>Indian Pharmaceuticals (MACQUARIE RESEARCH)

● According to IMS, in the next four years US$109bn worth of branded drugs face the threat of generic competition, Although this provides a strong market opportunity for generic players to capitalise on in the medium term, the number of new molecules launched by the innovator companies is on the decline, and that could put pressure on their long-term growth potentials. Generics are forecast to have a CAGR of ~9% for the next five years Vs low single-digit growth for innovative products.

● Because of dominant positions of Indian players in the global generic space, they could be ideal partners or possible acquisition targets, in our view. Key competitive advantages include an established generic business, low-cost manufacturing, access to fast growing emerging markets and strong and low-cost R&D capabilities.

● As more innovative players evolve this hybrid model, we believe the competition may intensify further. While many promoters could be reluctant to cash out completely at this stage, alliances work out to be alternative arrangements in the medium term. However we believe that given the competitive intensify in the industry, being vertically integrated provides an edge.

● Although the European (GSK, Sanofi, Novartis) and US (Pfizer) large caps are already active in building generic capabilities in one way or another, we believe Japanese firms may also be active players in pursuing a generic strategy.

To see full report: INDIAN PHARMACEUTICALS