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Indian economy, European generics and more...

Apr 8, 2008

  • Morgan Stanley (through its Global Economic Forum) has revised India's GDP growth estimates in light of the increasing commodity prices, rising inflation and credit turmoil in the developed world. It has revised the GDP growth estimates to 7.1% from 7.4% for FY09 and to 7.6% from 7.8% for FY10. The firm has cited slowdown in two-wheeler sales, consumer durables production and mortgaging lending as signs that the economy is slowing. While the production growth of consumer goods has slumped to 4.3% during the three months ended January 2008 from the peak of 18.5% in June 2005, two-wheeler sales have been declining year on year for the past 11 months. Growth in fresh mortgage disbursements has remained low at single-digit levels for the last few quarters. Export growth has also been hampered due to the sharp appreciation of the rupee against the dollar.

    As per Morgan Stanley, export growth in rupee terms has weakened to an average of 7.9% over the past six months compared with 23.3% during the 12 months ended March 2007. While the obvious measure in such a scenario would be to reduce interest rates to boost consumption, escalating food prices and a consequent rise in inflation has meant that the RBI is unlikely to soften the interest rates until the inflation is brought down to respectable levels. Indian stockmarkets have also had to bear the brunt of huge selling pressure due to the outflow of FII money as the saga of the global credit crunch painstakingly unravels coupled with the surging inflation back home.

  • Dr.Reddy's acquisition of an Italian generics company last week highlights the fact that the region continues to attract domestic pharma companies despite the intensifying pricing pressure of late (Germany for instance). In the European markets, most of the healthcare costs are borne by the state. Being a heterogeneous market, the growth of generics varies country by country. For instance, while the generic penetration is high in the UK and Germany, it has yet to gain pace in Spain, France and Italy. That said, in many European countries, pharmacies and doctors are being encouraged to prescribe generic products, which can also be gauged by the fact that generics have been growing at a faster clip than the total pharmaceutical market in Europe.

    Pricing trends are different for every country as well. Although the generic share in volume terms for the US is the world's largest, the share in value terms is relatively lower than either the UK or the German market. This is due to the fact that the price difference between generics and branded drugs in Europe is much narrower than that in the US. Also, due to the absence of any 180-day exclusivity period in Europe, prices for generic drugs throughout their life-cycle tend to remain more stable. To put things in perspective, typically in the US, during the 180-day exclusivity period, a generic company prices its products approximately 30% below the price of the branded drug. Once this period concludes and more players launch products, prices erode by as much as 90%. This kind of volatility is not witnessed in the European markets (the latter not providing the 180-day exclusivity), though prices do decline with increasing competition.

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