Intense Competition

By Ramesh Akkineni

from Business Standard

Ranbaxy Laboratories Ltd, India's largest pharmaceutical company, saw its January-March turnover in the US decline from $105 million in 2004 to $80 million in 2005.

Dr Reddys Laboratories, too, saw a fall in its January-March revenue in North America, of which the US is its principal market, to $19 million in 2005 from $23 million in 2004.

The biggest reason for the fall in turnover is that prices of generic drugs across various therapeutic segments have dropped sharply. Thus, ciprofloxacin has seen a price erosion of almost 97 per cent in the last one year, while citalopram prices have tumbled by 95 per cent.

The reason for this is not far to seek. There has been a huge jump in the number of generic producers all over the world and most of these companies are targeting the US.

In fact, Dr Reddy's cited “intense competition” as the reason for the decline in its North America business. Sanjiv Kaul, adviser, ChrysCapital, says that 10 years ago, a company mulling entry into US generics space calculated a penetration ratio of 80-85 per cent and price erosion of 65-70 per cent in its valuation model. Now, they peg the two ratios at 90 per cent each.

“Right on day one of patent expiry, the companies face five times the competition they initially did, leading to massive fall in prices,” he adds.

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