Investment in Pharma

Yogi — Wed, 06 Aug 2008 04:49:39 GMT

Why pharma is the cure??

Investing was never as difficult as it seems today. In times like these, it's best to go for safe sectors. Pharmaceuticals might just be a good example, difficult though it is for investors to decipher. But why pharma?

Here are some reasons:

1. Chemical synthesis skills
Indian pharma companies are among the most cost-competitive and technically capable businesses in the world. Thanks to the lax patent laws prevailing prior to 2005, they reverseengineered several blockbuster drugs. This has been the chief reason for the growth of several companies such as Ranbaxy, Dr. Reddy's, Sun Pharma, Cipla and Glenmark.

2. Generics
After a drug is no longer patented and becomes generic, its price falls significantly. The US and European manufacturers can no longer supply it profitably. This offers a ready opportunity for Indian manufacturers to supply bulk drugs to these markets. India is the top applicant for bulk drug registrations approvals and formulations approvals from the USFDA.

3. Outsourcing capabilities
If software companies can outsource code-writing and BPOs can migrate entire business processes to India, pharma companies can (and do) undertake contract manufacturing in India on a massive scale. Contract manufacturing is especially lucrative when foreign entities are acquired by Indian companies (or vice versa) and their manufacturing shifts to India. Divis Labs, Jubilant and Dishman are among the top players in this segment.

4. Research capabilities
Several Indian pharma companies have world-class R&D capabilities. So, global innovator companies can safely outsource many (if not all) of their costly research to an extremely capable and low-cost location. This also allows the R&D efforts of Indian companies to be monetised. In a world where new drug development costs are spiralling, Indian companies offer a considerably cheaper (and arguably more capable) research pipeline to foreign companies. The current star in this space is Glenmark. The company earned over Rs 240 crore 12% of its total revenues in 2007-8 from such outlicensing.

5. Domestic growth
With over a billion people, India is one of the largest pharma markets of the future. As healthcare evolves and per capita spending on drugs picks up, these are surely structural bull opportunities that are qualitatively different from the cyclical investing plays in sectors like metals, capital goods and energy. MNC drug companies might turn out to be the dark horses. Sales could zoom when they introduce products from their global stable in India. Pfizer has already introduced Viagra, while Glaxo, Aventis and Wyeth are also bringing in products.

If your investments have been decapitated by capital goods, or deconstructed by construction companies, or are going up in flames courtesy the energy sector, take some anti-depressants, balms and painkillers. Switch to pharma!

Dipen Sheth is Head of Research, Wealth Management Advisory Services.

Article sourced from Money Today.

Investing It! : planning, asset allocation, sensex

Investment in Pharma