Wednesday, June 25, 2008


Generics firms need to diversify

India’s $8 billion pharma industry has developed around the generics model, but this model is dying globally. Generics are getting increasingly commoditised and the cost of launching generics has also been growing. So, thoroughbred generics companies are finding it extremely tough to sustain margins in the wake of a global onslaught from unknown entities in developing nations.

Rajeev Dubey

Former Ranbaxy CEO D.S. Brar says that those only in the generics space can not remain globally competitive if they don’t diversify into areas like patented products, biologicals and bio-similars. Innovators or generics-innovators like Teva are gobbling up pure generics companies like IVAX. Israel’s Teva Pharmaceuticals, the global role model of the evolution of generics companies, already earns over 20 per cent of its revenues from patented products.

Ranbaxy is India’s biggest spender on pharmaceuticals research, sinking Rs 428 crore, or 8-9 per cent of revenues into R&D in 2007. But it has a dismal pipeline to showcase in return. Ranbaxy has failed to develop new chemical entities (NCEs) that could have excited the market or investors. Its most advanced research product is in the low-end space of anti-malarials.

And adding to Ranbaxy's prospects is the fact that India's pharma market is very fragmented, where Ranbaxy's share is still only 5%. Ranbaxy has acquired nine companies since March 2002, building a debt burden of around $400 million. Its current revenues and profitability aren’t contributing enough to pay off this debt any time soon.

Financially, there couldn’t have been a better time for Ranbaxy to be sold by its promoters. They got a price that was 32 per cent higher than the reigning stock price in the market at a time when global pharma valuations are uncharacteristically low following rising drug development costs and fewer innovative drugs.

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