Why Indian Units Of Pharma MNCs Are Emerging As A Safe Bet For Investors

Listed subsidiaries of foreign drugmakers have outperformed their domestic peers and the benchmark Nifty Pharma Index this year on the back of new product launches and the government’s push for affordable healthcare.That came as India’s largely export-oriented domestic drugmakers face headwinds in key markets, including the U.S. and western Europe, because of regulatory hurdles, price erosion, competition and litigation..Here’s why multinational drugmakers beat their Indian peers....Focus On Domestic MarketAll the foreign firms that are listed in India cater largely to the untapped domestic market, Alok Dalal, pharma analyst at CLSA, said in a report. Focus on growing key brands and increasing acceptance of patented products boosted their recent performance.According to IQVIA, a pharma researcher based in the U.S., MNC power brands are prevalent in underpenetrated therapies such as diabetes, thyroid diseases, and cancer and have disproportionate market share despite high competition.CLSA said India’s Indian pharmaceutical market is estimated to grow from $19.5-billion to $55 billion in 10 years. That growth, according to the brokerage, will be driven by rise in chronic ailments such as diabetes, cancer and cardiac diseases..Brand RecallForeign drugmakers are already growing nearly as fast as their Indian peers in the domestic market. Indian firms grew at 10.2 percent in FY19, just above their MNC peers’ 8.5 percent growth rate, according to data from the pharmaceutical research firm AIOCD-AWACS.Listed foreign drugmakers in India command a market share of over 15 percent as of November, AIOCD AWACS said. The share jumps to over 20 percent if unlisted firms are included. And they gained from regulatory issues and competition among domestic peers.Indian companies faced competition from smaller players due to the opening of Jan Aushadi stores and medicine supplies at regulated lower prices, according to CLSA. Moreover, regulatory and corporate governance issues plaguing large domestic players also created shortages, the brokerage said. That opened the doors for MNC firms as they were well-placed to face these disruptions, it said.Cyndrella Carvalho, vice president—research at Centrum Broking Ltd. said the MNC drugmakers also have the highest brand recall and benefit of bigger marketing platform with better marketing practices..The government has exempted patented drugs from price control for five years. And the intellectual property framework has also improved, according to CLSA. That’s making it attractive for parent companies to launch patented products in India, helping them increase their market share.Patented formulations and in-licensing together comprise 4.4 percent of the Indian pharmaceutical industry, growing at an annualised rate 16-17 percent, Charulata Gaidhani, equity research analyst at Dalal & Broacha, wrote in a report. The foreign firms, Gaidhani said, are working towards a dual pricing pact for fixed volumes of patented products in the healthcare programmes. That means they would sell their products at a rate lower than the market price to the government..Revenue and Ebitda of foreign firms have grown in double digits in India in the past 12-18 months on the back of focus on key brands and rising acceptance of patented products, according to CLSA.The multiplier effect generated by power brands and launches from their parents’ pipelines should sustain growth, CLSA’s Dalal wrote. MNCs, he said, have also been able to reduce launch times from the parents’ pipelines from 18-48 months to 6-18 months.Yet, risks persist. The government’s drive to reduce healthcare costs has resulted in price controls and threat of substitution from Jan Aushadhi—an initiative to promote quality, low-cost generic-generic (substitution) drugs. But MNCs’ patented-product portfolios and power brands can withstand such disruptions and enjoy significant unaided recall via patient outreach programmes, CLSA said..Analysts said that strong balance sheets, superior return ratios and a predictable earnings profile make stocks of foreign drugmakers defensive bets despite their high valuations.Opportunities to invest in pharma companies are getting difficult given the global economic scenario and investors are looking at companies that are clean and have a strong balance sheet, Ranvir Singh, pharma analyst at IDBI Capital, told BloombergQuint. “MNCs fit that bill.”Singh said the valuations of foreign drugmakers are at the higher end but these are the “few choices available”..There’s a preference among investors for companies that offer certainty of cash flows, capital protection and secular growth, Vishal Manchanda, pharma analyst at Nirmal Bang Institutional Equities, told BloombergQuint. Large brands of such firms are becoming larger in the domestic market, he said.OutlookAbbott sees India as one of the highest-growth markets globally over the next decade. The company expects the ‘pill plus services’—screening of patients by roping in physicians—strategy to be the key differentiator to take it “beyond their current successes”, Ambati Venu, managing director at Abbott India, said in the annual report for 2018-19.AstraZeneca, in its annual report for the last fiscal, said initiatives to improve access to healthcare and insurance coverage, positive regulatory environment, increased proliferation of e-pharmacies and new drug launches will drive growth.Pfizer India Managing Director S Sridhar said at the company’s annual general meeting that aligning its India business with its international portfolio helped it sell its global products in the country, resulting in deep synergies.GlaxoSmithKline Pharma’s focus on priority global brands and a new trade channel strategy is working well, according to its annual report. The company highlighted 20 global focus brands that would be actively promoted to customers and healthcare professionals..Watch | Why MNC Pharma Has An Edge Over Domestic Peers.How To Sign Up For BloombergQuint Story Notifications

Why Indian Units Of Pharma MNCs Are Emerging As A Safe Bet For Investors

What makes pharma MNCs the defensives for India’s stock markets.

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