Domestic pharma market to hit $20-billion mark by 2015

Written by Sajan C Kumar | Chennai | Updated: May 31 2009, 04:32am hrs
Riding high on branded generic wave, the Indian pharmaceutical market is expected to hit the $20-billion mark by 2015 and likely to feature among the worlds top10 pharma markets from its current position of 14th. The domestic pharma market may register a growth of 13% (from around $7 billion in 2008 to $20 billion in 2015 ) as compared to 4% growth of the global pharma market ($650 billion in 2007 to $844 billion in 2015). In terms of absolute growth, India will be next to the growth potential of the US, China and Japan.

Indian market has emerged as a key destination for global pharma companies, thanks to its high growth prospects and conducive regulatory environment. Underlying this fact, the Indian subsidiaries of global pharma companies outperformed their parent companies in terms of sales and profit growth in last three years. On an average, Indian subsidiaries grew by 14% vis--vis 5% growth of parent companies in 2008.

According to industry experts, MNC pharma companies are likely to witness a sea change in their strategy and are aggressively scouting for growth options. The MNCs have embarked on a multi-pronged strategy to establish their stronghold in Indian market by introducing patented products, divesting non-core businesses, going in for acquisitions, strengthening sales and distribution network as well as developing India-centric portfoilios. Strong cash flows and healthy balance sheets, high dividend pay-outs, outperformance of the domestic market and strong patent product pipeline make the Indian MNC pharma companies an attractive investment proposition, feel experts.

Research firm Emkay Research in its latest report on the pharma industry said that with dwindling growth rates in the developed markets, declining productivity and a potential revenue loss of 14-41% over the next 3-4 years, most of the global companies are renewing their focus on the fast growing emerging markets. Growing and ageing population, changing disease profile coupled with improving socio-economic conditions are the key growth drivers in the emerging markets.

Companies are increasingly allocating more resources to their Indian subsidiaries, which promise strong growth potential. have put aside concerns regarding safety of their IP rights and are adopting a more aggressive stance as regards launch of patented products in India. In the last three years, have introduced 18 products in India and the launch process is expected to gain momentum in the days to come, noted the document.

Experts are of the view that over the years, Indian subsidiaries of MNC pharma companies have undergone heavy restructuring and divested non-core businesses, in order to focus on their branded formulation segment. The buyback and de-listing announcements by MNCs strengthen the fact that the parent companies are quite positive on the future growth prospects of their Indian operations. Moreover, these announcements provide additional upside potential to the stock. Indian MNC pharma companies appears to be largely insulated from the current economic slowdown because of their strong business model and healthy balance sheets, high dividend yield and relatively low risks to earnings, say the experts.

Pointing out that the per capita pharma spend in India significantly lags behind that of other emerging markets, the experts say increased healthcare spending will increase the contribution of the total healthcare market in India to the countrys GDP from 5.2% at present to 8.5 %, over the next ten years. Also, the rise in disposable income has a positive impact on healthcare spend, which has increased from 2.8% in 1995 to 6.2% of disposable income in 2005.