No let up in race to capture emerging market growth

Big pharma’s headlong rush into branded generics within the emerging markets of the world continues to gather pace with news today of two new collaborations. Abbott Laboratories have licensed a portfolio of products from India’s fifth biggest generics group, Zydus Cadila, while GlaxoSmithKline took a 9.9% equity stake in South Korea’s biggest pharma company, Dong-A Pharmaceutical, creating a new business unit to co-promote Glaxo and Dong-A’s products.

As if anybody needed reminding, Abbott re-emphasised the now standard statistics that emerging markets will now account for 70% of the global pharma industry’s growth over the next five years with branded generics now accounting for 25% of the worldwide pharma market. These deals follow a number of similar transactions over the last two years and it is now easier to make a list of big pharma companies that do not have a branded generics strategy, quite a turn around.

Another equity stake alliance

Glaxo’s alliance with Dong-A, which will cost $109m, is along similar lines of its deal with Aspen Pharmacare last year when Glaxo purchased a 16% stake in the South African group for $400m (Less may prove to be more for Aspen in the long run, May 12, 2009).

The new business unit will initially focus on selling proprietary and generic primary care products in the Korean market, but with Glaxo making no secret that it could form a stepping stone for broader expansion into one of the fastest growing Asian markets.

Broadly speaking Glaxo and European peer Sanofi-Aventis appear to be the most aggressive in striking licensing and M&A deals within the emerging markets. Indeed, as the table below shows, Glaxo already struck a deal similar to the Abbott-Zydus Cadila collaboration just under a year ago when it licensed rights to 100 branded generic products from Dr. Reddy’s Laboratories.

Indian partners of choice

Abbott’s deal with Zydus will initially provide access to 24 of Zydus’ branded generic products within 15 emerging markets, with an option to license a further 40 products from Zydus.

At the same time Abbott formally announced the creation of a stand-alone, Established Products Division (EPD), with annual sales of $5bn mainly from branded generic products within emerging markets. Abbott says 20% of its pharmaceutical sales are currently derived from emerging markets.

This is almost an exact copy, even down to the terminology, of Pfizer’s Established Products unit which has a similar remit, with annual sales of $10bn, and last year struck a similar deal with Aurobindo Pharma.

Big Pharma Emerging Market Collaborations with Indian Generics
Indian Company Big Pharma Date Remarks
Zydus Cadila Abbott Laboratories  11-May-10 Access to 64 branded generics; Abbott's Established Products division has annual sales of $5bn
Torrent Pharmaceuticals AstraZeneca  11-Mar-10 Access to 18 branded generics
Dr. Reddy’s Laboratories GlaxoSmithKline  15-Jun-09 Access to 100 branded generics
Aurobindo Pharma Pfizer  03-Mar-09 Access to 60 branded generics; Pfizer’s Established Products business unit has annual sales of $10bn

According to consensus forecasts from EvaluatePharma, Zydus is currently the fifth biggest Indian generics group in terms of generic pharmaceutical sales, moving up to fourth spot by 2016 with sales of $1.89bn.

Annual generic sales growth between 2009 and 2016 for Zydus will be 13%, while the average growth rate for the top ten Indian companies is forecast to be around 11%. Contrast this with growth of just 2% overall for the top 20 global pharma companies and the attraction in pairing up with Indian companies is clear.

Top 10 Indian Companies WW annual generic pharmaceutical sales ($m)
2009 2010 2012 2014 2016 CAGR (09 - 16)
   Dr. Reddy's Laboratories  1,044  1,216  1,569  1,921  2,274  12%
   Ranbaxy Laboratories  1,405  1,591  1,939  2,076  2,219  7%
   Cipla  1,088  1,225  1,476  1,719  1,955  9%
   Zydus Cadila  782  945  1,258  1,572  1,886  13%
   Lupin  694  859  1,158  1,456  1,754  14%
   Sun Pharmaceutical Industries  860  1,078  1,244  1,466  1,689  10%
   Piramal Healthcare  486  594  792  975  1,142  13%
   Glenmark Pharmaceuticals  499  575  703  831  958  10%
   Aurobindo Pharma  387  468  628  791  951  14%
   Torrent Pharmaceuticals  362  421  547  673  797  12%

As to whether the profit margins from emerging markets is quite as attractive as the sales growth remains to be seen and pressure will increasingly be placed on these companies to disclose this level of detail to justify this new strategic direction.

Glaxo recently revealed a 36% operating margin in emerging markets in the first quarter, just over half of that from established markets. With big pharma profit margins set to decline through the patent cliff, which way this margin moves over the next few years will be interesting especially given global pricing pressures and increasingly fierce competition for emerging market growth.

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