>MNC PHARMA: New Avtaar (IDFC SSKI)

In the annals of the global pharma industry, 2009 marks a watershed event – when the baton of growth got passed on to the emerging markets (EMs). With US and top five EU markets contributing only ~15% to industry growth, the traditional Big Pharma business model, based on developed markets and patented products, is in a tizzy. Big pharma are aggressively realigning their strategies and resources around EMs and India, a US$30bn pharma market by 2020E, is now a priority destination. The development has profound positive implications for the growth outlook of their India business units as well as for generics partnering with MNCs to implement their new EM strategies (e.g. Aurobindo Pharma and Strides Arcolab). There is growing evidence of MNCs realigning India strategies through multiple strategic/ tactical interventions, and they have also begun to deliver accelerated growth. This “MNC comeback” will hasten consolidation in the Indian pharma market while leading to a likely re-rating of MNC stocks.

■ Emerging markets – Big Pharma’s new growth frontier: EMs will likely drive 70% of the global pharma growth in FY13 with top seven EMs growing to $400bn by 2020E. This has prompted a Big Pharma exodus to EMs. MNCs have begun to walk the talk on EM strategies – as reflected in dramatic field-force alignments away from developed markets and hectic deal-making activity in EMs. In the new order, India – one of the largest and fastest growing EMs – is now a priority destination for most MNCs.

■ MNC Pharma in India – dawn of a new era: There are firm signs of India-focused strategy being executed across MNCs – as reflected in a sharp ramp-up in field forces and marked step-up in new product launches. MNCs are now adapting their India strategies to market realities –“branded generics” (off-patent products of competitors) launches are now core to India strategy and differentiated pricing strategies are accepted even for newer molecules. Implementation of the patent regime will further strengthen MNCs’ competitiveness.

■ Revenue uptick to drive a likely re-rating: Top eight MNC pharma grew 16.7% in 2009 as compared to 9% CAGR over CY05-08. The new initiatives have begun to deliver, and we see MNC pharma embarking on a higher growth trajectory. As already seen for MNC consumer stocks (GSK Consumer Health and Nestle), higher growth visibility may drive a re-rating of MNC pharma stocks.

INDIAN PHARMA: A NEW ORDER
■ R&D productivity declines, sharp patent cliffs and healthcare cost control focus have choked off pharma growth in developed markets

■ On the other hand, pharma industry is poised for decades of bountiful growth in emerging markets – aided by booming economies

■ Big Pharma are rushing to tap this opportunity by suitably aligning strategies and investments towards emerging markets

■ Driven by solid parent backing, MNCs in India are shedding old dogmas and realigning strategies to market requirements to derive competitiveness

■ Given this, we expect MNCs to stem, and thereafter reverse, the hitherto steady trend of market share erosion in the domestic pharma space

To read the full report: MNC PHARMA