India pharma rode on the wave of bunched up patent expires in the US with many Para IV launches in 2012. In addition, it also benefited from the continuing high teen growth of Indian pharma market. With patent expires in the US dwindling from $30b in 2012 to $10b in 2013 (small molecules), Indian generic companies will now need to focus on complex generics that offer sustainability of earnings. Locally acting drugs and targeted drug delivery products make up for the bulk of complex formulation generics. We have analyzed this space and have provided a fairly comprehensive list of products falling under these categories indicating that topical drugs remain the most near-term opportunity for generics. Inhalers offer the most lucrative opportunity, though not before 2016.

Our growth outlook on the Indian market continues to remain optimistic with 15-18% growth. This is based on the silent reforms in India that started with expires implementation of a strict GMP (Good Manufacturing Practices) in 2005, continued with the implementation of GLP (Good Laboratories Practices) in 2011 and now the barcoding norms at primary and secondary levels. All these continue to put pressure on the very small manufacturer ultimately leading to industry consolidation – something that augurs well for world’s most fragmented pharma market. We do not see any negative impact due to the newly announced National Pharma Pricing Policy (NPPP) due to its emphasis on market price based pricing policy.

Our top pick remains Sun Pharma as it remains the best positioned to tide over the patent cliff with its latest acquisitions, DUSA and URL Pharma. A strong balance sheet further allows it to acquire more such the targets. We also recommend Natco Pharma for its focus on complex generics like Copaxone, Revlimidexpiresand Tamiflu. Besides this, its domestic market strategy targeted at gaining Compulsory License on near-term oncology products too remains lucrative.

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