US still most important market, EMs come next: Saumen Chakraborty, Dr Reddy's

Saumen Chakraborty, President and Chief Financial Officer, Dr Reddy's,, tells ET Now, says in last nine years, there would have been a CAGR of 10%, plus and minus a few hundred basis points, for different players in the generic industry.

Edited excerpts:

In the last nine years, how has the Indian pharma changed in the US markets?

We can divide the last nine years into 2 parts -- the first five years and the last four years. In these nine years, you would have noticed that the global pharma itself would have shrunk a bit but the generics industry in the first five years of these last nine years have grown very well. It was an exciting time.

In the last four years, there have been quite a few headwinds. There has been consolidation of customers in the US leading to quite a bit of price erosion. For three consecutive years, the price erosion has been at mid to high teen level. That has put a lot of pressure in the generics industry.

There have been stringent regulatory compliance norms and some of us have been trying to find out the best way to meet the requirements. There has been a lot of progress on this front. A currency crisis in the emerging markets relating to some problems specifically in countries like Russia and Venezuela, have caused some headwinds in the last four years. Overall, in the last nine years, there would have been a CAGR of 10% plus and minus few hundred basis points for different players in the generic industry.

India’s big pharma has invested a lot over the last nine years. Would they continue to invest to get into new areas over the next nine years as well?

Yes, because there are opportunities. In order to tap the opportunities, you need to invest both in R&D as well as in creating capacity. We have made significant investments going forward. The level of investment in capacity creation is going to settle down or stabilise, it is not going to increase. On an absolute level, I do not think there would be any reduction in R&D because you do that for ensuring growth for the future of the company.

How do you see the next nine years? Do you expect 10% CAGR to continue?

Difficult to speculate for next nine years. One hopes one can get there but it will all depend on the productivity of the R&D and your ability to execute well and meet the regulatory requirements if these three things are taken care of. That kind of growth opportunity could be possible.

US pricing pressure is it at its peak. What is the outlook on the pharma sector in the US markets?

It is very difficult to foresee further consolidation on that basis. With the number of approvals coming through, the market is getting divided into plain vanilla generics and complex generic spaces. There is too much competition in plain vanilla generics and there is not much scope for margin. But in the complex generic space, depending on specific molecules, there would be still opportunities to pursue. If we get approvals on time and execute on your launches quite well, there could be good profits on those specific molecules.

In the previous nine years, R&D was the main investment but do you think going ahead R&D investment and better opex as well as capex for plants will be the differentiator?

Yes, in our industry R&D is the main differentiator. Having said that, you can always supplement organic growth by a few inorganic opportunities. If we can get the right kind of opportunities, that could be more strategic and you can create some synergy. That also provides further growth impetus. R&D will however, continue to be the primary lever. So far as costs, leadership and others is concerned, there has be to continuous focus on that as well as adoption of right kind of technology to get those advantages.

Lupin is of the view that automation is really the game changer in the sector. Would you agree?

Yes, automation definitely helps. If you really want to get the best quality, you require mistake proofing. That can be done by interlocking or the right kind of automation. It will help improve productivity. That definitely remains a game changer but beyond automation, there is a lot of advancement in artificial intelligence specifically on machine learning that can provide some invaluable insights.

Do you think emerging markets give a good opportunity for Indian pharma players to invest?

For us, US will continue to be the dominant player. We cannot wish it away that but after USA, emerging markets really are a playing field where one can expand. For us, fortunately, Russia, CIS, is the region where we have been for a long time and has established ourselves quite well. We have got good franchise with the doctors, with the distributors, with the local statutory authorities which helps.

In LatAm, in last two, three years, we opened countries such as Columbia, we have re-entered Brazil. If you have good molecules to bank on, then you can be successful in those markets.

Another very attractive market in emerging markets is China and we have been present there for the last 18 years through a joint venture and we have made a good success of so far.

China is a country which is going to grow. In terms of growth rate, China and India growth could be potentially even higher than what US provides. If you have presence in emerging markets, it is going to be quite helpful for individual players in the pharma industry.

What about the outlook on Indian pharma considering that there is an increasing awareness of Mediclaim, better hospitals, facilities etc as well? Do you expect pharma to grow into double-digit?

There would be more innovations, not necessarily in the product space but in catering to the patient needs with more personalised medicine and personal healthcare services .

With the evolution of big data space companies who can leverage that and establish better connect with far greater empathy with the patients. These companies will have a competitive edge over others. It would be quite interesting how the Indian market is going to evolve over the next few years.