due to lower pricing. From acute to chronic There is also scope for an upgradation in the product mix of companies, leading to more stable growth.The pharma market is currently skewed towards acute therapies such as antibiotics, pain management, gastroenterology, vitamins, to name a few. Acute therapies, which have shorter treatment duration, constitute over 65 per cent of the country’s total pharma market, according to pharma market research firm AIOCD AWACS. Given the seasonal nature of these therapies, pharma companies witness swings in their quarterly earnings. For instance, with June to December period representing peak sales for antibiotic drugs, sales for the rest of the year will largely remain sedate. Growth numbers tend to be volatile on account of high dependence on acute therapy areas. Most of these therapies are also growing slower than the broad market (refer table). But, with the higher incidence of life-style diseases, companies are consciously shifting focus towards faster growing chronic therapies. For instance, chronic therapies now contribute 50 per cent of Lupin’s domestic revenues, from less than a third five years ago. A market shift towards chronic therapies, which favour long-duration treatment, can make growth more stable and predictable. Low dosage compliance Life-style changes can be a key demand driver, too. For instance, rising stress levels, sedentary life style and imbalanced diet have led to a sharp increase in the incidence of lifestyle diseases such as hypertension, diabetes and cardio-vascular disorders. Increasing awareness about the need for continued medical attention and treatment is helping improve patient cure rates while lending the industry a helping hand. Increase in per capita income has made medicines more affordable for patients. Better affordability will also translate into higher dosage compliance and improved cure rates for the patients, thereby resulting in a steady growth for the industry. However, the average patient dosage compliance in India is still lower than in most other countries. Hence, improvement in the dosage compliance can further accelerate demand for drugs. Changing course In early 2000s, listed pharma companies aggressively pursued the export markets. But the attractive dynamics of the Indian pharma market has led most companies to renew focus on the home market in recent years. Companies such as Ranbaxy and Glenmark, which were aggressively pursuing opportunities in the foreign markets, have turned back to the Indian market. Ranbaxy initiated project ‘Viraat’ to scale up its presence in the rural market. The company more than doubled its sales force from 2,500 representatives in FY09 to almost 5,300 currently. But efforts such as these are yet to pay off for most players. For instance, in Ranbaxy’s case, due to greater skew towards acute therapies and a steep rise in attrition levels, the contribution from the new recruits is yet to accrue. The revenues per medical representative for Ranbaxy witnessed the sharpest fall from Rs 60 lakh to Rs 36 lakh in the last four years. Other companies such as Unichem Labs, GlaxoSmithkline Pharma (GSK), Cipla, IPCA Labs, Torrent Pharma and Pfizer too are yet to reap the benefits of the expanded field force. Unichem Labs witnessed a 31 per cent slide in field force productivity with the average revenue per representative slipping from Rs 35 lakh in FY09 to Rs 24 lakh currently.Interestingly, multinational companies such as GSK, Sanofi Aventis and Pfizer, who maintained a conservative stance in the Indian market, have also turned aggressive in the last four years. GSK and Pfizer increased their field force strength by a whopping 83 per cent and 72 per cent in the last four years. The revenue flow from the expanded field force should help these companies sustain growth over the next few years.Sun Pharma, as an exception, saw the slowest increase in sales force, a 36 per cent rise over the last four years. The company has the highest absolute revenue per medical representative at Rs 97 lakh currently, which is a 9 per cent increase in the last four years.While most companies who have added field force are yet to see incremental revenue flow from the new additions, Glenmark and Lupin have managed to improve productivity by 5 per cent and 4 per cent, respectively, in the last four years. While the outlook and prospects for the Indian pharma market in terms of demand continue to remain robust, pricing uncertainty remains. Any adverse changes in the proposed drug pricing policy may risk growth.The Group of Ministers (GoM) on drug pricing policy earlier suggested capping the prices of essential drugs at the weighted average price of drugs with market share greater than 1 per cent.However, the Supreme Court has directed the government to extend the cost-based pricing policy to all the essential medicines.The Government’s decision and Supreme Court’s directive in this regard will likely determine the pharma industry’s fortunes in the medium term. nalinakanthi.v@thehindu.co.in
No comments:
Post a Comment