Indian pharma to gain from LatAm rule on generics

Written by Pallavi Ail | Mumbai | Updated: Oct 27 2014, 06:38am hrs
A recent change in the regulations governing generic drugs, in the Latin American countries of Brazil and Mexico, could turn them into a pivotal market for Indian pharmaceutical firms. Research firm IMS pegs the total pharma opportunities in LatAm at $60 billion. It forecasts that the market will grow at 14% to 15% annually.

Governments in countries such as Brazil and Mexico have mandated the use of bio-equivalent drugs and are phasing out similar medicines. Given the generics sold by Indian firms, whether at home or in the US, are bio-equivalent in nature, this provides them with a big opportunity. Bio-equivalent drugs are already a regulatory must in the US and India now supplies an estimated 40% of US requirement of generics. When a generic drug is said to be bio-equivalent, it implies that the copycat therapy is a pharmacological replica of the innovator drug which in turn assures similar efficiency.

On the other hand, pharma firms in LatAm markets, especially Brazil and Mexico, sell branded non-bioequivalent drugs, called Medicamento Similares or similar medicines. These drugs are primarily sold by home-grown firms such as EMS and Hypermarcas.

Balaji Prasad, director, Barclays Securities, believes there is potential for Indian firms to replicate the success of branded generics in the US in LatAm market too.

Although the US rightfully takes up most of Indian pharma managements time, we believe LatAm with average growth rates of 14-15% should occupy greater mind share, as the dynamics of the market there are similar to that in India, Prasad observed in a report.

Indian companies currently hold a small share of just 2% to 3% of the market in the LatAm region major players include Glenmark Pharmaceuticals, Dr Reddy's Laboratories, Natco Pharma and Lupin. Glenn Saldanha, CMD of Glenmark, pointed out his firm had been one of the first movers and was probably the largest Indian firm operating in the region. Starting off in 2004, with the acquisition of a small Brazilian firm, we now operate in 12 countries in the region, including key markets like Brazil, Mexico, Venezuela and Argentina, Saldanha said. The company has built manufacturing facilities in Sao Paulo in Brazil and Buenos Aires in Argentina. Brazil has the highest potential in the region with a market of $16 billion and an expected compound annual growth rate of 10%. However, Brazil's regulatory agency, ANVISA, is believed to be quite strict.

In the last couple of years, there have been challenges on the regulatory front in the region with delayed product approvals affecting the growth of companies; but despite the challenges, the pharmaceutical market in the region grew by around 10% last year, which is a decent growth and in line with other emerging markets like India, Saldanha said.

The slow rollout of the medicamento rule could boost consolidation in the market, with local players seek partnerships or merging with foreign players to survive. In March this year, for instance, Lupin bought Laboratories Grin, a Mexico-based specialty ophthalmics firm. Lupin CEO Vinita Gupta had said then the acquisition was a reflection of the firms commitment to expand in the Latin American market and build its global specialty business.

Barclays Prasad pointed out additional opportunities, in the form of manufacturing partnerships in which smaller local firms may need the technological know-how or bio-equivalent capabilities of international generic firms, he said. He added most company management teams have highlighted the challenges in getting regulatory approvals from ANVISA and also the lengthy timelines involved. Cadila Healthcare CMD Pankaj Patel had observed during the companys Q1FY15 earnings call that Brazil was an important market for the company though growth had been limited since it had no product approvals. We expect product approvals should happen now, based on the meetings we have had with the regulatory agency, Patel said.