Cipla loses No 2 slot as Sun, Lupin race ahead

Written by Soma Das | New Delhi | Updated: Jun 18 2012, 06:44am hrs
In a reshuffle of the top domestic pharmaceutical companies by turnover, Sun Pharma and Lupin have dethroned Cipla to become the second and third largest Indian pharma companies after Dr Reddys Laboratories. Cipla, which was till recently the second largest domestic pharma firm by sales had entered the top three league in 2008 when Ranbaxy was acquired by Daiichi Sankyo, thus disqualifying it from technically being a domestic pharma firm. Now the company has slipped to the fourth position.

Buoyed by its successful acquisition of Israeli drug maker Taro, coupled with its own US focus, Sun Pharma has grown at a rapid 39% to clock sales worth R8,006 during fiscal 2012. While Lupin posted net sales of R6,960 crore during fiscal 2012, up 22% compared with R5,707 crore in the previous year, Ciplas net sales have grown at a tempered rate of 12% to touch R6,847 crore during the same period.

Going by analysts projections, this gap could widen next year unless Cipla changes the plot.

The three broad strategies that perked up Lupin's performance are its robust presence in two of the world's largest drugs markets in terms of value the US and Japan its differentiated strategy in the US of entering branded as well as generics market and its bet in the domestic market to build a basket of drugs targeted at chronic diseases in comparison to many peers who market a portfolio clearly skewed towards acute therapies, prone to seasonal fluctuations.

Meanwhile, Dr Reddys has further fortified its position as the largest Indian drug firm by sales. A slew of successfully executed first to file opportunities in US from patent expiries of blockbuster drugs along with its strong performance in Russia helped Dr Reddys grow 29% to log net sales of Rs 9,674 crore during the 2012 fiscal. In Sun Pharmas case, Taro reported sales of $506 million (Rs 2,800 crore) in calender year 2011 and $145 million (Rs 802 crore) for the quarter ended March 2012, significantly lifting the parent firm's revenue.

For their growth story, companies rely on a business mix. Based on these bets, the script of growth story keeps changing. We believe our bets in the geographies we delineated to focus on and the strategies we adopted there paid off. Today, 35% of our revenue comes from US, 30% from India and 14% from Japan, said Kamal Kumar Sharma, managing director, Lupin.

This is indeed a unique mix for any Indian drug firm, particularly if one takes into account Japan a $96-billion market that Sharma describes as mature and emerging at the same time. It is mature in terms of being the second largest drug market in value terms and one of the most stringently regulated and it is emerging from the perspective of Lupin and other generic players as generic drugs till date account for only 25% of the total market. This leaves great scope for generic players to step up for a larger play in the market, particularly against the backdrop of the governments intent to increase genericisation of the drug market to slim down its healthcare cost and a promise of special treatment to Indian players.

With its acquisition of Irom in November 2011, the contribution of Japan into Lupins revenue kitty rose to 14% during fiscal 2012, up from 11% in the previous year. A huge chunk of drugs is administered in hospitals, so acquiring Irom with its strong injectables portfolio would help us crack the Japan market more effectively, Sharma said. Combined this move with Lupins earlier acquisition, Kyowa, and the firm is today best-placed among all its Indian peers to encash on the wave of generic penetration in Japan, said Ranjit Kapadia, senior vice-president, Centrum Broking.

It is also clear that as the ascent to the US patent cliff (a phase when a host of drug brands lose patents) steepens, firms which get their act right in US would reap a rich harvest. For instance, Dr Reddys earnings from US have zoomed to Rs 3,189 crore during the 2012 fiscal compared with Rs 1,899 core in the previous year. Lupins action on the patent cliff in US has barely begun, Sharma says. Of the 173 drug abbreviated new drug applications filed, 42 are in the market. The rest would be launched in next three to four years. It is the only Indian company to figure in the top five generic firms in the US prescription market and the only one to have built business of branded (patented) drugs in US.

The US has never been the most important market for Cipla, which derives over 40% of its business from the domestic market. Of the 59% of revenue that comes from international business, 40% is derived from African markets. What has hurt Cipla is its great dependence on acute therapies in the domestic market, said Sarabjit Kaur Nangra of Angel Broking. The domestic market showed a transient slowdown in first half of 2012, which is attributed to a slump in sales of anti infectives due to a weak monsoon. Anti-infectives account 27% for Ciplas domestic sales. Both Sun Pharma and Lupin have built their portfolio around chronic drugs, which remain immune to annual seasonal fluctuations. Since 2007, while chronic segment has consistently grown over 20% per annum (barring one year of 18% growth), the growth of acute drugs has fluctuated between 8% and 16%. While Sun and Lupin grew in the range of 22-23% in the domestic market in fiscal 2012, Cipla expanded at 15%.