The next flavors in Pharma – the Hindu BusinessLine

The growth of Indian pharmaceutical companies over the past decade has been driven by the focus on US markets. With that edge fading, gamers are now considering various avenues to ride the next wave of growth. Here’s a look at how pharma players are preparing for the future and what to expect with stocks in this space.

Large Indian pharmaceutical companies have started to move away from generics for differentiated product lines. Constant pressure on prices and increased competition have reduced the premium attached to generics.

The US market, which accounts for 40% of the global value of the pharmaceutical industry, will continue to hold sway over export-oriented companies.

But simple vanilla generics must be supplemented by other value-added products, in order to regain pricing power. Recognizing this, companies have since embarked on a number of paths for the next big break and have been successful in stemming the fall in valuations. How are listed pharma players positioned to consolidate and build on these new avenues?

The opportunities found in North American generics began to fade from 2015-2016. Buyers in the United States began to consolidate from 2015, shifting the pricing power to their advantage. The US FDA’s dovish stance turned into a challenge as competition increased, even for products with more than three generic registrants. The approval cycle for complex products has lengthened considerably, depriving companies of the advantage of being the trailblazers. Despite the rupee’s depreciation favoring exports, revenue growth slowed to an average CAGR of 7 percent in fiscal years 15-20, compared to 24 percent of the CAGR in fiscal years 10-15 for large companies.

Indian pharma

Indian pharmaceutical markets have consistently reported growth of over 10 percent (6 percent in volume) over the past decade thanks to under-penetration and the increase in chronic diseases.

Existing players including MNC Pharma and national companies have therefore redoubled their efforts to maintain / increase their market share in India.

Sun Pharma increased its workforce in the field by 10% in fiscal year 21. Dr. Reddy’s supplemented its portfolio in India by acquiring the national brands from Wockhardt at the start of FY 21. Cipla and Dr. Reddy’s are now initiating process efficiency with digital capabilities, particularly post-Covid.

Cipla has restructured along the lines of the generic and prescription business for better reach. Cadila plans to go beyond small molecules in India by focusing on its biosimilars, vaccines and proprietary products.

Trademarks licensed (acquisition of commercial rights) to fill product gaps have been used successfully before and accelerated after Covid.

Sun Pharma is the market leader in India and has also strengthened its power in the field. But continued investments in product development and licensing of new products can help companies, including Dr Reddy’s, rejuvenate their national portfolios.

Indian markets offer EBITDA margins of around 25%.

The income per month per sales staff, which ranges from 4 lakh to ₹ 9 lakh, is also crucial in achieving the above margins.


Biosimilars (products similar to biologics) treat therapies against cancer, immunological diseases and insulin. Given the technological hurdles – a development cost of $ 100 million (for regulated markets) and delays of 5 to 9 years – biosimilars are seen as a valuable diversification. Biocon, which marked the end of the biosimilar race, achieved sales of $ 380 million in fiscal year 21. The two Biocon biosimilars launched in the past 2 years have reached almost 10 percent market share, and one third has achieved interchangeability status (substitutable for the benchmark product).

Lupine filed its first US biosimilar dossier (Pegfilgrastim) in June this year, after launching a biosimilar in Europe last year (Etanercept). Lupin’s ranibizumab was approved in India in July and is currently being tested in the United States.

Dr. Reddy’s has built a biosimilars platform in ME (a total of 11 in the pipeline) and is now expanding to regulated markets with Rituximab (in phase 3) in the United States and in partnership with a European major for the biosimilar Pegfilgrastim. Aurobindo also recently filed its first biosimilar application in Europe and has a large portfolio of biosimilars in its pipeline.

But achieving multi-million dollar sales with a strong market share while competing against established players is the current challenge facing domestic players. Most companies test EM for biosimilars before going into developed markets.

Companies are actively studying the next wave of products that will lose exclusives over the next decade and are striving to be among the early entrants into those products. Sun Pharma, which only recently announced its biosimilar plans, aims to launch products in the second half of the decade. Biocon has announced its partner for the next wave of launches (Sandoz), which will also include its own launches. The market should be more conducive to building market share by then.

Biosimilars can potentially provide an EBITDA margin of around 35%, even with a marketing partner. A biosimilar portfolio becomes crucial because it can spread overhead costs across 5-6 products, allowing for faster profitability.

Specialty products

The segment generally refers to innovative products that require high development and start-up costs and offer a long product life, if successful. Despite the higher expenses for an essentially binary result, a few companies still ventured into such a development. Sun Pharma’s specialty portfolio accounted for 64% ($ 148 million) of US (Ex-Taro) revenue in the first quarter of FY22, which could be the reason why a decent quarter was recorded compared to to his peers. This includes Ilumya, which generated sales of $ 143 million (+ 50% year-on-year) in FY21.

Cadila’s Saroglitazar is approved in India for the treatment of type 2 diabetes and liver disease NASH and NAFLD, approved in 2020. Cadila is currently conducting studies in the United States with Saroglitazar. It has also received orphan drug status (trials in underserved diseases) from the US FDA.

Similar to Cadila, Biocon is working on its anti-CD6 molecule Itolizumab, approved in India for plaque psoriasis and also for the treatment of Covid-19 patients. Biocon markets the molecule in Europe while the American rights have been transferred to a partner.

Although other companies have developed such products, they are looking for early monetization to cover development costs. Lupine has licensed its proprietary MEK inhibitor (cancer) and its MALT1 inhibitor (hematologic cancer). The agreements include development and sales milestones and royalties from Boehringer Ingelheim and Abbvie, respectively. Dr. Reddy’s has developed a wide range of specialty products, but recently licensed these products, including E7777 and oral celecoxib.

The margin potential for specialty products at the stable stage of the product’s life (after investment in marketing infrastructure) should compare to margins at the innovator level of around 40 percent. Sun Pharma expects a positive margin in the specialty segment this year, having made heavy investments in Ilumya and Cequa over the past two years.

Complex products

Complex portfolio refers to the complexity of the process, product, sterility or regulatory complexity. Complex injectables are a set that includes depots (long-acting), transdermal patches, and penemes (antibiotics), all of which require dedicated and sophisticated manufacturing lines. Respiratory generics, which require complicated testing to prove similarity, are the other complex products that have not faced significant generic competition.

Cipla has a strong respiratory portfolio including generic Albuterol and Brovana launched in the past year. The company has made significant progress in developing generics for Advair’s lucrative market.

Cipla has a deeper respiratory pipeline, including partnered products that will be marketed over the next three years. Its portfolio of complex products also includes the development of peptides for three products. Lupine has also developed a strong portfolio of respiratory products covering Albuterol and Fostair (European launch) and is developing generic Spiriva in the respiratory segment. Its pipeline also includes generics Brovana, Dulera and Perforomist, all in the respiratory segment.

Cadila’s complex portfolio mainly refers to products with regulatory barriers of which 9 are in development, and complex injectables, which are expected to increase significantly in the future.

Aurobindo’s pipeline includes the widest range of complex products in development, including inhalers, depots, injectable penems and transdermal patches. It is also considering restructuring its established injectable division with the likely aim of unlocking value from the division.

Complex injectables, including respiratory products, can generate EBITDA margins of over 35%, supported by the introduction of new products offsetting the increasing competitive intensity on older products.


Cadila, Aurobindo and Dr Reddy of the listed space are at the forefront of the vaccine game in India. With a plentiful supply of vaccines nationwide, the primary opportunity may have shifted to export markets or annualized booster shots for Covid-related vaccines. Of the three, Cadila and Aurobindo are also actively developing vaccines in the non-Covid segment. Aurobindo’s pneumococcal vaccine antibiotic, which has wide application, is under advanced testing, pending approval in the coming year. Aurobindo also holds an exclusive license with the US company Covaxx for Vaxxinity (UB-612), a Covid vaccine, for sale in India and to UNICEF. Cadila’s ZyCov D could debut in India within the next month. Cadila is also working on diphtheria and tetanus vaccines for emerging and domestic markets.

The modest start of (non-Covid) vaccine production is an encouraging sign for Aurobindo and Cadila, also challenging established actors at the international and national levels.

Pfizer’s Covid vaccine sales margins were expected to be around 20%, but operating leverage is crucial to generate such margins. Non-Covid vaccines, on the other hand, may see even lower margins, but the product’s lifespan spanning several decades may be the main draw for companies.

In conclusion, companies need a higher proportion of revenue from differentiated products to withstand constant pressure on generic prices. Although a start has been made, investors should be aware of the evolution of these parallel portfolios.

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