Niche plays as patent cliff looms

Efforts of Indian pharma majors improved share of key cos in US generics prescription mkt

The great feeding frenzy in pharma is slowly coming to an end. Drug opportunities for products going off-patent are expected to start sliding over the next few years. While Indian generic firms are angling to take the maximum share of the $29-billion pie in CY12, this is likely to dramatically plunge to $2 billion for CY2017, hence its moniker, The Patent Cliff. Given this scenario, Indian companies are putting in place strategies to counter the lack of exclusive opportunities.

Says Subrata Ray, senior vice-president and co-head (corporate sector ratings), ICRA: “To combat the impact of expected moderation in opportunities in the US, some of the leading Indian companies are focusing on limited competition products and plan to enter more complex segments like injectables, inhalers, dermatology, anti-asthma and even biosimilars.” One of the key areas of focus has been niche opportunities which include dermatology, oncology, ophthalmology and oral contraceptives.

Niche opportunities
Says Hitesh Mahida of Fortune Research, “The focus of companies should be on limited competition products as entry barriers (in terms of trials, manufacturing and approvals) are more stringent than normal generics. Given the high risk, high return nature of investments, not many pharma companies foray into niche, complicated products.”
 

NEW THRUSTS Low competition
Niche segment	Market size ($ bn)	Leading Indian players
Dermatology	2.0	Sun Pharma, Glenmark, Ranbaxy, Lupin
Oral contraceptives	3.0	Lupin, Glenmark, Sun Pharma
Opthalmics	4.5	Lupin, Sun Pharma Wockhardt
Oncology	—	Sun Pharma, Strides
Controlled substances	—	Cadilla, Glenmark, Ranbaxy, Sun Pharma
Source: Fortune Research

Among Indian companies, Glenmark Pharma says that it has a multi-pronged strategy focused on drug discovery, branded generics, and pure generics. Being a relatively late entrant (among Indian players) in the US (pure generics) market, the company stayed away from multi-billion dollar generics opportunities which are marked by intense competition and eroding margins.

Says the company’s CMD Glenn Saldanha, “We followed a strategy to capture niche and limited competition segments like dermatology, hormones (oral contraceptives) and oncology. Similarly, our strategy for Para IVs has been to focus on niche para IVs where we will be the sole first-to-file player. The strategy has been successful and we have been able to build a substantial scale for our US business (revenues of $250 million in FY12) in a relatively short span of time”.

Lupin and Sun Pharma, too, are looking at niche therapies such as oral contraceptives, to expand their base in the US. Lupin plans to launch around 10 oral contraceptives in FY13 and expects revenues to touch $100-125 million from the same.

Cadila has started filing for low-competition products with delivery system advantages. These include transdermal patches, nasal injectables and respiratory products and are focusing on developing a pipeline in these areas.

The second area which holds promise is that of biosimilars, but how much of this opportunity can Indian pharma companies capture is not certain, given the challenges.

Biosimilars
Deepak Malik at Emkay Global believes that Indian companies will have to look at niche product segments, drug delivery systems and biosimilars to drive growth as the generic launch opportunities decline. He, however, feels that developing biosimilars will be challenging for Indian companies. Anubhav Aggarwal at Credit Suisse, too, observes that developing biosimilars requires high investments and is a time-consuming process. One can expect players to share investments, as was the case with the recently concluded Dr Reddy’s-Merck deal.

Though Dr Reddy’s has some limited competition products in the US, it is betting big on biosimilars with major investments and could reap benefits of the same over the next few years.

Biocon has also bet heavily on development of biosimilars. Wockhardt, however, has been one of the few players to have tasted success after developing insulin.

Generic sales
The focus on niche products is a part of the multi-pronged strategy adopted by Indian companies, who have also acquired facilities, brands and companies to boost growth. While Lupin has reaped benefits by launching products going off-patent, its growth in the US market has also been driven by the acquired brands like Suprax, that continue to contribute around 30 per cent to its US sales. Ramesh Swaminathan, president (finance and planning) says that they have a good pipeline of generics to be launched over next four-five years.

Companies such as Dr Reddy’s, Sun and Cadila have acquired companies/facilities in the US in FY12 to improve their position in that market. While Cadila’s acquisition of Nesher Pharma will improve its presence in the controlled-release drugs segment, Dr Reddy’s acquisition of GSK’s penicillin manufacturing facility will improve its presence in the anti-bacterial segment. Sun Pharma has made an acquisition of manufacturing assets for controlled substances in Cranbury, New Jersey, some time back.

The efforts of Indian pharma majors in the US market have helped improve share of key companies in the US generics prescription market with Lupin coming in at fifth, while Dr Reddy’s at the 10th position.