Hits: 4080
10 january 2013

Limited competition, higher margins and long–term growth prospects are key attractions

When the going gets tough in mainstream overseas pharmaceutical markets (that serve segments like cardiac care, diabetes and cancer), Indian drug–makers get going in niche segments (like oral contraceptives, dermatology, inhalers, injectibles and ophthalmology).

For instance, the US pharmaceuticals market, on which Indian drug exporting firms depend massively, has been growing lazily at only 1–2% annually in recent times. So Indian players have been slipping into cosy niches.

Cosy because niches, by definition, are smaller where competition is not fierce but limited.

Aarogya news

That’s because niches are usually complex by nature. They require tough manufacturing and marketing procedures and high investments. This, in turn, ensures that competition is restricted to only three to four players, unlike in therapies like diabetes and cardiac care where at least 8–10 firms fight it out for market shares.

Glenn Saldanha, CMD of Glenmark Pharmaceuticals, said, "Niche segments like dermatology and oral contraceptives appeal to us because of limited competition. Going ahead, they may turn competitive."

As per various industry estimates, the market potential for oral contraceptives in the US alone is around $4–5 billion per annum. Others niches like ophthalmology, inhalers and injectibles command $7 billion, $15 billion and $20 billion respectively.

Compared to the average 15–20% margins that common generics fetch in the US, complex products can garner margins upwards of 22–25% "as they are priced on the higher side", said analysts.

Aarogya news

Small wonder, firms such as Lupin, Sun Pharma, Glenmark and Cadila are rushing to capitalise on these segments.

CLSA analyst Hemant Bakhru said, "Simple oral formulations are not growing. Complex formulations still offer long–term growth prospects."

Despite perceived opportunities, Indian players will likely face tough challenges ahead from multinational generic players such as Teva, Watson, Mylan and Sandoz, said analysts.

Sarabjit Kour Nangra, vice–president of research at Angel Broking, said though the number of players in niche segments is smaller, there is erosion of prices. "Even in niche categories, if the competition intensifies, prices will drop."

Success, therefore, depends on the marketing and distribution networks an Indian company may have in the US market, said Nangra.

Disclaimer: The news story on this page is the copyright of the cited publication. This has been reproduced here for visitors to review, comment on and discuss. This is in keeping with the principle of ’Fair dealing’ or ’Fair use’. Visitors may click on the publication name, in the news story, to visit the original article as it appears on the publication’s website.