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Next flavours in Pharma

Sai Prabhakar Yadavalli BL Research Bureau | Updated on October 04, 2021

With the advantage of a US generics market focus wearing off, what is the way forward for Indian Pharma players? Here’s a close look at the opportunities and challenges


Indian pharma companies’ growth in the last decade has been driven by focus on US markets. With this advantage wearing off, players are now eyeing various routes to ride the next wave of growth. Here’s a look at how pharma players are preparing for the future and what lies in store for the stocks in this space.

Large Indian pharma companies have begun moving away from generics to product lines that are differentiated. Consistent pricing pressure and increased competition have chipped away premium attached to generics.

The US market, accounting for 40 per cent of world pharma by value, will continue to hold sway on export-oriented companies.


But plain vanilla generics need to be complemented with other value added products, in order to regain pricing power. Aware of this, companies have since entered different avenues for the next big break, and managed to arrest the slide in valuations. How are listed pharma players placed to consolidate and build on their focus in these new avenues?

US generics behind them

The opportunities found in North American generics began fading away as early as 2015-16. The buyers in US started consolidating from 2015, shifting the pricing power to their advantage. The accommodating stance of US FDA morphed into a challenge as competition increased even in products with more than three generic filers. The approval cycle of complex products stretched significantly, robbing companies of early mover advantage. In spite of rupee depreciation aiding exports, revenue growth slowed to an average 7 per cent CAGR during FY15-20 compared to 24 per cent CAGR during FY10-15 for the large companies.

Current opportunities

Indian Pharma

Indian pharmaceutical markets have consistently reported a market growth of over 10 per cent (6 per cent volume) in the last decade thanks to under-penetration and increasing chronic conditions.

The existing players, including MNC Pharma and domestic companies, have therefore redoubled their efforts to retain/grow market share in India.

Sun Pharma increased its existing field force by 10 per cent in FY21 . Dr. Reddy’s supplemented its India portfolio by acquiring Wockhardt’s domestic brands in early FY21. Cipla and Dr. Reddy’s are now initiating process efficiencies with digital capabilities, especially post-Covid.


Cipla restructured along the lines of trade generics and prescription business for better reach. Cadila expects to go beyond small molecules in India by focusing on its biosimilars, vaccines and proprietary products.

In-licensing brands (acquiring commercial rights) to fill product gaps was successfully utilised earlier and has picked up pace post-Covid.

Sun Pharma is the market leader in India and has reinforced its field strength as well. But continued investments in product development and in-licensing new products can aid companies, including Dr Reddy’s, in rejuvenating their domestic portfolio.

Indian markets provide EBITDA margins of around 25 per cent.

Revenue per month per sales personnel, which ranges from ₹4 lakh to ₹9 lakh, is also crucial in achieving the above margins.


Biosimilars (products similar to Biologics) address therapies for cancer, immunological diseases and insulin. Considering the technological barriers — $100 million development cost (for regulated markets) and 5-9 year timelines — biosimilars are being seen as valuable diversification. Biocon, which flagged off the biosimilar race, has achieved sales of $380 million in FY21. Biocon’s two biosimilars launched in the last 2 years have achieved close to 10 per cent market share, and a third achieved interchangeability status (substitutable to reference product).

Lupin filed its first biosimilar dossier in the US (Pegfilgrastim) in June this year, after launching a biosimilar in Europe last year (Etanercept). Lupin’s Ranibizumab was approved in India in July and is undergoing trials in US.

Dr. Reddy’s has built a platform of biosimilars in EMs (a total of 11 in the pipeline) and is now expanding to regulated markets with Rituximab (in Phase 3) in the US and partnering a European major for Pegfilgrastim biosimilar. Aurobindo also filed its first biosimilar application in Europe recently and has a large portfolio of biosimilars in its pipeline.

But achieving multi-million dollar sales with strong market share while taking on established players is the current challenge facing domestic players. Most companies are testing EMs for biosimilars before taking the plunge into developed markets.

Companies are actively studying the next wave of products losing exclusivities in the next decade and strive to be amongst the first entrants in these products. Sun Pharma, which only recently announced its biosimilar plans, aims to launch products in the later half of the decade. Biocon has announced its partner for the next wave of launches (Sandoz), which will include its own launches as well. The market should be more conducive for building market share by then.

Biosimilars can potentially provide EBITDA margin of around 35 per cent even with a commercialisation partner. A portfolio of biosimilars becomes crucial as it can spread the overheads over 5-6 products, allowing for faster turnaround in profitability.

Specialty products

The segment broadly refers to innovator products that require high development and front-end costs and offer a strong product life, if successful. Despite the higher cost outlay for an essentially binary outcome, a few firms have still ventured into such development. Sun Pharma’s Specialty portfolio accounted for 64 per cent ($148 million) of US revenues (Ex-Taro) in Q1FY22, which could be the reason for reporting a decent quarter compared to its peers. This includes Ilumya, which generated sales of $143 million (+50 per cent YoY) in FY21 .

Cadila’s Saroglitazar is approved in India for treatment of Type 2 diabetes and for liver diseases NASH and NAFLD, approved in the year 2020. Cadila is now conducting studies in US with Saroglitazar. It also received orphan drug status (trials in underserved diseases) from US FDA.

Similar to Cadila, Biocon is working on its anti-CD6 molecule Itolizumab, approved in India for plaque psoriasis and also for treating Covid-19 patients. Biocon is commercialising the molecule in Europe while US rights have been outlicensed to a partner.

Although other companies have developed such products, they are looking for early monetisation in order to hedge the development costs. Lupin out-licensed its proprietary MEK inhibitor (cancer) and MALT1 inhibitor (haematological cancer). The deals allow for development and sales-related milestones and royalties from Boehringer Ingelheim and Abbvie, respectively. Dr. Reddy’s developed a wide range of specialty products but recently out-licensed those products, including E7777 and oral celecoxib.

Specialty products’ margin potential in the stable stage of the product life (post investing in marketing infrastructure) should compare to innovator level margins of around 40 per cent. Sun Pharma expects to turn margin-positive from the specialty segment this year, after making intense investments in Ilumya and Cequa over the last two years.

Complex products

The complex portfolio refers to either complexity of process, product, sterility or regulatory complexity. Complex injectables are one set that includes depots (long acting), transdermal patches and penems (antibiotic), all of which require dedicated and sophisticated manufacturing lines. Respiratory generics, which require complicated trials to prove similarity, are the other complex products which have not faced notable generic competition.

Cipla has a strong respiratory portfolio including generic Albuterol and Brovana launched in the last one year. The company has progressed far in the development of generic for lucrative market of Advair.

Cipla has a deeper respiratory pipeline, including partnered products set to be commercialised over the next three years. Its complex product pipeline also includes peptide development for three products. Lupin has similarly developed a strong portfolio in respiratory products covering Albuterol and Fostair (European launch) and is developing Spiriva generic in respiratory segment. Its pipeline also includes generic Brovana, Dulera and Perforomist, all in the respiratory segment.

Cadila’s complex portfolio mainly refers to products with regulatory barriers of which 9 are in development, and complex injectables, expected to scale up significantly, going forward.

Aurobindo’s pipeline includes the widest range of complex products in development, including inhalers, depots, penem injectables and transdermal patches. It is also planning to restructure its established injectable division with the probable aim of unlocking value from the division.

Complex injectables, including respiratory products, can generate EBITDA margins of over 35 per cent, sustained by new product introduction making up for increasing competitive intensity on older products.


Cadila, Aurobindo and Dr. Reddy’s from the listed space are at the forefront in the vaccine play in India. With abundant supply of vaccines domestically, the main opportunity may have shifted to export markets or annualised booster shots for Covid-related vaccines. Amongst the three, Cadila and Aurobindo are actively developing vaccines in non-Covid segment as well. Aurobindo’s antibiotic Pneumococcal vaccine, which has wide application, is in advanced trials, expecting approval in the next one year. Aurobindo also holds an exclusive licence with US-based Covaxx for Vaxxinity (UB-612) a Covid vaccine, for sale in India and to UNICEF. Cadila’s ZyCov D may debut in India in the next one month. Cadila is also working on vaccines for diphtheria and Tetanus for EM and domestic markets.


The modest start in vaccine production (non-Covid) is an encouraging sign for Aurobindo and Cadila, challenging established players internationally and domestically as well.

Margins from Pfizer’s Covid vaccine sales were expected to be in the high 20 per cent range, but operating leverage is crucial in generating such margins. Non-Covid vaccines, on the other hand, may see even lower margins, but the life of the product extending into several decades can be the main draw for companies.

To conclude, companies need a higher proportion of revenues from differentiated products to fend off consistent pricing preassure in generics. While a start has been made, investors need to be aware of the developments in such parallel portfolios.

Published on October 02, 2021

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