BSE: 524404 | NSE: MARKSANS | ISIN: INE750C01026
Market Cap: [Rs.Cr.] 2,269.42 | Face Value: [Rs.] 1
Industry: Pharmaceuticals - Indian - Bulk Drugs
Global Pharmaceutical Market
The global pharmaceutical industry grew by 3.3 percent in 2013 (Source: IMS) andis expected to grow to US$1 trillion in 2014 (Source: Urch Publishing). Patentexpirations, government cost-containment policies in Europe and a weak employment scenarioin the US may only be partially offset by the launch of new products and strong growthfrom the emerging markets. The USFDA approved 24 novel products in 2013 (as of November30, 2013), compared to 39 in 2012.
The increase in purchasing power in emerging countries, a growing middle-class andbetter healthcare systems are driving the global demand for medication.
New Products In Mature Markets: In the past, marketing and sales activities werecritical to achieve sales growth. However, strict healthcare policies in countries and arising demand for healthcare products are forcing pharmaceutical companies to focus oninnovative drugs.
Established Products In Mature Markets: Fierce competition and considerable pricesensitivity in this segment means pharmaceutical companies must manufacture their productscost-efficiently to remain profitable. Subsequently, companies often select to outsourceoperations or relocate them to low-cost countries. The companies that can offerhigh-quality products at reasonable prices are expected to be successful, but thisrequires efficient administration, effective marketing and robust sales models.
New Products In Emerging Markets: A growing middle-class, improving healthcarefacilities and rising income levels in emerging markets are driving the demand forexpensive medication. Therefore, companies need to conduct medical and R&D activitieswith a localized mindset coupled with a strong sales organisation and collaboration withregional companies to enhance unhindered patient access.
Established Products In Emerging Markets: Pharmaceutical companies use establishedproducts to enhance scale in new markets. However, companies need to analyse requirementsand the competitive situation of individual markets. As a rule of thumb, pharmaceuticalcompanies need efficient production and sales initiatives to drive their sales andearnings for which collaboration with local partners is rising.
Global Generics Market
Generic drugs are equivalent copies of original, usually patent-protected drugs, whichcontain the same active ingredients and closely match the original drugsformulation, route of administration, safety and performance. These drugs account for themajority of all pharmaceutical sales by volume and offer higher growth potential than thebranded segment, especially in emerging markets. Between 2014 and 2016, originator drugsworth around US$130 billion (in sales during the year before loss of market exclusivity)are all set to be opened up to generic competition (Source: Visiongain).
The global generics market was valued at US$150 billion in 2013 and expected to grow ata CAGR of 8.4 percent between 2013 and 2018. The US is the largest market with a share of45 percent of the total generics segment.
Absolute spending on brands in developed markets is expected to decline by US$113billion over the next five years due to exclusivity losses, slower uptake of new medicinesand more restrictive access approaches. This is expected to be offset by projected US$40billion generic spending, resulting in a US$73 billion patent dividend in2017. In the US, US$83 billion (34 percent) of the 2012 brand spending will shift togenerics at lower prices. In other developed markets, the average brand spending exposedto generic competition will be 22 percent, except in Canada where 30 percent of thespending will be exposed.
Generics consumption will be the highest in pharmerging markets (63 percent of allspending). Patients in pharmerging markets will enjoy an increasing access to affordablegenerics for primary care treatment. Total spending on traditional pharmaceuticals inthese markets is expected to rise from US$199 billion in 2012 to US$336 billion in 2017.
The US is the worlds largest generics market estimated to be worth US$30 billionas of 2013.
The global generic pharmaceuticals market is likely to witness strong growth owing tothe patent expiration of key blockbuster drugs and judicious cost management efforts ofgovernments and healthcare service providers. Drugs worth an estimated US$103 billion losttheir patents between 2009 and 2012 [Source: DTTL Global Life Sciences and Health CareIndustry Group analysis of Global Generic, Cygnus]. Altogether around US$217 billionworth of originator products are expected to lose their patent protection by 2018 [Source:McKinsey report].
US pharma market and India
Total US pharma market is pegged at US$350-360 billion
US generic drug market is worth over US$35 billion
India is the biggest foreign supplier of medicines to the US
India is home to over 200 US FDA-approved drug manufacturing facilities,including many run by multinational companies
Pharma exports from India to the US is estimated at around US$5 billion
Us Generics Market
The generics industry provides a bright spot amidst escalating American healthcarecosts, which are projected to hit US$2.9 trillion in 2013 and reach US$4.5 trillion by2020. Generics saved American consumers an estimated US$1 trillion over the last decade.Growth in the American generics market will be driven by the loss of patent protection fora number of brands [Source: www. decisionresources.com].
The total American pharma market is estimated at US$350-360 billion, of which genericmedicines accounted for at least 10 percent. While American companies held the largestshare, India became the largest foreign supplier of generic medicines to the US.
India-based companies emerged as a growing competitive force in the US genericslandscape. In 2012, over 20 percent of the retail generic prescriptions dispensed werefrom Indian firms. This trend appears to continue as India leads the way in Type-II drugmaster filings. In 2013, India-based companies surpassed US companies with the most ANDAsfiled for the first time.
Global Outsourcing Market
A recent analysis of the Chemical Pharmaceutical Generic Association (CPA), whichrepresents Italian generic API manufacturers, points to strong growth for thepharmaceutical contract research and manufacturing services (PCRAMS) industry. The globalPCRAMS industry, which includes revenues from contract research organizations (CROs) andcontract manufacturing organizations (CMOs), was valued at US$72 billion in 2012, up fromUS$21 billion in 2000. Contract manufacturing accounted for two-thirds of the 2012 market,or US$47 billion, and contract research the remaining US$25 billion, according to the CPAreport, The World PCRAMS Industry.
Of the global contract manufacturing business, APIs and intermediates accounted for thelargest sector at 64 percent or US$30 billion. Contract manufacturing of finished dosageforms accounted for 9.6 percent or US$4.5 billion, according to the CPA report.Development of finished dosage forms accounts for approximately 15 percent of the contractmanufacturing market, or US$7 billion, and packaging/labeling and other services representthe remainder, or US$5.5 billion.
The global PCRAMS market is forecast to grow at an annual average of 13.6 percent overthe next five years to reach US$136 billion by 2017 from US$72 billion in 2012. The globalCRO business is expected to increase from US$25 billion to US$43 billion in 2017,representing an average annual growth of 11.4 percent, according to the CPA. The globalCMO business will increase from US$47 billion in 2012 to US$93 billion in 2017, an averageof 14.6 percent in yearly growth, according to CPA estimates.
The Asia-Pacific region will show the strongest growth in the global PCRAMS market,with particularly strong growth coming in from India and China. The share held by India inthe world PCRAMS market will nearly triple in the next five years, and by 2017, Indiacould be the second largest market for PCRAMS, accounting for 21.3 percent of the globalmarket compared to only 8.3 percent in 2012. India could only be surpassed by the US,which is expected to hold almost 25 percent (24.9 percent) of the global PCRAMS market in2017 compared to a share of 33.7 percent in 2012. Just as the US markets share inthe global PCRAMS market could decline so could the share of Western Europe from 25.0percent in 2012 to 17.1 percent in 2017. Chinas share of the global PCRAMS marketcould increase from 12.2 percent in 2012 to 19.2 percent by 2017, according to the CPAanalysis. [Source: www.pharmtech.com]
Crams Opportunity In Ndia
Contract manufacturing is a strong area for Indian firms enjoying several globaladvantages. The expertise gained in manufacturing generics through reverse-engineeringhelped some companies streamline the process for getting their manufacturing up andrunning. The Indian companies have been costs are competitive and have incurred onlytwo-fifths of the costs required in setting up and running a new manufacturing facility inthe West.
Areas of Contract Manufacturing
Scaling up from large-scale to kilo-level and from kilo to ton-level.
Drug Substance Production
Commercial production of APLs/intermediates.
Dosage Form Development And Production
Commercial production of formulations in different dosage forms.
The CRAMS industry in India is heavily fragmented with more than 1,000 players. Theindustry is expected to reach US$8.0 billion in 2015, up from US$4.0-4.5 billion in 2012.
What drives the CRAMS market in India
Impending patent expirations
Growing R&D costs
Need for cost-cutting
Shrinking R&D pipelines
The US is the largest pharmaceutical market in the world.
The Company strategically focused on increasing its presence in this market to drivecorporate growth and enhance industry respect, which can be leveraged to enter lessdemanding markets across the world.
The Company started filing in this market from 2008 onwards, focusing on productapprovals in diverse dosages (soft gels, tablets and hard capsules) in mature productsegments (pain management, anti-diabetic and CNS).
The Company responded to a product-driven and segment-driven strategy to grow itsbusiness leading to corresponding increase in scale.
The Company made more than 20 product filings in the country, received approvals fornine until the close of the financial year under review, of which all were successfullylaunched. These launches delivered Rs. 96 crore in revenues during the year under review,growing by over 50 percent over the previous financial year.
The Company increased the number of soft-gel filings (more than half). It filed ANDAsfor Ibuprofen tablets in the prescription segment, a relatively under-crowded segmentmarked by only three players. Its approval for Advil was the first generic approval fromIndia and the second worldwide within that family. It filed drugs in the Metformin space,a large mature US$ 1 billion space. It also launched the Gabapentin capsule(anti-depressant) addressing a large mature market with stable pricing.
The Company expects to file about half a dozen products annually in the US market.
The UK represents the second largest pharmaceutical market in the world, providingheadroom for quality-driven companies.
The country accounted for the Companys largest single geography, revenues growingby 52.68 percent, during the year under review.
The Companys growth in this geography was driven through two prudent acquisitions Bell and Relonchem. These acquisitions provided:
Front-end presence with a vast distribution network along with strong sales andmarketing expertise
The ability to addresses the European opportunity through product complementing.Bell manufactures and markets liquids, ointments and powder sachets whereas the Indianmanufacturing facility manufactures tablets and capsules.
Visibility across OTC the and the Rx segments and a wide product basket.
Cost-efficiency ensured by transferring Relonchems Rx product manufacturingneeds to Marksans India.
The UK is one of the largest generic markets in Europe. Strategic acquisitionsprovided Marksans with immediate sales and front-end access to the UKs genericlicensing market of wholesalers, retailers and hospitals.
The success of this integration was reflected in the fact that a significant amount ofthe Companys UK revenues were routed through its proprietary front-end distribution,addressing effectively the requirements of the marketplace and widening marginssimultaneously. The Company emerged among the ten leading Indian pharma companies in theUK and Europe.
The Companys UK product basket addressed opportunities in the OTC (painmanagement, cough and cold, gastrointestinal and anti-allergic segments) and prescription(cardiovascular, anti-diabetic, central nervous system, oncology) segments.
The manufacturing unit worked in tandem with the Companys Goa facility and the UKunit manufacturing sophisticated liquids and ointments. The Company generated attractivesales from the OTC and prescription segments.
The Companys subsidiaries in this market strengthened their business through:
Stability in prices
New product launches -
Propranolol(CvS), Gliclazide 80 mg (anti-diabetic) and Tamoxifen 20 mg (oncology)
Intensive customer penetration - Phoenix, Almus and Celesio
Products in the pipeline and key launch targets comprised Folic Acid tablets,Sodium Bicarbonate capsules, Azathiprine tablets, Mirtazapine (15 milligram and 45milligram tablets) and Gliclazide (40 milligram tablets).
Consequently, these subsidiaries boosted revenues and profits during the year underreview.
Strengths In The Uk Market
Large and growing basket comprising 150 products
Combines low-cost manufacturing capability in India with high capabilitymanufacture (liquids and ointments) in the UK
Relatively low-cost acquisitions
Declining debt in the subsidiaries
Progressive increase in product commercialization
Increased launch of niche products
In 2008, Marksans acquired UKs Hale Group along with its subsidiary company Bell,Sons & Co. (Druggists) Ltd. (Bell).
Bell manufactures licensed products as own branded products and, for certain customers,under its own label along with a range of unlicensed products. Bell owns astate-of-the-art manufacturing facility in Southport and is an established manufacturer ofover 200 OTC pharmaceuticals enjoying approval of the UK MHRA.
Bell holds 38 product licenses, which contribute towards 45 percent of its annualturnover. The product portfolio comprises segments like cough and cold remedies,galenicals, vitamins, palliative and healthcare items, oils, antiseptics anddisinfectants.
Bell customers include retailers, pharmacies, wholesalers and cash-and-carry outlets.The Company enjoys a significant stronghold in the export markets. With more than 80 yearsof experience and a reach across 50+ countries, the brand is recognized and respectedglobally. Its key markets lie in West Africa and the Middle East.
Australia is a reasonably-sized market affording attractive margins and relativelymoderate competition.
The Company is addressing growth in the market through Nova Pharmaceuticals whichspecializes in marketing OTC and pharmaceutical products in segments like oncology,gastroenterology, anti-diabetic, cardiovascular, orthopaedic and neuro-psychiatry, amongothers.
The Companys subsidiary plays the role of a marketing front-end with productlicenses for the country. Of the 25 products for which the Company received approvals, allhad been launched by the close of the year under review.
During the year under review, the Companys Australia and New Zealand revenuesstood at Rs. 81.59 crore. The Company strengthened its business in the geography throughincreased filings.
The Company expects to grow revenues from this geography during the current financialyear with prospects of an even better 2015-16.
Strengths In The Australian Market
Leveraging the ability to manufacture products competitively from India
Strong R&D pipeline to grow the Companys presence
Increased pace of product development and launches
Extensive distribution network
Profitable, dividend-paying subsidiary
Possessing diverse competencies (logistics, marketing and regulatorycompliances)
There is a growing scope in the Rest of world (RoW) geographies in the globalpharmaceutical industry. These markets comprise Canada, vietnam, Philippines, Cambodia,Myanmar, Ukraine, Russia, Kenya and Iraq.
The markets are increasingly regulated, as a result of which the incidence ofprice-based competition has declined and entry barriers have risen. This augurs well forquality-driven companies like Marksans.
The Company addressed the potential in these markets through 500+ filings across arange of therapeutic segments. The Company addressed the demand in these markets with awide product basket spread across diverse therapeutic segments (oncology, cephalosporins,betalactams and antibiotics).
The Company grew RoW revenues by 42.05 percent during the year under review; theCompany broke even in most of the countries of its presence, creating a solid foundationfor the future.