The doctor seems to have arrived to take care of the ailing markets. What we mean is that in the dark stormy clouds of the stock market, the pharma companies seem to be the proverbial silver lining. As per the first quarter results for the year 2000-01 the pharma bottomlines have registered a 90% rise with exports growing by 15%. With a sharp rise in profits at the operating level due to a strong CIS export revival and the product shift from bulk drugs to formulations which offer better margins, the industry seems set to face the new century on an upbeat note.

The whole year expectations regarding the industry are also upbeat as the reasons for the growth mentioned above are unlikely to peter out and thus the good results should continue to roll in. The Pharmaceutical Industry recorded a robust growth rate of 17 % successively, for the last five years and growth rate of the sector is forecast at 15-20 % p.a. in the coming year. Today India is one of the largest pharmaceuticals market in the world by volume and at present gross sales of Pharma companies exceed US$ 4 billion (Rs 170 billion) equivalent to 2% of global share. The BSE Healthcare index has also started showing signs of revival after a long time and is expected to outperform the index in the coming months. Other than the MNC darlings like Glaxo, German Remedies, the Indian pharma giants like Dr.Reddy's, Sun Pharma, Morepen, Ranbaxy and Wockhardt have also shown their mettle in the global arena. Be it registering of patents in the US or catering to the world market, or basic research, the Indian big boys are on the roll with their products, research, distribution systems and brands.

The very tone or composition of the pharma industry is changing worldwide. India is positioned favorably to reap the benefits of these changes. Contract manufacturing, is an upcoming area where Indian pharma companies can score. Also known as third party, or toll manufacturing, it is globally, the trend by pharma MNC's to outsource pharmaceutical products like bulk drugs, drug intermediates, and formulations. In 1998, this industry was close to $73bn. According to International Medical Statistics, a premier market research organization, half of the big pharmaceutical companies worldwide have moved towards aggressive outsourcing through long term strategic alliances. Some of the companies that are already into outsourcing contracts are Ranbaxy Laboratories, Lupin Laboratories, Nicholas Piramal, Wockhardt India Ltd, DR Reddy's Laboratories and Glaxo.

Sun Pharmaceuticals, believes in the philosophy of moving up the value chain and has thus gone in as a partner to an international manufacturer. With an eye on the burgeoning generics market in the US, Sun Pharma acquired a 45 per cent stake in the US-based Carco Pharmaceuticals. The real opportunity for outsourcing will come from the generics market which is growing annually by 14%, 8% faster than prescription, or branded, products. In 1996, the world market for generics was $30bn. It is likely to touch $50bn by the year 2000, as drugs worth $25bn will break the shackles of patents. Here the competition for generics is intense, and timing is a crucial factor. Past experience indicates that the first company to launch a generic version of particular product tends to capture 60 to 80 % of the market.

On a futuristic note the new mantra for success on the markets seems to be knowledge based industries. With the biotech industry being quoted as the next biggest thing like the software industry, it is natural for the forward looking pharma companies to look at this area. India's advantage in this field will again be its large pool of english speaking, relatively inexpensive work force-in this case scientists. A combination of chemistry, software and biology - the estimates are that the bioinformatics industry will be worth close to $2bn by 2003, and if genomic related research is added it could go upto $20 bn. Indian pharma companies are on the roll and some like Dr.Reddy's have already registered genomic labs in the US. Whether it is collation of clinical data, or development of software to analyze that data or post analysis develop processes to manufacture molecules, all these things can be done by India replicating the software success story. In plainer language investors can benefit from these developments by investing in forward looking research oriented pharma companies like Dr.Reddy's, Glaxo, Ranbaxy, Sun Pharma which have provided long term appreciation to investors by dividends, bonuses and price appreciation

Aru Srivastava

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