Pricing pressure on Indian drug companies to continue: Fitch Ratings

Chennai : Indian pharmaceutical industry will face pricing pressure in the US and domestic markets for some more time to come and the players have to focus their research and development (R&D) on speciality/complex drugs, said global credit rating agency Fitch Ratings.

Giving a stable outlook for the Indian pharmaceutical industry,Fitch said: "We feel that speciality/complex drugs represent a key growth area, given the increasing shift towards speciality and more targeted therapies in the US."

"We acknowledge the above-average level of associated risks, but feel that this shift in focus will be important for the Indian companies to move to the next level and sustain growth momentum," Fitch added.

According to Fitch, rising competition in the pure generics segment has led many of the top Indian pharma companies to focus increasingly on speciality and complex generics through higher R&D spending.

Expecting the domestic market to grow in the low teens over the medium term, Fitch said the government's focus on regulating prices over the past few years has led to moderate growth.

"The pricing environment is likely to remain tough, though we expect government to take a more collaborative policy approach to encourage investment," Fitch added.

As regards the price erosion in the US generics market, Fitch said the profitability would be affected due to intensity of the competition.

"The US generics market, a key growth driver for Indian pharma exports, has seen high competition with the entry of new players and significant channel consolidation over the past few years," Fitch added.

The rating agency said there will be moderate price erosion in the existing generic portfolios of Indian drug companies.

Fitch expects the pricing pressure to continue with the ongoing policy focus to limit healthcare costs through faster approval of generic alternatives under Generic Drug User Fee Amendments (GDUFA I & II).

On the acquisitions of Indian pharma companies, Fitch said many companies have actively pursued acquisitions in line with the trend in the global pharma sector, in order to augment their existing drug portfolios and solidify their presence in both existing and new geographies.

The acquisitions will help to consolidate their positioning, with deleveraging likely only over the medium term as the acquired businesses contribute incremental earnings, Fitch said.

According to Fitch, failure on the part of Indian companies to resolve the USFDA issues in time at key manufacturing facilities could hamper growth and hurt profitability.

Increased appetite for debt funded acquisitions could affect credit metrics.

Establishing a robust base in speciality/complex generics through R&D efforts may boost growth and lead to improved margins. Moderation of competitive intensity in the US generics market may support margins, Fitch added.