Pharmaceutical industry growth to remain moderate, says Icra

Mumbai : Growth of the domestic pharmaceutical industry is likely to remain moderate due to factors like slowdown in the US market, increased competition and generic adoption reaching saturation levels, rating agency Icra said.

"The growth trajectory for domestic pharmaceutical industry is likely to remain moderate on back of slowing growth from US markets given the relatively moderate proportion of large size drugs going off patent, increased competition, generic adoption reaching saturation levels, regulatory overhang along with base effect catching up," Icra said in a report here.

"Indian pharmaceutical companies have registered strong growth over the last decade, driven mainly by American market with CAGR of revenue growth from US during FY11-15 period for our sample set at 33 per cent on back large brands going off patent and sizeable organic and inorganic expansion," it said.

However, growth from the US market came down to 15 per cent in 2015-16 and going forward the growth momentum is likely to face further pressure, it added.

Increased regulatory scrutiny as reflected in stepped up issuance of warning letters/import alerts and consolidation of supply chain in US market resulting in pricing pressures will have an impact on profitability of Indian pharmaceutical companies, the report said.

In spite of these ongoing challenges, several Indian pharma companies are increasing their R&D spend, targeting pipeline of specialty drugs, niche molecules and complex therapies. The industry has gained adequate scale and drug development capabilities over the last decade, it said.

"Continued regulatory interventions in domestic market are expected to put some pressure in near term, though long-term growth prospects for domestic pharmaceutical market remain healthy given increasing penetration, accessibility and continued new launches," Icra Ratings Senior Group Vice- President Subrata Ray said.

The operating environment in emerging markets (EMs) like Latin America, CIS and South Africa has been affected by confluence of factors, including devaluation of currency, frequently evolving regulatory landscape and weakening macro environment across some commodity-dependent economies.

Select pharmaceutical companies have taken sizeable write offs in Venezuela due to currency devaluation and stopped dispatches there on back of repatriation issues.

"The aggregate R&D spends of top few companies in domestic pharmaceutical market have increased from 6 per cent of sales in FY2011 to more than 9 per cent in FY2016. ICRA expects this trend to continue," Ray said.