Kotak Securities Report on the pharma sector
The Business Standard reports that Over
the past few years, pharma companies have increased their R&D budgets significantly
in view of their growing focus both on regulated markets and complex
molecules/therapy segments.
According to a recent ICRA report, in FY14, most of
the leading pharma players spent anywhere between Rs 500 and Rs 1200 crore on
R&D, which represented an increase both in absolute term as well as in
proportion to net revenues (around 8-11 per cent of sales).
For most Indian companies, growth has so far been led by plain-vanilla generics
and interesting Para IV opportunities. Competition is rapidly intensifying in
plain vanillas as well as para IV filings with more players from India as well
as other emerging countries targeting US generic market. Hence to sustain
growth as well improve profitability, few Indian companies have already
increased spending on R&D.
If we look at some of the Gujarat based pharma companies, like Alembic, Zydus
Cadila and Torrent Pharma, a Kotak Securities Report on the sector highlights
that these companies have spent nearly 2 per cent (or around Rs 250 crore), 6
per cent (or Rs 750 crore) and 2 per cent (or Rs 280 crore) of their revenues
in FY14 on research and development.
The Kotak report further says that, "Higher R&D expense enables
companies to file niche complex and difficult to make generics which acts as an
entry barrier for competition. Select Indian pharma majors such as Sun Pharma,
Dr Reddy's and Lupin are already ahead of the curve in this respect. Second rung
players like Cadila, Alembic and Natco also have carved out niche opportunities
for US markets."
Even ICRA feels that the trend of higher R&D spend would continue in the coming years thanks to companies entering more complex segments.
Even ICRA feels that the trend of higher R&D spend would continue in the coming years thanks to companies entering more complex segments.
"We expect this trend to continue as most of the leading companies are in
the midst of expanding presence in complex therapy segment such as injectables,
inhalers, dermatology, controlled-release substances and even biosimilars. Many
of these segments entail higher R&D costs during the development stage
owing to product complexities and need for clinical trials," the report
said.
Further, "While R&D spending would continue to vary across companies, we expect significant rise in R&D budgets, especially for companies that are developing biosimilars (for regulated markets) or have portfolio of NCEs under development. As these entities get closer to conducting clinical trials, they are likely to pursue JVs/Alliances with the objective to share investments and securing technological capabilities," it added.
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