Mumbai: Cipla Ltd, the Indian drug maker that built a $1.5 billion business making generic HIV treatments, forecasts products for cancer and respiratory ailments in Africa will help it boost sales fivefold by 2020.
India’s third-largest drug maker by market value predicts revenue may rise to as much as $7 billion (around Rs.38,122 crore) selling medicines in the continent that’s home to about 800 million people, said Chandru Chawla, head of international business and corporate strategy. Cipla is seeking to partner with marketing companies in four north African nations, he said. Lupin Ltd is also looking for a venture in Algeria, according to Vinod Dhawan, head of business development at Mumbai-based Lupin.
Africa, the second-most populous continent, is becoming the new battleground for Indian drugmakers as they compete to win a share of the market that IMS Health Inc. forecasts will double to $45 billion in seven years. Selling branded drugs to treat chronic diseases will help Cipla, which copied formulations to become one of the largest suppliers of anti-retrovirals in the continent, charge a premium and boost margins, said PricewaterhouseCoopers analyst Sujay Shetty.
“There’s significant opportunity and there’s under penetration,” Chawla said in an interview in Mumbai. “Africa’s disease profile is evolving to match growing countries. When you have more consumerization, urbanization, you’ll slowly start resembling the West, so our business strategy will continue to evolve along these lines.”
Cipla’s shares, which have gained 26% in the past year, fell 1% to Rs.390.9 in Mumbai on Tuesday as the benchmark S&P BSE Sensex lost 1.2%. Lupin dropped 1.5% to Rs.610.35.
Africa may account for as much as a quarter of Cipla’s sales in seven years making it the company’s second-largest market, Chawla said. The World Bank forecasts sub-Saharan Africa to expand 4.9% this year. Angola is forecast to grow 7.2%, while the forecast for Nigeria is 6.6%.
The continent accounted for 26% of the global tuberculosis cases in 2011, according to the World Health Organization. The situation is getting worse as the disease, which killed half a million people in the region, becomes drug resistant, the United Nation’s agency said.
“While the next generation of medicines to treat cancer, respiratory and central nervous system ailments will come into play, I still think the biggest opportunity for the Indian players is in infectious diseases,” said Kate Turner-Smith, an analyst with Cape Town-based BPI Capital Africa Pty. Indian generic companies are very well positioned to compete in Africa because their cost of production are way lower than those based in Europe and South Africa, she said.
Lupin, the world’s biggest maker of drugs to treat tuberculosis, may get approval for some of its TB drugs from South Africa’s Medicines Control Council in the year ending 31 March, Dhawan said. The approval would enable Lupin to bid for a South African government tender for anti-TB treatment valued at about $50 million in 2015, he said. Cipla also plans to sell formulations to treat drug-resistant tuberculosis, Chawla said.
Low cost of production help Indian companies win orders from donors who fund healthcare in the continent and look for the cheapest option, Turner-Smith said.
Selling drugs to treat diseases such as cancer is more profitable than supplying anti-infectives in a tender, though government and aid agency orders will continue to form the core of Cipla’s business, said Chawla.
As many as 715,000 new cases of cancer were reported in Africa in 2008, according to the latest data available with International Agency for Research on Cancer. That figure may jump to 1.28 million new cases, with 970,000 deaths by 2030, according to the American Cancer Society Inc.
Cipla, which last year cut cancer drug prices in India by as much as 76%, is selling the generic version of Novartis AG’s Gleevec cancer treatment in Africa. The Mumbai- based company also markets docetaxel, a chemotherapy drug used to treat breast, prostate and lung cancer and paclitaxel, used for ovarian, breast and lung cancer.
In many of these countries, because they tend to have weak regulatory bodies, a generic with a brand connotes some information, some degree of quality, some signaling mechanism for distinguishing yourself from the competition, Mumbai-based Shetty said. There will be price premium attached to that.
Earnings margin before interest, taxes, depreciation and amortization at Cipla may narrow to 25.1% in the year ending 31 March, according to a mean estimate of 36 analysts compiled by Bloomberg. Sales may rise to Rs.9,300 crore in the year, the estimates show.
Focusing on Africa may not help widen margins or boost sales at Indian companies in nations wracked by civil wars and political violence, according to Surajit Pal, an analyst with Elara Securities India Pvt. Ltd.
Mozambique’s armed forces are fighting attacks by militia sympathetic to the country’s main opposition party, while separatists are increasingly attacking mines in the Democratic Republic of Congo.
“I see pockets like Nigeria, Morocco and South Africa. The rest is very politically unstable,” said Mumbai-based Pal. “Why not focus more on the Japanese market? It’s a $110 billion market.”
Cipla shot to prominence offering HIV treatment at $350 per person a year, prompting multinational companies that had been selling similar drugs at more than three times that price, to slash theirs. Anti-retroviral medicines and drugs to treat malaria account for 50% of Cipla’s sales in Africa, Chawla said.
To win market share Cipla will need to acquire and form joint ventures with African companies that own brands, have marketing infrastructures, or in some countries, own manufacturing assets, said Chawla.
The company on 28 February bid to buy Cipla Medpro South Africa Ltd, its partner in the nation since 2005, for $512 million. Chairman Yusuf Hamied is also seeking ventures in Kenya, Nigeria, Algeria and Morocco, Chawla said.
In Africa, if a pharmaceutical company’s field agents are able to convince doctors to prescribe their drugs, pharmacists are likely to dispense exactly that drug, and not substitute it with lower-cost unbranded versions, said Lupin’s Dhawan.