The stiff competition in the generic segment, sluggish growth rate in the major pharma markets and stringent approval provisions in the regulated market has pushed down the growth in the export earnings of Indian pharmaceutical companies during 2004-’05.
The 25 Indian pharmaceutical companies’ exports increased only by 7.7 per cent to Rs 9567 crore during the fiscal year 2005 as against Rs 8885 crore in the previous year. The growth in export earning by almost identical companies was much higher at 38.9 per cent during 2003-’04 over 2002-’03.The net sales of these companies increased by 6.6 per cent to Rs 20,107 crore in 2004-’05 and export contribution in net sales worked out to 47.6 per cent. The majority of top companies with export earnings of Rs 500 crore or more, failed to generate positive results.
Though the Indian companies are entering aggressively in the lucrative regulated markets like USA, Brazil and Europe, the stiff competition from cash rich MNC’s has placed constraints on business operations. Further, stringent approval laws in the regulated market and high cost of marketing had an impact on business activities. The Indian pharmaceutical companies are also generating revenues from Russia, CIS countries and China. Now, several companies are planning to enter new markets, especially the second largest pharmaceutical market, Japan.
Among the Pharmabiz study of 25 Indian companies with export earnings above Rs 35 crore, Glenmark Pharmaceuticals notched up highest growth of 165.8 per cent during 2004-’05. Its exports went up to Rs 130.13 crore from Rs 48.95 crore in the previous year. This was followed by FDC Ltd with export growth of 81.5 per cent and Torrent Pharma of 80 per cent. FDC recorded export earnings of Rs 80.8 crore as against 44.11 crore in 2003-’04 and that of Torrent Pharma’s moved up to Rs 80.88 crore from Rs 44.94 crore. There was not a single multinational company in India with export earnings of more than our sample size of Rs 35 crore.
The export earnings of major companies like Ranbaxy Laboratories, Dr Reddy’s Laboratories, Aurobindo Pharma, Lupin Ltd, Orchid Chemicals and Pharmaceuticals, Cadila Healthcare and Alembic declined during 2004-’05. Fall in exports by these pharma giants put pressure on overall export performance of 25 sample companies. However, Cipla managed to push its export earnings by 29.7 per cent to Rs 1053.21 crore from Rs 812.28 crore. Ranbaxy remained as a top exporter with export earnings of Rs 2335 crore and was followed by Cipla and Dr Reddy’s Lab.
Click to view chart showing Export earnings by top 25 Indian pharma firms
Few companies like IPCA Laboratories, Biocon, Matrix Laboratories, Sun Pharmaceuticals, Panacea Biotech, Divi’s Laboratories, J B Chemicals & Pharmaceuticals, Nicholas Piramal India, Dishman Pharmaceuticals, Natco Pharma and Unichem Laboratories recorded a double digit growth in export earnings during 2004-’05. Wockhardt, Strides Arcolab and Medicamen Biotech managed to achieve single digit growth in exports.
The contribution of export earnings to net sales of 25 companies was slightly better during 2004-’05 at 47.6 per cent as against 47.1 per cent in the previous year. Strides Arcolab was highest among the sample of 25 companies with export contribution of 87.3 per cent in 2004-’05. Similarly, exports of 14 companies viz., Strides, Divi’s Lab, Orchid Chem, Medicamen Biotech, Panacea Biotec, Dishman, Ranbaxy, Natco Pharma, Ipca Lab, Biocon, Dr Reddy’s Lab, J B Chemicals, Matrix Lab and Aurobindo Pharma were more than 50 per cent of their net sales. Export contribution to net sales were lower for 10 companies during 2004-’05 as compared to 2003-’04.
The growth in the exports is closely connected with the investment in launch of new products and research and development activities. Indian companies are stepping up their investments in R&D for the last couple of years to tap the opportunities in the post patent regime. These companies are filing highest number of Drug Master Files (DMFs) and Abbreviated New Drug Applications (ANDAs) in regulated markets. As a part of aggressive marketing strategy, Indian companies are either setting up their own subsidiaries or entering tie-ups with foreign companies. The relatively stable foreign exchange rates during 2004-’05 do not have any major adverse impact on exports from India.
Indian pharma companies are focusing more on US market despite several odds. Ranbaxy’s exports to US increased to US$ 426 million during the year ended December 2004 from US$ 412 million in the previous year. However, after conversion in Indian rupee exports were slightly lower at Rs 1863 crore as against Rs 1879 crore due to currency exchange rates. The US market contributed to 36 per cent of Ranbaxy’s exports and it received US FDA approvals for 16 ANDAs. The cumulative approvals reached at 96 ANDAs and 50 products are pending approvals. Its export to Europe increased by 116 per cent to Rs US$ 192 million. Ranbaxy is forecasting global sales of US $ 5 billion in 2012. To meet this target the company is increasing its investment in R&D to over 7 per cent of US$ one billion and to around 10 per cent of its targeted turnover of US$ 2 billion by 2007.
Dr Reddy’s exports to US increased to Rs 434.90 crore from Rs 339.22 crore. Stride Arcolab’s exports to US worked out to 32 per cent of its total exports of Rs 266.64 crore for the 15-month period ended December 2004. Its US exports reached at Rs 85.33 crore. Orchid and IPCA exported products worth Rs 59 crore and Rs 52 crore to USA during 2004-05. Cipla’s US export touched Rs 347 crore. Dr Reddy’s Laboratories has established good presence in Europe with exports of Rs 286.80 crore as against Rs 229.44 crore in the 2003-04. Orchid improved its exports to Europe to Rs 102.21 crore from Rs 88.25 crore. IPCA and Cipla recorded exports of Rs 220 crore and Rs 210 crore respectively to Europe.
Sun Pharmaceutical is managing its US operations through its subsidiary – Caraco Pharmaceutical Laboratories Ltd. Caraco posted sales of over $ 60 million in 2004 and earned a net profit of $ 22 million. Caraco launched 19 products in US and awaiting approval for 10 more. To meet the growing demand for generics, Sun Pharma has doubled its manufacturing capacity at the Panoli bulk active plant and commissioned Dadra and Jammu plants.
Besides, USA and Europe, Indian companies have established strong presence in Brazil, Russia and China.
Orchid’s exports to China declined to Rs 174.41 core from Rs 202.22 crore in the previous year. Revenues from China and Far East contributed to 35 per cent of the total revenues. Orchid has set up a joint venture NCPC-Orchid Pharmaceuticals Ltd to strengthen its Chinese operations. The company has consolidated its operations in Russia, Brazil and Middle East.
Lupin has identified the CIS region as a major growth area and established leadership position in the anti-TB segment. The company has set up a separate division to foray into new geographical horizons like Japan, Australia, Latin America and others. Lupin filed 14 ANDAs and 15 DMFs during 2004-’05. The company’s exports touched to Rs 553 crore and its Suprax brand is generating higher revenues. It entered an exclusive tie-up with Baxter, a market leader in hospital products in the US, and now set to launch injectible Ceftriaxone. Panacea Biotec achieved export earning of Rs 227.74 crore, which includes deemed export of Rs 214.08 crore. It has adopted clinical research as an integral part of its R&D for the last nine years. Further, it is mainly engaged in vaccines and biotechnology segments and targeting Latin American countries. It has set up a new plant at Baddi in Himachal Pradesh.
To overcome the stiff competition, Indian pharma majors have entered several marketing tie-ups with world top companies. Ranbaxy entered into a transfer agreement with Andrx Corporation, US and also entered in collaborative research agreement with GlaxoSmithKline plc. Orchid entered into an alliance with Phoenix of US (now a part of IVAX Group). It has exclusive marketing arrangements with Apotex and Par Pharmaceuticals to market sterile and oral antibiotic formulations in the US. The company also entered exclusive distribution agreements for the non-penicillin, non-cephalosporin dosage forms with Alpharma and for other products with STADA Arzneimittel AG. Wockhardt acquired esparma GmbH in Germany during May 2004 and established subsidiary in USA. It has set up joint ventures in Mexico and South Africa.
The Indian companies will boost their export earnings by acquisition and mergers in the next couple of years. Ranbaxy acquired RPG Aventis in France during 2003. Dr Reddy’s Lab entered into an alliance with ICICI Venture Funds Management Company for commercialisation of its ANDA in the US markets. Dr Reddy’s Lab entered into an alliance with Pliva, a Europe-based pharmaceutical company, for the development and marketing of oncology products in Europe. Biocon, with export earnings of Rs 376 crore in 2004-’05, has set up a joint venture with a leading Cuban research institute CIMAB to undertake clinical trials. Biocon has also a tied-up with Nobex, a North Carolina based biotechnology company, to tap opportunities for addressing diabetes and with Vaccinex Inc. for developing a number of novel human monoclonal antibodies.
Recently, Cipla has tied up with Pentech Pharmaceuticals for marketing generics in the US market. Pentech is engaged in developing therapies for lifestyle and quality of life conditions. Cipla has other tie-ups with foreign majors like Ivax Corporation, Watson Pharmaceuticals and Eon. Glenmark is expanding its foreign operations by setting up subsidiaries in several countries. It has set up subsidiaries in US, UK, Brazil, Switzerland and other places. It has commenced new operations in the Central African Republic, Eritrea, Guyana, Peru, Dominican Republic Botswana and Congo.
Nicholas Piramal India has acquired the inhalation anesthetics business of Rhodia Organique Fine Ltd for a consideration of Rs 58 crore. The company has also set up 51:49 joint ventures called Allergan India with Allergan Inc, US and Boots Plc, UK. Nicholas is expanding its international operations by entering into long-term custom manufacturing agreements with innovator companies. Like other Indian pharma companies, Nicholas is not engaged in generics market.
The slow growth in the export earnings during 2004-’05 by major companies is likely to improve in the current year with more and more product approvals from regulated markets and tie-ups with international giants. The growing demand for contract manufacturing and contract research segments will give better chance to improve earning for Indian companies. Ranbaxy, Dr Reddy’s Lab, Cipla, Aurobindo, etc., improved export earnings during the quarter ended June 2005 and the same trend is likely to persist in the remaining part of the year. Despite stiff pricing pressure in regulated market, Indian companies will manage to establish as a major competitor in the international markets.