Patent expiry and outsourcing are expected to be the primary growth drivers for the Indian pharmaceutical industry, a Care research says. Besides, the growing trend in outsourcing by global pharmaceutical companies will further fuel exports, especially for companies focusing on bulk drug and contract research and manufacturing services (Crams) segments.
On the other hand, the domestic market will provide high revenue stability to companies present in this segment. Exports to the regulated markets will be be driven due to opportunities from patent expiry over the next five years, the report says.
The growth of the industry over the past five years has been primarily driven by exports. However, in FY10, the export growth slowed down considerably on the back of recessionary scenario in the regulated markets resulting in inventory rationalization by many global pharma companies. Despite lower export growth, the industry still managed to grow at a healthy rate on the back of steady growth rate of the domestic market which continued to grow by about 18% in 2010. Going forward, exports will continue to drive the overall industry growth while the domestic market will continue to support this growth, the report observes.
While generic markets of the US and Europe are becoming increasingly competitive, they still offer good growth potential for Indian companies. As per CARE?s estimates, drugs worth $235 billion of innovator sales will lose their patents by 2015, representing sizeable growth opportunity even after considering the severe price erosion that would happen after the entry of many generic companies. For tapping the generic opportunity in the regulated markets, many Indian pharma companies have undertaken projects to set up new manufacturing and R&D facilities. Besides, a few Indian companies have also opted for the inorganic route and acquired companies with the motive of gaining access to the regulated markets.
Further, outsourcing by global pharma companies is expected to continue and benefit bulk drugs and CRAMS players. The decreasing R&D success rates and higher costs have reduced the return on investment for global innovator pharma companies, which has led them to search for avenues for reducing the R&D costs and speeding up the innovation process. Indian companies have emerged as strong contenders for partnering with the global companies in their R&D efforts by offering quality manufacturing and research services at lower costs leading to the emergence of CRAMS as a high-growth segment. With improved compliance with global regulatory norms and recognition of product patents, Indian companies are increasingly attracting outsourcing business from global companies.
According to the study, the overall credit profiles of top Indian pharma companies are expected to remain strong. CARE expects the domestic market to provide a high degree of stability to the revenue of domestically focussed pharma companies as changing demographics, improving healthcare access and changing disease profile will keep the demand for medicines buoyant. In 2010, the domestic market growth of around 18% was primarily driven by volume and new product introduction with minimal impact of price rise.
The domestic market growth trend is expected to continue in the future and the growth potential can be gauged from the recent acquisitions of top Indian pharma companies by global pharma companies, which indicate the latter?s long-term focus on the Indian market.
Overall credit profiles of top pharma Indian companies are expected to remain strong on the back of stable growth prospects for domestic as well as export markets and relatively low gearing levels. Realisation of envisaged benefits in a timely manner from acquisitions and expansion projects undertaken by many mid and small-size pharma companies would be critical for their credit profiles, especially when such investments are largely debt-funded.