Excluding Lupin, which operates in both patented and generic drugs business in the US, combined quarterly earnings of the four firms grew 112% during the quarter on an annual basis. The timing, when several blockbuster drugs with market size over $1billion were losing patent protection, proved fortunate for many of these firms.
The surge in US business comes at a time when many of these companies feel irrational price controls and emerging patent regime are undermining their growth potential within the country.
However, unlike 5-6 years ago, companies are no longer content with timely US launch of generic drugs. All of them are innovating on their offerings, creating Plan Bs to milk the exclusive marketing window to the fullest, finetuning marketing and pricing strategies as they go.
Dr Reddys posted its best quarterly revenue and profit in the quarter, leveraging a tie-up with Israeli generic drug rival Teva. Dr Reddys, which managed a 180-day period of marketing exclusivity opportunity for the largest-selling strength of generic blockbuster Zyprexa, an anti-psychotic drug, partnered rival Teva for distribution. Annual US sales of Zyprexa is around $3.2 billion, of which the largest selling strength is over $900 million. In a little over two months, Dr Reddys has already clocked $100 million from this generic opportunity, cornering 60% market share. Top management attributed better-than expected revenues on this account to their tie-up with Teva.
Similarly, for its US Lipitor generic launch, Ranbaxy pursued multiple options. The company tackled regulatory challenges, shifted manufacturing location to US and signed an undisclosed pact with Teva. Pfizer, which owned Lipitor, meanwhile sought to guard its market share with discounts on the original brand and tie-ups with pharmacies to create loyalty pools. Ranbaxy responded with deeper discounts of 60-70% on its drugs, against the normal 40-50% offered during the six-month exclusive marketing period.
The quarter is undoubtedly the best in revenue terms for these Indian pharma firms. These are, of course, fruits of filings these companies did in early 2000s, said Hemant Bakhru of brokerage firm CLSA. But here on, the number of filings will dwindle and value per molecule will shrink, he said.
The creative maneuvering of Indian biggies reflect their maturity and confidence in the US market, which they have acquired after a decade of experience there. Many big firms are now shifting US strategies from chasing big best-selling molecules of $1-billion sales to complex mid-sized molecules of sales in the range of $300-500 million which are difficult to manufacture and consequently, have limited competition, said Murali Nair, partner, Ernst & Young.
Lupin, Dr Reddys and Sun Pharma are moving in that direction. Nair said Indian firms are also venturing into supergenerics in the US, which implies that instead of cloning the exact composition of the patented drug, they tweak it to offer a different formulation or a new form of delivery, adding value to existing products in the market. This differentiation assumes critical relevance in the face of intense competition resulting in wafer-thin margins, which in many recent cases end up lower in US than in Indian market for the same drug.