It's emerging markets first for Indian pharma companies

For Indian pharmaceutical major Dr. Reddy’s Laboratories, emerging markets, including India are already garnering around 45 per cent of its global generics sales and have always been strong on profitability due to the company's approach to build mega brands. The firm is strongly focusing on emerging markets, besides India such as Russia, China, Brazil, and South Africa, apart from expanding its global institutional portfolio (including biosimilars) to 25-plus markets. The company is confident of supporting governments in emerging markets that are focusing on healthcare to reduce spend on medicines and re-invest on infrastructure and bringing new treatments to broader population.

India's largest pharma company, Sun Pharma, had around 18 per cent of its total revenue coming from emerging markets during the financial year 2017-18. Similarly, biotechnology firm Biocon has been on a global biosimilars strategy of 'emerging markets first and developed markets later'. It is paying off well as the company has succeeded in bringing the benefit of affordable alternatives to reference biologics to patients in India and other emerging market countries.

Currently, US market accounts for 35 per cent of the exports. However, homegrown Indian pharma companies are increasingly looking at emerging markets for increased growth and business. Pharma exports from India had touched around $17.27 billion at 2.9 per cent growth year-on-year and 3.68 per cent CAGR for the period between 2013-14 and 2017-18. As a result, homegrown pharma companies are looking at emerging markets as many of them want to diversify their revenue streams.

For instance, the Latin American market alone is a $80-billion market waiting to be tapped by Indian pharma companies. “There are some Indian pharma companies which are unheard of, but have a significant presence in emerging markets such as Africa. Many pharma companies from India prefer to make an entry first in the semi and non-regulated markets, rather than entering a developed and a regulated market. Some of the mid-level pharma companies do not have the muscle and capacity to enter highly developed regulated markets such as the US and Europe, and hence, end up entering the emerging markets,” said Girdhar Balwani, an independent director at Cadila Pharmaceuticals.

Brand expert Harish Bijoor of Harish Bijoor Consults noted that as Indian market gets competitive and cluttered, new emerging markets offer excitement. “Pharma companies operate typically in two different spaces. Curative healthcare for one, and preventive as a second space. Bulk of the revenues of the Indian pharma companies comes from the curative space. Preventive pharma care, both in terms of products and services is nascent. Emerging markets offer immediate revenues for Indian pharma companies from curative orientations and medium to long-term offerings from preventive pharma care. The excitement also lies in the space of generics,” Bijoor told THE WEEK.

During the financial year 2018-19, companies such as Dr Reddy's Laboratories witnessed a healthy growth in the emerging markets. During the first nine months, Dr Reddy's clocked in around 28 per cent growth in emerging markets alone. “Emerging markets has traditionally been an area of strength for us and we are one of the largest Indian companies in several markets such as Russia, China, Ukraine and Kazakhstan, No 2 in Romania and Vietnam, and among the top 5 pharma companies in South Africa. We have built this business through strong branding across markets. In the last two years, we have expanded our footprint from 15 to more than 25 markets. Our strategy for growth in the emerging markets is to continue on the journey of mega-brand growth in prescription and OTC markets, as well as expansion of institutional business, biosimilars and oncology portfolio. We will continue to focus on scaling up in our major markets, which include Russia, China, India, Brazil, South Africa and Ukraine,” M.V. Ramana, CEO—branded markets (India and Emerging Markets) of Reddy's, told THE WEEK.

The Hyderabad-headquartered pharma major has built strong brands like Nise, Omez, Razo, Ciprolet, Ketorol, Cetrine, and Ibuclin across emerging markets in both prescription and Over-The-Counter (OTC) segments. The company has built a strong institutional business in the last four years by leveraging globally its oncology, biosimilar and hospital products through an approach to provide high quality and affordable medicines across the globe. “Our expansion in the emerging markets will focus on mega brand growth through strong sales and marketing excellence and managing product life cycle. With our marketing efforts in the countries that we operate in, we have been able to garner the support from all key stakeholders on the usage of our products and expect strong growth in the coming years with higher number of new launches in our core therapy areas. We also plan to enter and scale-up in meaningful new markets through institutional market entry and aim to have local manufacturing in key markets in the coming years,” added Ramana.

International markets account for almost 70 per cent of its overall revenue for Bengaluru-headquartered pharma major Biocon. A substantial part of the total revenue is being accrued from the emerging markets. For the third quarter of financial year 2018-19, Biocon revenue stood at Rs 41.1 billion. “Our biologics business has more than doubled in the last one year, recording sales of Rs 10.7 billion in 9MFY19. Our portfolio of biosimilars, which includes rh-insulin, Insulin Glargine and Trastuzumab, is witnessing increased penetration in many markets across the globe. We are enabling affordable access for several thousand patients in many emerging markets like Brazil, Mexico, Turkey, Algeria, Malaysia, Thailand, Indonesia, South Korea, UAE, etc. We are also among one of the top 3 global players of biosimilar insulins in terms of volume, which enables us to pursue our goals of supporting ‘one in five’ insulin-dependent people with diabetes the world over. Our business strategy revolves around a ‘high volume-low price’ model, which is aimed at first improving lives of patients in the emerging markets, or most of the world markets, which is how we refer to rest of world countries, since we believe they are home to a majority of the global population with a huge unmet medical need,” explained Kiran Mazumdar-Shaw, CMD, Biocon.

The company has built a global scale bio-manufacturing facility in Bengaluru. Its integrated insulins manufacturing facility in Malaysia was set up with an investment of $300 million. It is the largest in Asia and is enabling the company to address the growing demand for insulins for people with diabetes across the world.

“Our long-standing global biosimilars strategy has been to first target emerging markets and subsequently developed markets. Over the years, we have built strong global and regional partnerships to service these markets and this strategy has made a difference for us. At the same time, the regulatory landscape for biosimilars can vary from country to country. However, we have benefited from a strategy of adopting the US and EU regulations for developing our biosimilars pipeline. This approach has seen our dossiers being favorably viewed by regulators in the developing world. The emerging markets will continue to contribute significantly to our strategy of driving strong sales growth across our small molecules and biologics portfolios,” added Shaw.

For Ahmedabad-based pharma major Cadila Pharmaceuticals, emerging markets have always been an area of interest. The company's founder chairman I.A. Modi wanted to initiate the presence of the company's footprint across different geographies. “We are currently present in almost all emerging markets either through our own employees or through our trade partners. This presence has been in geographies like Asia, Africa, Middle East, Latin America, CIS, etc. This presence has been further boosted by enhancing the product portfolio, expanding market reach and adding new geographies. Ever increasing trend of enhancing health care support by governments of emerging countries, we are sure of tremendous growth opportunities in these markets,” said Mahidhwaj Sisodia, EVP, International Business, Cadila Pharmaceuticals.

Similarly, the largest homegrown Indian pharma company Sun Pharma has always been strongly focused on the emerging markets and wants to increase its presence in the market. The company's sales in the emerging markets were at $203 million for third quarter of 2018-19; up 7 per cent over the same quarter last year and accounted for 19 per cent of the total sales. The company has a presence in about 100 countries across Africa, Americas, Asia and Eastern and Central Europe, and its key focus markets are Brazil, Mexico, Russia, Romania, South Africa, and complementary and affiliated markets. The company had around 18 per cent of its revenue from emerging markets out of the total revenue for FY18. The company also has an extensive basket of branded products portfolio in the emerging markets. The company is also strongly focusing on relationships with doctors and medical practitioners and has around 2,300 Sales Representatives for the emerging markets. The company has also set up local manufacturing in the emerging market region.

Another Indian pharma major Lupin also has strong presence in different emerging markets such as The Philippines, South Africa, Brazil and Mexico. Lupin's subsidiary MultiCare Pharmaceuticals Philippines is a well-known premium branded generics company. It generated a total revenue of PHP2,070 million, a growth of 5 per cent in FY18, resulting from the termination of low-margin third-party licenses. Lupin's Philippines subsidiary has a strong presence in Diabetes, Women’s Health, Pediatrics, Respiratory, Central Nervous System and Oncology.

In South Africa, too, in FY2018, Lupin’s subsidiary Pharma Dynamics (PD) achieved net revenues of ZAR1.05 billion. As of March 2018, PD showed a sales growth of 10 per cent in the country. In Brazil, too, Lupin’s subsidiary, Medquímica is the largest Indian company in volumes. Medquímica grew 25 per cent in value in FY2018, with sales growing at double the market rate. The company also inaugurated an automated warehouse that doubles its capacity and improves its customer service benchmarks as the company aims to increase its presence in large pharmacy chains.

Similarly, Laboratorios Grin, Lupin’s subsidiary in Mexico, remains one of the key players in the ophthalmic segment and continues to have steady growth in the region.

Challenges

However, the emerging markets come with their own set of challenges. Reddy's Ramana feels that the regulatory bar is high in most emerging markets with increased audit and compliance requirements. “Many markets are now adopting similar regulatory guidelines as Europe and the US. While we are already in these markets, our strategy is to ensure a 'one product, one quality' approach towards emerging markets. Regulatory requirements (especially in biosimilars and complex generics) in some of the countries are evolving and we are committed to helping the regulators define the right pathways for these complex products. While each country has its own complexities, we have built regulatory capabilities in each market we operate in order to address these requirements,” remarked Ramana.

He added that emerging markets also come with the challenge of price erosion in institutional business, and increased competition and devaluation of currency. “Such external risks are managed by systematically driving growth in large markets (Russia, Brazil and China) and more meaningful new market entries by leveraging our portfolio. We are focusing our efforts on localising bio-similar/oncology manufacturing in large markets and will continue to build momentum on differentiated product ideation and delivery,” added Ramana.

Cadila's Sisodia felt that there have always been different kind of challenges that crops up in emerging markets varying from country to country and from time to time. “Many of the emerging markets go through economic downturn that creates issues like foreign exchange devaluation, payment abilities, etc. Also, emerging markets are very prone to political situations of the country and go through (some) time of instability. Besides this, a few of the emerging markets are still getting involved in regulatory standards. This results in non-differentiation between low quality products and organisations like us, which work at high quality standards. Additionally, many of the countries are promoting local manufacturing against importing finished product formulations. We have always been ready for meeting these kinds of situations. For instance, we are the only Indian pharmaceutical company to have a manufacturing plant in Ethiopia,” remarked Sisodia.

He added that there are challenges in exporting products from India to some of the emerging countries. “Health authorities of emerging markets continue to make regulatory framework more stringent for product approval in their countries.”

The challenge for Indian pharma companies in the emerging markets is also associated with establishing the reliable brand offering. “Indian companies are rather weak in these new markets where they are taking baby steps. Market penetration is at best patchy. Professionalising the approach to the emerging market is the need of the moment for Indian pharma companies,” remarked Bijoor.

In order to succeed in emerging markets, Indian homegrown pharma companies need to strengthen their local marketing efforts in such markets and need to hire local people for their marketing efforts in emerging economies. “If you are sitting far away from these emerging economies, it is essential to have local people doing marketing in such countries. Many homegrown pharma companies are also setting up local manufacturing units in such countries as many of the countries prefer locally manufactured drugs. When you have local manufacturing you can scale up operations in that country and market your drugs faster,” said Balwani.

At the same time, some of the emerging markets may not be lucrative enough for Indian pharma companies as they will have immense challenges. “Countries such as Indonesia, for instance, do not allow the import of pharmaceutical formulations in their country. Vietnam gives preference to their own local pharma companies. So, though the emerging markets, may be a big opportunity for Indian pharma majors, they may not be as lucrative when compared to developed and regulated markets such as the US and Europe,” added Balwani.