Pharmaceuticals Sector Analysis Report 

• The Indian Pharmaceutical market (IPM) is highly fragmented with about 24,000 players (330 in the organised sector). The top ten companies make up for more than a third of the market. The market is dominated majorly by branded generics which constitutes of nearly 70% to 80% of market.
• The IPM is valued at Rs 750 bn for the year ending March 2014.The growth in 2014 was subdued at 6% YoY vs 12% in 2013. The growth was impacted as the drug price control order (DPCO) issued notice to bring 348 drugs under price control. Despite this, the Indian pharma market remains one of the fastest growing pharma markets in the world. Currently the IPM is third largest in terms of volume and thirteen largest in terms of value.
• Besides the domestic market, Indian pharma companies also have a large chunk of their revenues coming from exports. While some are focusing on the generics market in the US, Europe and semi-regulated markets, others are focusing on custom manufacturing for innovator companies. Biopharmaceuticals is also increasingly becoming an area of interest given the complexity in manufacture and limited competition.
• Introduction of GDUFA (Generic drug User Fee Act) in the US during July 2012 too had a negative impact on pharma companies. As per this Act, the generic companies are required to pay user fees to USFDA, for application of drugs and manufacturing facilities. This fee will be utilized by USFDA to engage additional resources in order to speed up the approval process. While the drug filling fees was applicable since some time, from Oct 2014 even plant inspection fees has come into effect.
• As the patent cliff is approaching, Indian pharma companies have increased their R&D expenses. The companies are spending more to establish niche product portfolios for the future.
• Consolidation has increasingly become an important feature of IPM. The recent deals viz; Sun pharma acquiring Ranbaxy, Wyeth and Pfizer merger, Strides selling its injectables arm and so on are the classic cases.

• Supply
• Higher for traditional therapeutic segments, this is typical of a developing market. Relatively lower for lifestyle segment.
• Demand
• Very high for certain therapeutic segments. Will change as life expectancy, literacy increases.
• Barriers to entry
• Licensing, distribution network, patents, plant approval by regulatory authority.
• Bargaining power of suppliers
• Distributors are increasingly pushing generic products in a bid to earn higher margins.
• Bargaining power of buyers
• High, a fragmented industry has ensured that there is widespread competition in almost all product segments. Currently, the domestic market is also protected by the DPCO.
• Competition
• High. Very fragmented industry with the top 300 (of 24,000 manufacturing units) players accounting for large chunk of sales. Top 20 companies account for 60% of the IPM sales.

top ↑

• FY14/CY13 was challenging on the domestic front. The companies witnessed sluggish growth on the back of pricing policy. The companies faced strikes from the wholesales on margin issues due to reduction in prices of overall drugs.
• MNC pharma companies continued to witness subdued growth during FY14/CY13. It is important to note, the growth of the MNC players was below the domestic pharma companies. The pricing policy had a negative impact on the company's revenues. Over and above, these companies were also impacted by the increasing competition, drug launches by other companies before patent expiry, through compulsory licensing and patent infringements. Only couple of companies exhibited better growth. The margins of these companies remained subdued due to increasing expenses and slower top line growth.
• In the US, generic companies witnessed mixed growth. While some of the companies benefited from the low competition launches, others got impacted due to delay in approvals. Though there were not many blockbuster launches during the year, various companies did manage to display better growth. On the other hand, the companies witnessed growth pressures in several regions of Europe, Latin America and some other geographies due to increasing efforts by governments to reduce their healthcare burden and delay in approvals.
• Rupee depreciation was one important aspect which helped the industry especially those companies who had not hedged their receivables.
• The industry continued to face challenges on the regulatory front. During the year, there were few Indian companies that faced issues from the USFDA, as they lacked good manufacturing practices (GMP). Because of this, there were instances of import alerts being issued, drug recalls, warning letters and so on. The regulators have become more stringent now and have also been conducting surprise checks.

top ↑

• The IPM size is expected to grow to US$ 85 bn by 2020. The growth in Indian domestic market will be boosted by increasing consumer spending, rapid urbanization, increasing healthcare insurance and so on.
• The life style segments such as cardiovascular, anti-diabetes, anti-depressants and anti-cancers will continue to be lucrative and fast growing owing to increased urbanisation and change in lifestyle patterns. Going forward, better growth in domestic sales will depend on the ability of companies to align their product portfolio towards these chronic therapies as these diseases are on the rise.
• In various global markets, the government has been taking several cost effective measures in order to bring down healthcare expenses. Thus, governments are focusing on speedy introduction of generic drugs into the market. This too will benefit Indian pharma companies. However, despite this huge promise, intense competition and consequent price erosion would continue to remain a cause for concern. Over and above this, following GMP will be an important criteria for companies in order to grow in the global markets.
• For the US market, Indian companies are developing niche portfolios in various segments. High margin injectables, dermatology, respiratory, biogenerics, complex generics etc. have become an area of interest. Most of the Indian pharma companies have been working on these niche drugs in order to optimize growth and margins. Thus, post patent cliff, the companies which have developed their product basket in the niche category will be ahead in the curve. Moreover, generic penetration in the US is expected to peak out at 86-87% over the next couple of years from 83% currently.

top ↑

Related Links for Pharmaceuticals Sector
Quarterly Results | Sector Quote | Over The Years