Tapping new markets

As CIS nations and Latin American countries attempt to take a step forward to address their healthcare systems, Indian pharmacos are using the proposition to grab the opportunities available in these emerging markets. Sushmi Dey perceives the new business dynamics

Indian pharma companies are entering new markets and spreading their business operations all over the world. Some Indian companies are finding promising markets in Latin American countries and CIS nations. Apart from the four major Latin American markets of Argentina, Brazil, Mexico and Chile; Indian companies are also making a mark in smaller countries like Peru, Venezuela and Columbia. Among CIS nations, most of the Indian pharma companies are targeting Russia, Ukraine, Kazakhstan, Belorussia, Uzbekistan and Azerbaijan. "These six CIS nations constitute almost 90 percent of the total pharma market for CIS," asserts D B Mody, Chairman, Pharmaceutical Export Promotion Council.

Size matters

"CIS countries are large markets for pharmaceutical products where Indian products and their value for money proportion is well accepted. Price realisation is also much better in these markets, as these markets are free of price control" - D B Mody Chairman Pharmaceutical Export Promotion Council

Indian pharma companies are facing challenges in maintaining a strong sales growth in the established markets. In such a business scenario, Latin America and CIS nations pose as emerging markets of the world. These markets are rich due to the growing populations in these countries. "These countries have a large population base and with high per capita income, they are representing a bigger slice of the international market," explains Rajesh Jain, Joint Managing Director, Panacea Biotec. The purchase power parity list produced by the World Bank based on the data for 2005 supports this argument. According to the list, Brazil and Mexico rank ninth and fourteenth respectively, whereas Russia is positioned tenth. Analysts point out that anti-bacterial medicines, medicines for cold and cough, anti-rheumatic medicines, multi-mineral or poly-vitamin medicines are the leading segments having attractive retail sales in Russia. "CIS countries are large markets for pharmaceutical products where Indian products and their value for money proportion is well accepted. Price realisation is also much better in these markets, as these markets are free of price control," opines Mody. The CIS countries also have a good growth rate which adds to the preference. The CIS market is estimated at Rs 700 crore and is expected to be growing at an annual rate of eight percent. "The Indian pharma companies control more than 25 percent of the $600 million (Rs 2,760 crore) pharma market in the CIS countries except Russia," informs Vinod Dhawan, President, Business Development, Lupin Pharmaceuticals.

"The Indian pharma companies control more than 25 percent of the $600 million pharma market in the CIS countries except Russia" - Vinod Dhawan President, Business Development Lupin Pharmaceuticals

The Latin American countries too pose a huge market opportunity for enthusiastic Indian companies. "Pharmaceutical market size of Latin American countries is around $40-50 billion," informs Mody. According to sources, Brazil is amongst the largest pharma markets in the world. Similarly, other countries of Latin America are also quite big and are very attractive in terms of realisation. According to Mody, considering the current business volume of Indian companies in Latin American countries and their market size, there is an opportunity for significant increase in business volume, provided Indian pharmacos adapt for local business requirements there.

The growth of Indian pharma in these countries is driven by exports of bulk drugs, formulations and generics. Exports to Latin America and CIS nations constitute a considerable portion of the total production of the pharma industry. According to Dhawan, pharma exports to CIS countries in 2003-2004, were about Rs 945 crore which constituted 20 percent of Indian exports to that region. "Total value of Indian exports to CIS countries would be in the range of $150-200 million," informs Mody. The exports to Latin America are estimated to be around $500 million.

Attracting factors

Its not just the money that attracts companies. "The Latin American markets provide a viable business model for Indian pharma companies who want to expand and who have already established themselves in India," suggests Jain. Though Latin America has been under financial crisis in the last few years, the national government of Latin American countries has shown commitment to expand the healthcare coverage. With growing health awareness, these regions also require more of healthcare facilities. According to industry sources, this is the big reason why the international pharma industry got attracted towards Latin America. "These are untapped markets and have relatively easy FDA rules," explains Dhawan.

With the reform in the healthcare systems in Latin America and CIS nations, the generics will find themselves in favour but along with it comes the challenge. The shift to generics has opened the gates for variety of international companies and the market has become fiercely competitive. The CIS countries too pose a similar problem. Due to the geographical proximity of CIS and Europe, there is a competition from global companies in this region. But Indian companies have proved their manufacturing and R&D capabilities and these countries can benefit enormously by establishing tie-ups with Indian pharmacos. However, analysts say that today, the markets have evolved with time. In countries like Russia, consumers are ready to pay a higher cost for quality and there are international competitors who are fighting for a share of these growing markets.

Yet, sources from the industry say that the situation in these markets is still better in comparison to those in developed markets. "The competition and the entry barriers in Latin America and CIS nations are relatively low as compared to the US market," asserts Dhawan. The mantra of course is the "demand and supply" game. Markets like Brazil and Mexico in Latin America are raising hope for the Indian pharma manufacturers for their export strategies. Industry sources say that Brazil is increasingly becoming an appealing place where Indian pharmacos can consider conducting R&D as well as production.

Action and acquisition

Latin America has seen ongoing investments by the Indian companies. "Ranbaxy looks at Latin American and CIS operations as an important segment of its international business," informs Ramesh Adige, Executive Director, Ranbaxy. In Latin America, Ranbaxy has achieved sales of $40 million in 2005, whereas CIS markets during 2005 recorded sales of $65 million with a growth of 42 percent. Increasing its foothold in these nations, Ranbaxy has recently acquired Terapia in Romania.

Lupin is in the process of formulating marketing strategies for the Mexican market. Officials from Lupin assert that the company has laid strong foundation to enter the markets of Peru and Columbia. Ajanta Pharma and Panacea Biotec are focusing on registering and marketing products from India. Panacea Biotec announced that talks are on with three companies in Brazil for marketing and distribution tie-up for cyclosporine. The Brazilian market for cyclosporine is estimated at about $80 million and the company expects to have a significant presence there. "The focus in most of these markets is to offer world class products with key differentiation, niche value added generics and products from therapeutic segments of anti-TB, anti-infectives and cardiovascular," said Dhawan. For Panacea Biotec, transplant is the major growth area for business in Latin America.

Marketing trends

"As the Indian market is showing maturity, it is beneficial to get into the markets overseas" - Purushottam Agrawal MD Ajanta Pharma

Indian pharma companies have increased their momentum in these markets through a spate of mergers and acquisitions, new tie-ups, setting up of joint ventures and subsidiaries. Some companies are making investments in terms of JVs and manufacturing facilities in Russia, Ukraine and Uzbekistan. Companies like Core Healthcare, Ajanta Pharma, Dr Reddy's Laboratories and Gufic of Mumbai are present in Uzbekistan in the form of JVs. "Some individual companies are also looking at collaboration with local institutions or companies in R&D," informs Mody.

However, the major acquisitions are in the area of marketing. A few Indian pharmacos have already installed plants in parts of Latin America and CIS nations, but medium scale Indian companies are looking at strengthening their marketing activities before setting up manufacturing units. According to Purushottam Agrawal, MD, Ajanta Pharma, though a few companies are going in for manufacturing acquisitions in these countries to get an early entry, focus on product marketing is the trend with most of the companies. Companies believe that marketing is the best strategy to learn about new markets.

"Marketing is the best way to start. For any forward integration, it is important to understand the markets of these countries well. When you start marketing a product, you start learning a lot about the markets," reasons Jain. At present, Panacea is focusing on marketing but Jain says that they are open to forward integration in areas of R&D and manufacturing in the future.

While some pharmacos choose to enter into alliances and synergistic partnerships with some of the leading players in the respective markets, there are others who want to establish the brand in the market.

Ajanta Pharma has appointed distributors in each country and has people to carry on the promotion activity, informs Agrawal. Some Indian pharmacos have also adopted the route of ethical promotion to the medical professionals and direct marketing to hospitals and institutions. "Some Indian companies like Unique (re-named J B Chemicals) have invested substantial amounts in brand building by leveraging mass media promotions opportunities for their OTC brands," informs Mody.

(Source: Industry Statistics)

Win-Win

Indian companies stand to benefit from higher revenue in their trade with Latin American and CIS countries. "As the Indian market is showing maturity, it is beneficial to get into the markets overseas," opines Agrawal. According to him, the export earning and the growth due to this business will be the main advantage for Indian pharmacos which can harness these funds to invest in R&D which is the main thrust of Indian pharma companies.

But on the other side of the coin, these countries too benefit in trade and alliances with Indian companies. The biggest strength of the Indian industry is its cost competitiveness, which when leveraged will give these countries benefits in terms of low cost, high quality products. Since it is a win-win situation for both, association with Latin American and CIS countries seems to be here to stay!

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