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Pharmaceuticals Sector Analysis Report 

[Key Points | Financial Year '17 | Prospects | Sector Do's and dont's]

  • The Indian Pharmaceutical market (IPM) accounts for approx.1.5% of the global pharmaceutical industry in value terms and 20% in the volume terms. The IPM is valued at Rs 1.11 trillion for the year ending March 2017 MAT (Moving Annual Total) by All India Organisation of Chemists and Druggists (AIOCD). The growth in 2017 stood at 10% over the same period last year. Owing to robust historical growth, 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% of the overall market. Over the counter (OTC) medicines and patented drugs constitute 21% and 9% respectively.
  • Besides the domestic market, Indian pharma companies also has a large chunk of their revenues coming from exports. Major companies have revenues coming in from the sale of intermediates, active pharmaceutical ingredients (APIs), and formulations in various global markets. These include developed markets like US, Europe and Japan and semi developed markets across the world. Markets. , Some companies also derive revenues by providing custom research and manufacturing services to 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.

How to Research the Pharmaceutical Sector (Key Points)

  • 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
  • Distribution network, patents, developing and manufacturing capabilities,
  • Bargaining power of suppliers
  • Varies from market to market For instance, consolidation in US has led to pricing war in generics, In India, 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.
  • Competition
  • High and fragmented owing to many small players in the industry.

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Financial Year '17

  • FY17/CY16 was quite a challenging one, particularly on the export front. On the domestic front, the year was a mixed bag for Indian 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 FY17 too. Over and above, government’s ban on fixed dose combinations too impacted big MNC players like Pfizer. While the ban is still contested in courts, both domestic and MNC companies saw sluggish growth. Given these challenges, the MNC companies have been taking various measures to improve their margins.
  • 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 too impacted. 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.
  • 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). While big firms like Sun Pharma and Dr. Reddy’s struggled due to the increased scrutiny by the USFDA many mid and small sized companies generated decent sales from the US market.

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Prospects

  • The IPM size is expected to grow at 9-12% CAGR between 2016-21. 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, India is likely to be the 9th largest market globally in absolute size.
  • 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 (cardiovascular,anti-diabetes,anti-depressants and anti-cancer)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. Major companies have increased their R&D spend to build pipeline of niche drugs. This in turn will help the company 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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Related Links for Pharmaceuticals Sector
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