BMI View: The increasingly competitive Indian generic drugs market means key local players are experiencing stiff domestic competition and need to expand internationally, beyond simply exporting their products, in order to maintain high revenue streams. BMI believes that Indian drugmaker Cipla's recent proposal to acquire 51% of South African Cipla Medpro has been driven by opportunities to access rapidly emerging pharmaceutical markets of Sub-Saharan Africa (SSA), participate in large government tenders and potentially produce high-value medicines by partnering with large multinational companies.
Indian drugmaker Cipla has made a US$220mn offer to acquire a 51% stake in South Africa's Cipla Medpro. Cipla does not currently hold any equity in the South African company, but has a supply arrangement with it. S. Radhakrishnan, Executive Director of Cipla, stated that over 90% of Cipla Medpro's products are manufactured by Cipla and are distributed in South Africa and neighbouring markets.
BMI highlights that the current supply agreement between the two companies is likely to work in Cipla's favour - with both acquiring a financial portion of Cipla Medpro and also gaining access to the Sub-Saharan pharmaceutical markets. The Indian government's pricing policy to keep downward pressure on medicine prices is forcing local companies to increase their international presence beyond local consumption and exports.
|Generic Drug Sales Continue To Dominate - High Competition And Low Prices|
|India's Pharmaceutical Sub-Sector % Sales|
Access To Sub-Saharan Africa
BMI notes that drugmakers in developed states, as well as in India, are increasingly looking to South Africa as a route into the rapidly growing SSA pharmaceutical markets. In December 2011, South African company Litha Healthcare signed exclusive deals with Indian generic drugmaker Gland Pharma, a second Indian pharmaceutical company, Natco Pharma and Italian niche generic drugmaker NTC, to market and sell the companies' products in South Africa and the wider region. If Cipla is successful in acquiring 51% of Cipla Medpro, it will have access to the prescription and over-the-counter (OTC) drug markets of Namibia, Botswana, Lesotho and Swaziland, where the South African company currently exports.
Large Tender Rewards
Cipla Medpro currently sells its products through a wide range of channels, including the public and private sectors. The South African government's preference to award large tenders to local companies provides further opportunities for Cipla should it acquire a portion of Cipla Medpro. In December 2010, Cipla Medpro were awarded 10.1% of the Department of Health's ARV tender worth ZAR4.28bn (US$631mn) annually for 2011-13, the biggest single ARV tender in the world. BMI notes that Cipla is the largest ARV supplier in India and acquiring Cipla Medpro will provide significant future opportunities.
The acquisition will also provide opportunities for the company to tap into Cipla Medpro's full spectrum of therapeutic area capabilities, including the recently launched oncology division and its increasing focus on biologics. This, in addition to Cipla Medpro's opportunities to partner with research-based multinational pharmaceutical companies, means Cipla will be able to conduct more research and development and possibly enter the high-value medicines market.
Total medicine sales in South Africa are expected to climb from US$3.74bn (ZAR27.19bn) in 2011 to US$7.55bn (ZAR60.43bn) in 2021, at a compound annual growth rate (CAGR) of 8.7% and 6.7% in local currency and US dollar terms respectively. Over this period, BMI expects generic drugs sales to increase from US$1.09bn (ZAR7.94bn) in 2011 to US$3.0bn (ZAR23.9bn) in 2021 at a CAGR of 10.2% and 12.4% in US dollar and local currency terms respectively. We also expect consumption of patented drugs to decrease by 10.48% over the period, indicating the shift towards generic drug consumption due to the patent cliff and increased competition driving down prices of generic drugs.
|Demand For Generic Drugs Increases|
|South Africa's Pharmaceutical Sub-Sector Sales In US$bn|