Slowdown to cut drug firms’ profits

Braving thinning margins and increasing competition in the developed world, the country’s top five drug makers, barring Ranbaxy Laboratories, have posted growth in profits and overall sales across the world. Generic drugs, once the strong hold of Indian drug companies, are now attracting big pharmaceutical companies as innovative drugs’ pipeline seems to dry up.
The generics business was not an attractive business proposition for most companies that were fetching big money from products enjoying patents until a few years earlier. However, with the dwindling new drug pipeline and existing drugs going off-patent in the near future, companies are now turning towards the generic model that has worked for India and China.
The only company among the top 10 drug makers in India that suffered losses during 2008 was Daiichi Sankyo’s subsidiary Ranbaxy Laboratories. The company reported a net loss of Rs 1,044.8 crores for 2008, as against a net profit of Rs 617.7 crores in the previous year.
Its total income, however, went up 9.85 per cent to Rs 4,681.7 crores in 2008, as compared to Rs 4,261.9 crores in 2007. Ranbaxy follows the calendar year.
Global sales for the September–December quarter during 2008 were at Rs 1,909.6 crores, an increase of 6 per cent, as against the same quarter the previous year. The company’s sales maintained a skew towards more profitable, branded emerging markets, which contributed 54 per cent to the annual sales recording a growth of 9 per cent over 2007.
Malvinder Mohan Singh, chairman, chief executive officer and managing director, Ranbaxy Laboratories, said, “The past year has been a significant one… The company also faced hurdles like the US Food and Drug Administration’s Import Alert and unprecedented forex (foreign exchange) volatility following an unforeseen global financial crisis. Through several path-breaking initiatives, we have secured a future of high growth for the company, while we are focused on resolving the ongoing issues that have adversely impacted us this year.”
Other Indian drug companies including Dr Reddy’s Laboratories, Sun Pharma-ceutical Industries, Cipla and Lupin not only posted growth in total sales but also in net profits for the quarter ending December 31, 2008.
Dr Reddy’s Laboratories posted net profit of Rs 192.40 crores during the September–December quarter, as compared to a loss of Rs 121.30 crores in the same period last year. The company’s revenues stood at Rs 1,840 crores in the period, as against Rs 1,231 crores in the third quarter of financial
year 2007-08.
Industry analysts, however, said that the company might suffer decrease in revenues from the Russian and Commonwealth of Independent States (CIS) markets owing to the depreciation of the rouble. These markets may bring in just about 12 per cent of the firm’s revenues, but they contribute around a fifth of the profits.
Analysts estimate that net sales growth could taper off to sub-10 per cent levels in 2009-10 from an expected Rs 6,300 crores this year, while net profits could stay flat or drop slightly because of foreign exchange losses.
Dilip Shanghvi-controlled Sun Pharmaceutical Industries posted an over 28 per cent increase in net profit for the quarter ending December 31, 2008 at Rs 408.6 crores, as compared to Rs 318.4 crores during the same period last year. Its consolidated income grew by about 15 per cent at Rs 927.76 crores, from Rs 808.3 crores for the quarter ended December 31, 2007.
Commenting on the results Dilip Shanghvi, chairman and managing director of the company had said, “Despite the uncertainty in global financial and consumer markets, which may have a delayed impact on our business, the long-term strategic intent remains intact with continuous progress being
made on building therapy presence in existing and new markets.”
Mumbai-based Cipla posted 6 per cent growth in net profit at Rs 223.44 crores in the year ending December 2008, as compared to Rs 210.65 crores in corresponding period last fiscal year. The company’s sales rose more than 25 per cent to Rs 1,264.30 crores in thee-month period as compared to Rs 1,006.51 crores in same period last year. Lupin also reported 32 per cent growth in revenues at Rs 972 crores for the quarter ended December 2008 from Rs 738 crores in the corresponding period last year, while the company’s net profit for the quarter grew by 16 per cent at Rs 116.5 crores.
Surging overall sales and increasing profits of generic drug companies are attracting multinational companies to acquire drug companies in the generics space. The world’s largest drug maker Pfizer recently entered into an agreement with Hyderabad-based Aurobindo Pharma to supply their products in the developed world and Japanese Daiichi Sankyo bought a controlling stake in Ranbaxy Laboratories indicating that big pharma companies’ growing interest in generics.
The global generics market is poised grow to $140-150 billion by 2015, keeping in view that patented drugs worth $ 105 billion are going off-patent in the near future, according to an YES Bank estimate.
“Multinational drug makers have realised that future growth prospects are in emerging markets, where generics dominate. While developed markets such as the US and Europe are stagnating with 1-2 per cent growth, emerging markets are growing at 12-14 per cent annually,” D G Shah, secretary general of the Indian Pharmaceutical Alliance, said.