Drug firms eye biosimilars to boost margins

Domestic pharmaceutical companies are increasingly looking at biosimilars to offset the declining profit margin from generic markets in developed countries, industry experts said.

Biosimilars are generic versions of biotech drugs.

Ranbaxy Laboratories recently raised its stake in biosimilar product company Zenotech Laboratories to 27.35 per cent. Ranbaxy has also made an open offer to buy 20 per cent more in Zenotech at Rs 160 a share.

According to analysts, Zenotech's product pipeline has 15 biotech drugs for the next three years.

Dr Reddy's Laboratories is investing $30 million (About Rs 120 crore) to set up biosimilar manufacturing facility in Hyderabad. The company has set up an independent biologics division that will develop around eight biosimilar products.

Cipla and Sun Pharmaceuticals have also expressed their keenness to enter the biosimilar market soon. Analysts expect Sun Pharma to acquire a company in the space shortly.

Higher margin
It is the higher margin that makes the biosimilars market lucrative for the domestic pharmaceutical companies. It also offers huge opportunity as competition in the segment is less at present and will continue the same for the next five-six years, an analyst said.

This will mean nearly two-three years of nearly unchallenged presence in biosimilars for those companies that start investing in the market now.

Moreover, biological drugs are proved to be more effective than chemical drugs. Doctors too prefer biotech drugs to chemicals as the latter have more side effects.

According to analysts, acquisition would be the easier route to enter the market, as it would take about three years to set up own biotech operations.

The initial investment required would be between Rs 200 crore to Rs 600 crore depending on the biosimilars the company is planning to manufacture, analysts said.

Regulatory hurdles
However, entering high-yielding markets such as Europe and the US might not be easy for domestic pharmaceutical players owing to stringent regulatory hurdles.

For instance, the US Food and Drug Association does not recognise biosimilars as admissible in the country.

Regulators in Europe are in favour of biosimilars, but domestic majors like Dr Reddy's are still negotiating the clinical trial requirements to get approval there.

G V Prasad, vice-chairman and chief executive officer, Dr Reddy's, had earlier this year said the cost to develop and get approval for a biosimilar drug for the global market is nearly 100 times higher than that of a chemical drug.

Penetration costs for the market are, therefore, high. While this effectively reduces competition as smaller players may not be present in the space, it also means an investment lock-in of over two years for companies, analysts said.