WHERE IS INDIAN PHARMA HEADED? Motilal Oswal 2017 Conference Nilesh Gupta Managing Director Lupin Ltd. September 2017
IS THE INDIAN PHARMA DREAM RUN OVER?
Pharma Company Growth and Returns Indian Pharma Company Growth Indian Pharma Company Returns Total Sales of Top 6 Listed Pharma BSE Healthcare Index 1,200 20,000 15,000 800 (INR bn) 10,000 400 5,000 0 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2001 2003 2005 2007 2009 2011 2013 2015 2017 The 2017 Story The 2017 Story Total Net Profit of Top 6 Listed Pharma BSE Healthcare Index 47.3 46.0 50.0 20,000 40.7 35.6 40.0 15,000 29.8 (INR bn) 30.0 21.2 10,000 20.0 5,000 10.0 0.0 0 Sep - Sep - 2017 Q4FY16Q1FY17Q2FY17Q3FY17Q4FY17Q1FY18 2015 2016 3
Is the Indian Pharma Market Model done? Current Model Showing Signs of Ageing US India Other Markets • Customer Consolidation • Too many disruptions • Pricing Pressure is leading to more constant across ALL • Facing regulatory bargaining powers markets uncertainties in terms of • Other markets don ’ t • Pricing Pressure new proposed policy move the needle • Hyper-competitive • Generic-generic drugs So What’s Next? 4
THE GLOBAL PHARMA MARKET IS STILL HUGE
Global Pharma Market is $1.1 tn 2016 Pharma Market Split by Geography REST OF WORLD 21% CANADA 2% SPAIN 2% US 44% UK 2% BRAZIL 3% ITALY 3% FRANCE 3% GERMANY CHINA JAPAN 4% 8% 8% Almost half of Global Pharma market is US followed by China and Japan Sources: QuintilesIMS MAT Q1 2017 6
Markets Geographic Ranking over time BRIC moving up the rankings with China already moved up to #2 and India entering Top 10 in 2021 2011 2016 2021 1 US US US 2 JAPAN CHINA CHINA 3 CHINA JAPAN JAPAN 4 GERMANY GERMANY GERMANY 5 FRANCE FRANCE BRAZIL 6 ITALY ITALY UK 7 UK UK ITALY 8 SPAIN BRAZIL FRANCE 9 CANADA SPAIN INDIA 10 BRAZIL CANADA SPAIN 11 SOUTH KOREA INDIA CANADA 12 AUSTRALIA AUSTRALIA SOUTH KOREA 13 INDIA SOUTH KOREA RUSSIA 14 MEXICO RUSSIA TURKEY Sources: QuintilesIMS IIHI 7
Market to grow to $1.5 tn by 2021 Global Pharma market is expected to reach $1.5 tn in 2021, driven by biologics 2015-21 MARKET SIZE EVOLUTION Growth Drivers 5% $1.1 tn $1.5 tn Driven by increased Biosimilars 47% innovation in this areas 333 and acceptance of Biologics 11% Biosimilars 140 183 3% $ BN Growth Rate Declining 120 343 OTC 6% 242 Genericization reaching Small molecule saturation (>65% of global Generics 3% volume) 726 594 Patented/Originator Some innovation still small molecule happening in small 2015 2021 molecules Source: QuintilesIMS 2021, Broker notes 8
Demographic Drivers support the Growth Ageing Population Global Chronic diseases prevalence Ageing population convergence between developed and developing nations Increasing prevalence of chronic diseases China is expected to have higher proportion Disease incidence increases with age of 60+ than developed nations by year 2100 Global Population Ageing 2000-2100 Cardiovascular disease: #1 cause of death (30% of 40.0 all global deaths) 60+ as a % of total population Cancer: #2 cause of death (13% of all global 30.0 deaths) 347 million people worldwide have diabetes 20.0 Worldwide obesity has nearly doubled since 1980 10.0 0.0 70% - 80% of all deaths from chronic diseases occur in low- and middle-income countries More developed regions Less developed regions Source: MUFG and United Nations 9
SO WHAT IS TROUBLING INDIAN PHARMA?
India Pharma Industry: Evolution Indian Pharma Industry has evolved from almost being non-existent to one of the world’s leading suppliers of generic drugs 1970 2000 2012 Wave 3: Enter Complex Generics, Biosimilars and Specialty Wave 2: Dominated Developed market Wave 1: Generics Establishment of Domestic Pharma Industry with ROW Exports 11
INDIA PHARMA INDUSTRY EVOLUTION WAVE 1
Wave 1: Establishment of Indian Pharma It all started with 1972 Patent Act when “product patents” were disregarded Domestic formulations API / Bulk Drugs Exports Formulation Exports to Developing markets • 1970 – MNCs dominated • US API exports was more the market (68%) lucrative and time to • Share of exports in total market was low production increased • 1972 Patent Act allowed from 3% in 1980-81 to “reverse engineering” • US API exports started in 24% in 1994-95 1970s but really stepped • Indian companies took up pace after 1996 • 90% of exports to share and made drugs developing markets much cheaper • Bulk drugs production increased from INR 18 cr • Formulation sales in India • Catered to traditional in 1966 to INR 1,518 cr in export markets of Russia, rose from INR 150 cr in 1995 1965 to INR 7,935 cr. Asia, Middle East and Africa in 1995 Country’s manufacturing facilities increased from 2,000 in 1970 to 24,000 in 1995 13
Wave 1: DMF Filings peaked in 1996-2001 Indian DMFS share increased to 6.2% … Led to ~60% API volume being in 2001 from 1.8% in 1996… exported in 2002 # of DMFs filed by Indian Exports / Domestic Volume share companies between 1969-2001 in 2002 40% 233 85% 60% 92 91 21 15% Formulations API 1969-1985 1956-1990 1991-1995 1996-2001 Exports Domestic Took Share away from MNCs in India Domestic Market Composition (%) 100% 32 40 50 60 68 77 50% 68 60 50 40 32 23 0% 1970 1978 1980 1991 1998 2004 MNCs Indian Companies 14
INDIA PHARMA INDUSTRY EVOLUTION WAVE 2
Wave 2: Dominate Generics Patents (Amendments) Act 2005 re- instituted “product” patents … India started to aggressively look for other opportunities with the expertise built Dominate US Generics Lions Share of the Meaningful position in Domestic market other markets • 35 years of protection enabled Indian companies • By 2005, Indian • Indian companies entered to perfect scientific and companies held ~70% markets like Japan manufacturing share in domestic market • In 2005-06, 18 companies capabilities • Indian companies grew spent ~$1.6 bn to acquire • Moved up the value chain the market exponentially in Europe, North America to develop formulations by increasing penetration and Mexico for the US market • MNCs came back after • Ranbaxy and DRL made • Also capitalized on P4 and 2005 and some have re- several acquisitions in EU blockbuster opportunities established strongly • Companies built presence • Consolidated API in markets like Brazil position Source: Citi 2016 broker notes, Corporate Research 16
Wave 2: Key Drivers for Value Creation Forward Integration and Developed Market Expansion led to value creation Forward Integration Developed Market Expansion With manufacturing capability and experience Indian pharma companies actively in adopting the regulations of developed transformed from API manufacturers to markets, Indian pharma significantly expanded finished dosage suppliers their footprint in regulated markets 80% Developed markets Formulation API Others 67% 70% 4% Developing markets 100% Gross Margins % 60% 23% 45% 80% 41% 100% 50% 45% 10% % of exports % of sales 40% 60% 56% 30% 40% 50% 73% 90% 20% 58% 55% 20% 44% 10% 0% 0% 0% 1990s 2010s 2005 2009 2014 2000 2016 The Industry was able to move up the value chain with exponential increase in sales and profitability Source: Citi 2016 notes, Corporate Research 17
Wave 2: Dominance in Global Generics In a short span of time, Indian companies are fast emerging as leaders in the Global generics industry Five of the Top 10 Global Generic Companies are Indian Top 10 Global generic companies by sales ($bn) 22.7 11.6 5.1 4.5 2.6 2.5 2.4 2.2 2.2 2.1 TEVA MYLAN PERRIGO SUN ASPEN LUPIN STADA AUROBINDO DR REDDY'S CIPLA Source: Corporate Research 18
Wave 2: India in the United States Today ~40% of >600 sites 40% of US annual ANDA in India are USFDA generics volume approvals are from approved supplied by India India (highest outside US) 33% of 31 acquisitions ~50% of Indian companies for US generics DMFs filed each year sales come from the business by Indian are from India US companies Source: GS, ATKearney, MUFG 19
Wave 2: India is a Global Generics Powerhouse India is the most efficient export-oriented pharma industry in the world Total Formulation Sales is currently $31bn equally split between domestic market and exports Formulations Market Evolution ($bn) 1 35 60% India joins WTO: India 31 began to amend its 2729 30 50% patent law to offer 24 better protection for 25 22 40% patented drugs 20 20 2 $ bn 16 30% EU's equivalent of 1314 15 3 Hatch-Waxman Act came 2 11 20% into effect 10 2 3 3 3 4 4 5 6 5 6 7 8 1 3 10% 5 Indian Patent Act 2005 came into effect 0 0% 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Domestic Exports Total Exports as % of total Source: Citi 20
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