Pharma MNCs' pills make Indian rivals sick

Indian pharmaceutical companies have tried to defend their turf through aggressive pricing for long.

They are now getting a taste of the same medicine from Big Pharma.

Pharma multinationals are adopting the same tactics to expand their presence and gain market share in India.

International drug majors such as GSK Pharma, Sanofi and Pfizer have cut prices 25-75 per cent for select products in therapies for the cardiovascular system and diabetes, among others.

Deepak Malik, senior research analyst, Emkay Global, says dropping prices have helped MNCs maintain growth and broaden their portfolios, especially in areas where they were not very strong.

GSK Pharma, for example, is selling cholesterol-lowering drug atorvastatin under its brand name Lilo at 60-70 per cent discount to branded drugs of the same molecule from Cipla, Dr Reddy's and Intas Pharma.

While the GSK Pharma spokesperson says atorvastatin is a branded generic and therefore the pricing is based on affordability and product strategy, analysts say the company has a negligible share in the cardio segment and has taken this route to expand presence.

In addition to this, the company is adopting a dual pricing strategy for its product portfolio.

Says Monica Joshi of Avendus Capital, "While for its legacy products the company is likely to maintain premium pricing, for select branded generics it has dropped prices to get a foothold."

Though the strength of MNCs is their patent portfolio, this new strategy has been worked out as there have been a few patented products launched in the country and many of these have faced litigation.

This, coupled with the affordability factor, has meant patented molecule drugs have a share of less than two per cent in the Rs 56,000-crore (Rs 560-billion) pharma market.

Another global pharma major Sanofi, too, has been selling its cardio molecule Metoprolol at a discount of over 30 per cent to similar drugs marketed

by Lupin.

While the MNCs are in expansion mode, Indian companies are not perturbed and say the strategy won't work.

Shakti Chakraborty, group president, India Region Formulations & CIS, Lupin, says, "MNCs are trying to garner market share by drastically cutting down prices by over 50 per cent for the short term, and then they'll try and hike prices later, which as a strategy has never worked in the Indian market.

These short-term knee-jerk strategies are an indicator of their failure and their desperation to build a meaningful presence in the Indian market across therapy segments.

Lupin has never chosen to play on prices."

While these strategies will take time to play out, the aggressive pricing and rapid expansion of the sales force is getting reflected on the ground for the time being.

A Bank of America Merrill Lynch report says the top 10 MNC companies in India grew 22 per cent y-o-y in August 2011 against the industry growth of 14 per cent.

Sales for the previous 12 months were up 17 per cent. Pfizer, Sanofi, MSD (Merck) and AstraZeneca were leaders in growth (sales rose 25-32 per cent), led by strong branding as well as higher focus in the domestic market.

MNCs now account for a fifth of the market.

Though short-term growth is reflected in the numbers, the operating profit margins of the top nine pharma MNCs, which dropped marginally (40 bps) to 18.91 per cent in the last fiscal, could take a knock going ahead.

Many MNCs like Ranbaxy (now owned by Daiichi) and Novartis, among others, have augmented their sales force to cater to Tier-II towns and the rural markets.

While the global pharma space is growing 3-4 per cent, the India pharma sector is expected to grow upwards of 14 per cent over the next few years.

Mitul Budhbhatti, sector head, pharmaceuticals, CARE Ratings, says, "Given this potential, MNCs may look to change their pricing strategy in order to compete for market share and this could explain the discounts offered by them in select therapeutic segments."