Pharma Players in Africa US spending on Africa could mean good business for Indian pharma too.

Recently, the US government announced a $30 billion, five-year commitment starting October 2008 to eradicate HIV/AIDS in Africa and Latin America. Given this, the African region, which has two-thirds of the 22 million HIV positive people in the world, holds tremendous potential for drugmakers. Little wonder then that Nigeria, Ethiopia, Zambia, Botswana, Rwanda, Mozambique, etc have suddenly become attractive for Indian companies. The US initiative, called President's Emergency Plan For AIDS Relief (Pepfar), started in 2003 with a five-year commitment of $15 billion for eradicating malaria and tuberculosis (TB), besides AIDS.

With the fresh infusion of $30 billion, the programme offers opportunities for Indian drugmakers, who can offer low-cost generic medicines for AIDS, malaria, and TB, say industry watchers.

Bino Pathiparampil, an analyst from Mumbai-based equity firm IIFL, said though the 15 African and Latin American countries Pepfar is targeting are poor, with funding from the US government, doing business there will be quite a sustainable model. "With sufficient funding, Africa is a geography in which Indian companies can strengthen their presence," said Pathiparampil. As per Pepfar estimates, companies such as Aurobindo Pharma, Cipla, Ranbaxy Laboratories and Strides Arcolabs cornered 84% of the $76 million paid to makers of generics in financial year 2006-07 (The US follows an October-September fiscal).

Moreover, Indian firms have so far received 60 of the total 70 US Food and Drug Administration (FDA) approvals and tentative approvals for Pepfar. Aloka Sengupta, president (business development — India operations), Strides Arcolabs, said, "Drugs for AIDS/malaria/TB won't get the same margins as the more lucrative lifestyle drugs do. But business in Africa is sustainable."

A spokesperson from Aurobindo Pharma said India clearly has an edge when it comes to supplying drugs to Africa and Latin America through Pepfar. "The country has a large number of USFDA-approved plants and as the cost of manufacturing is low in India, there is much to gain from supplying for Pepfar."

The country has over 175 USFDA-approved manufacturing units, the largest outside of the US. Production costs in India are 30-50% lower than those in the West. Besides, the cost of marketing AIDS and TB drugs in Africa is nearly nil, said Sanjay Singh, the associate director at professional services firm KPMG. "Also, South Africa, which is part of Pepfar, is quite a lucrative market. As the drugs supplied are mostly generics, no patent issues are involved," said Singh. Rakesh Nayudu, an analyst with SBICAP Securities, said, "At the bottomline level, margins from Africa could be 7-8%. However, South Africa is a good market with sufficient growth potential."