Top Indian Pharma formulators eyeing OTC market: Report

Mumbai: Indian pharmaceutical formulators are expected to continue to make investments in consumer healthcare, wellness products, and traditional OTC product categories to grow domestic non-prescription business through organic and inorganic routes, a report said.

These investments would be driven by the need to further diversify the domestic prescription business, India Ratings and Research (Ind-Ra) said in its report.

According to Business Monitor International (BMI), India's non-prescription or OTC market contributes around 14.5 percent to the total pharmaceutical sales and is expected to grow to USD 4.2 billion at a CAGR of 8.8 percent over 2017-2022. The growth is likely to be driven by limited household affordability for frequent clinical visits, the convenience of direct purchase and growing preference for self-medication for minor ailments, it said.

Investments by Indian formulators are likely to be in consumer healthcare and wellness products, apart from the traditional OTC product categories through new launches, brand extensions and switches from prescription products. The non-prescription business includes products in categories such as analgesics, cough, cold and allergy, dermatological, gastrointestinal and lifestyle OTCs such as vitamins, minerals and nutritional supplements and dental products.

Ind-Ra believes the non-prescription business to contribute a solid 15-20 percent to the domestic revenues of Indian formulators over the next five years.

Structurally, the margin and return profile of an optimized non-prescription business with a mix of OTC, consumer and wellness products is better than that of an acute prescription portfolio, but may significantly be lower than that for a chronic prescription portfolio.

The profitability from a non-prescription business happens with a lag, subject to significant investments in media spends and distribution to establish/enhance consumer appeal or brand recall. The agency believes that large Indian formulators with demonstrated brand building capabilities and established distribution network can break-even faster and achieve profitability early.

While FMCG players are likely to maintain market leadership in consumer products, competition for Indian formulators is expected to be moderate due to inherent strengths and limited product overlap, the report said.

This strategy is in sharp contrast to some global majors looking for strategic alternatives to exit their mature consumer health business owing to low single-digit growth and shift in focus back to the core prescription business.

Since the second half of 2017, global majors such as Merck KGaA and Pfizer have announced a potential full or partial sale of their consumer health business as well as strategic partnerships for accelerating deleveraging and to focus on the core prescription business.