Headache Cure Seen Helping Sanofi Gain Market: Corporate India

Sanofi India Ltd., a unit of France’s largest drugmaker, is adding over-the-counter products to help double its share of the $5.1 billion local market and revive profit, which has dropped for four straight quarters.

The company will introduce as many as 10 new products to treat ailments that won’t require a prescription, such as headaches, to target a 4 percent market share in the next five years, Anindya Chowdhury, senior director of Sanofi India’s consumer health-care division, said in an interview in Chennai. It will also boost sales of its existing portfolio that includes products from acquisitions, he said.

Sanofi India is joining GlaxoSmithKline Consumer Healthcare Ltd. and Cipla Ltd. in targeting a segment that KPMG estimates is expanding at a faster pace than the nation’s drug industry. Fewer regulatory restrictions, increased health-care awareness and the freedom to advertise products such as Sanofi’s Combiflam Plus help such products generate a 25 percent profit margin, according to KPMG.

“In India, people are increasingly focused on wellness, be it their fitness regime, diet or nutritional supplements,” said Chowdhury. “This has fueled the growth in the consumer health segment.”

Sanofi India, which has declined 1.3 percent this year, fell 2 percent to close at 2,275 rupees in Mumbai. The BSE India Healthcare Index has declined 1.7 percent this year.

Profitable Segment

Companies are widening their portfolio of over-the-counter products as these can be sold without a prescription, allowing drugmakers to market them and access patients directly, according to Amit Mookim, national industry head for health care at KPMG in India. The segment faces less impact of the government’s pricing policy and the earnings margin before interest, tax and depreciation is about 25 percent, he said.

Sanofi India posted an Ebitda margin of 20.1 percent in 2011, according to data compiled by Bloomberg.

Foreign drugmakers “will be able to utilize the distribution channel more effectively and profitably by launching a drug in the OTC segment,” said Mookim. “MNCs will find it easier to leverage the brand name more effectively.”

In December, India announced details of a policy aimed at making drugs more affordable. Prices of 348 medicines deemed essential, including antibiotics, blood pressure drugs and cancer medicines, will be capped at the average price of all brands that have a market share exceeding 1 percent, the department of pharmaceuticals said.

Majority of Sanofi India’s over-the-counter medicines are not likely to come under price controls, according to Ranjit Kapadia, senior vice president at Centrum Broking Ltd. in Mumbai.

Acquisition Benefits

The company has benefited from the acquisition of a unit of Universal Medicare Ltd., Kapadia said. The purchase gave Sanofi a portfolio of branded formulations including vitamins, antioxidants, mineral supplements and liver tonics.

“You cannot expect all the 40 products will grow more than the industry,” said Kapadia. “On an average for the entire basket, if it is growing more than the industry then it is very good.”

The drugmaker doesn’t provide a breakup of its segment revenue and profit.

Sanofi India has posted four consecutive quarters of decline in net income. Profit would probably have dropped 9 percent to 1.74 billion rupees in 2012, according to the median of eight analysts’ estimates compiled by Bloomberg.

Under Pressure

“The company’s margins are under pressure because of increased marketing spend,” said Rahul Sharma, an analyst with Karvy Stock Broking Ltd., who recommends selling the stock. “Once the new pricing policy comes into effect, Sanofi’s earnings will be impacted by 20 percent,” he said, referring to some of Sanofi India’s prescription drugs likely coming under the new pricing regime.

Sanofi India this month unveiled Combiflam Plus, a headache treatment that combines paracetamol and caffeine, in the country. It has been selling Combiflam, a pain relief medicine, for more than two decades in India.

“Data suggests that over 70 percent of men and women experience an episode of headache every month and 36 percent suffer from it weekly,” said Chowdhury. “That’s why we said that if it is such a big problem, then we should be there.”

In addition to Combiflam Plus, Sanofi is focusing on Combiflam cream, for local pain relief, and Seacod, a health supplement.

Name Changes

Sanofi’s Combiflam Plus will compete with GlaxoSmithKline’s Crocin Pain Relief and analgesics sold by other companies.

Sanofi India was incorporated in May 1956 under the name Hoechst Fedco Pharma Pvt. Over the years, its name has changed several times and in May 2012 its name was changed from Aventis Pharma Ltd. It has manufacturing plants in Ankleshwar, in western Gujarat state, and Goa, on the west coast, according to its website.

Sanofi, based in Paris, operates in India through five entities including Sanofi-Synthelabo (India) Ltd., Sanofi Pasteur India Pvt., Shantha Biotechnics Ltd. and Genzyme India Pvt. Asia accounted for 8.1 percent of Sanofi’s 34.95 billion euros ($46.6 billion) of sales in 2012. It didn’t provide a breakdown for India.

In the initial years after an over-the-counter medicine is introduced, money is invested on building the brand, said Sujay Shetty, pharma leader at PricewaterhouseCoopers in India.

“Once you build brands it generates steady amount of volume and cash flow and is not subjected to as much competition,” said Shetty. “Revenues are sticky. They do not go away so easily.”

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