The Indian Pharmaceutical market (IPM) accounts for approx. 1.4% of the global pharmaceutical industry in value terms and 10% in the volume terms. The IPM is valued at Rs 860 bn for the year ending March 2015. The growth in 2015 stood at 12.9%. Owing to robust historical growth and future prospects, many MNC companies have active presence in the Indian pharma space.
The IPM is highly fragmented with about 24,000 players (330 in the organised sector). The top ten companies including domestic and MNC companies make up for more than a third of the market. The market is dominated majorly by branded generics, which constitutes nearly 70% to 80% of market.
Besides the domestic market, Indian pharma companies also have a large chunk of their revenues coming from exports. Major companies 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.
The past few years have been glorious ones for the Indian companies, as major blockbusters lost their patent protection, paving way for generics. However, every passing year is leaving lower patented drug opportunities for the Indian companies for the launch of generics. Thus, Indian pharma companies have increased their R&D expenses. The companies are spending more to establish niche product portfolios for the future.
The year gone by was one where M&A activity continued to attract interest of companies globally. This included many Indian names too. Indian companies such as Lupin, Cipla, Dr Reddy's and others also showed keen interest. Lupin announced a mega deal worth US$ 800 m for acquiring Gavis. On the other hand, Cipla and Dr Reddy's too made acquisitions in the US and India respectively.
How to Research the Pharmaceutical Sector (Key Points)
Higher for traditional therapeutic segments, this is typical of a developing market. Relatively lower for lifestyle segment.
Very high for certain therapeutic segments. Will change as life expectancy, literacy increases.
Barriers to entry
Licensing, distribution network, patents, type of drug portfolios.
Bargaining power of suppliers
Distributors are increasingly pushing branded 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.
High and fragmented owing to many small players in the industry.
FY15/CY14 was quite a challenging one, particularly on the export front. On the domestic front, the year was a mixed bag for companies.
Post the pricing policy announced by National Pharmaceutical Pricing Authority (NPPA) in 2013-14, many MNC pharma companies got impacted. This had resulted in poor performance being reported by major MNC companies. Their performance was even below the domestic players. The trend continued for FY15 too. Only a couple of companies exhibited better growth. The margins of these MNC players remained subdued due to increasing expenses and slower topline growth.
In the US, generic companies witnessed mixed growth. While some of the companies benefited from low competition launches, others got impacted by delay in approvals. Though there were not many blockbuster launches during the year, there were just a handful companies that displayed robust performance. On the other hand, Indian companies having presence in emerging markets were severely battered. The currencies of major countries witnessed sharp depreciation, leading to poor realisations. Further, slowdown in some countries impacted their growth. Over and above, the companies also witnessed pressures owing to slower approval rate. This was seen in regions of Latin America.
Currency depreciation had both positive and negative impact on the Indian pharma companies. Depreciating rupee helped some companies garner better margins. On the other hand, those with forex loans on their books witnessed higher payments.
The industry continued to face bigger challenges on the regulatory front. The companies 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.
The IPM size is expected to grow at 9-12% CAGR between 2013-18. The growth in Indian domestic market will be boosted by increasing consumer spending, rapid urbanization, increasing healthcare insurance, drugs and so on. On the global front, the IPM is ranked 13th in terms of value. Owing to robust growth, its ranking is expected to improve to 11th position by 2018.
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 promising outlook, intense competition and consequent price erosion would continue to remain a cause for concern. Over and above this, following GMP will be an important criterion 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, biosimilars, complex generics etc. have become an area of interest. Most of the Indian pharma companies have been working on these niche drugs 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 increase to 86-87% over the next couple of years from 83% currently.
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