Changing Landscape Of Indian Pharma Market

With revenues in the US, Europe, and emerging markets taking a slump, pharmaceutical corporations are drawing their attention towards the Indian market. Both mid-sized companies and heavyweights of the sector like Sun Pharma, Dr. Reddy's, and Cipla are keeping an eye on the Indian market to harness solid domestic revenues. 

The recent rapid growth of the Indian market is another aspect that has prompted pharma companies to devote more attention to it. The credit rating agencies have estimated that the Indian pharma industry grew 9.3 percent in FY23 and 14.6 percent in FY22, and its strong performance was the reason why India was a priority market for pharma heavyweights. 

After a successful Covid-19 era in which pharmaceutical companies made fortunes, dynamics have altered. The business has relatively slowed down due to a lack of consistent demand for drugs and vaccinations. 

GDP and drug spending correlate strongly worldwide. With the RBI's Annual Report for 2022–23 suggesting India’s growth momentum will sustain in FY24 amid easing inflationary pressures, there seems to be much headroom for pharma growth in India. 

Positive Financial Performance In Q4 FY23 

The Q4 FY23 pharma results have shown a trend towards double-digit profit for most of the pharma companies in India. 

"Indian Pharmaceutical Market IPM in Q4FY23 grew by 11.0 per cent YoY as per Pharmaceuticals Earnings Preview Q4FY23, by Centrum. Respiratory, anti-infectives, pain, analgesics, and derma are some of the leading therapies that have witnessed significant growth in Q4FY23," said Nikhil Patil, Partner, KPMG in India, delineating the latest quarter growth prospectus. 

Kinjal Shah, Vice President & Co-Group Head, Corporate Ratings, ICRA Limited, explaining other facets of Q4 FY23 growth, conveyed, "Despite continued price erosion in the US and Europe pharma markets, most companies have reported sequential improvement in margins, supported by some stabilisation of raw material costs and steady performance in other key markets. However, companies are also taking active cost optimisation measures, including discontinuation of low margin products and rationalisation of R&D spends with an increasing focus on complex molecules and specialty products." 

Shah, further expounding on India’s demographic leverage, stated that structural factors such as an ageing population and continued rise in lifestyle and chronic diseases, in addition to new product introductions, have supported revenue growth for the industry. Moreover, several key players also invested in salesforce enhancement, which has also improved performance, she added. 

Challenges Faced by Pharma Companies 

The US is the pharmaceutical industry's most lucrative market, representing about 34 per cent of all Indian exports during FY22. The U.S. and European pharmaceutical manufacturing markets were valued at USD 378.51 billion in 2022 and are expected to grow at a compound annual growth rate (CAGR) of 6.81 per cent from 2023 to 2030. 

Commenting on the headwind from the US, Patil mentioned, "Generic medicines have an important role to play in patient treatment, not only in developing countries but also in developed countries. USA, the biggest export market for Indian companies, is undergoing a combination of rising healthcare costs, higher inflation, higher inventories shored up during COVID-19, rising competition, pressure for localization, etc., which resulted in tepid demand. While exports have gone down, the US market is still attractive to Indian manufacturers." 

Underscoring the ripple effect, Shah conveyed that high competition and price erosion in US have had a significant impact on the margins of pharma companies and have led to constant optimisation of their product portfolios, such that some companies have exited certain low margin products. 

"Some companies have also taken impairments on earlier investments made in this market due to reduced revenue visibility for the same. However, being the largest pharma market, the US remains an important market for Indian players and continues to attract a significant part of the overall capital allocation," Shah stated. 

Furthermore, Shah reflected that most pharma companies continued to launch new products or develop a specialty product portfolio to combat pricing pressure in this market. 

Indian Market and Global Opportunities 

For FY2024, the rating agency ICRA expects revenues from a sample set of 16 Indian pharmaceutical firms, including the likes of Wockhardt, Torrent Pharmaceuticals, Pfizer, Abbott India, Cipla, Lupin, Sun Pharmaceuticals and Dr Reddy's, to grow by 6-8 per cent primarily driven by the domestic and emerging markets.  

Highlighting the factors providing global opportunities and impetus to the Indian market, Shah mentioned that an increasing geriatric population and lifestyle changes are supporting the growth of chronic and sub-chronic therapies in India, which is expected to remain the major contributor to growth in the Indian pharma industry." 

"While there was a decline in demand for chronic therapies during Covid, it has improved over the past few quarters. While therapies like cardiology and anti-infectives continue to remain important, genercisation of some key anti-diabetic drugs has resulted in a drop in the performance of existing players in the anti-diabetic therapy," Shah expressed distinctively. 

Furthermore, she added that in recent quarters, earnings for some leading pharma companies have also been supported by first-to-file launches of certain complex generics in the US market, with exclusive marketing rights for a select period. 

Role of Generics & New Product Approvals  

An analysis of 2022 ANDA approvals shows that 10 of the top 15 companies receiving the highest number of ANDA approvals in 2022 are Indian. Indian companies dominated the ANDA approvals, with 355 ANDA approvals out of a total of 742 ANDA approvals granted during the calendar year 2022. This further improves their share from 42 per cent (267 approvals) from last year, a 33 per cent growth of ANDA approvals for Indian companies versus 2021. India was followed by the US, China, Europe, and Israel, in that order, in the number of ANDA approvals. 

Attributing this growth to specific segments, Patil mentioned that ANDA approvals have improved over the last few years, and a majority of these approvals are for oral medications, while injectables make up a lower percentage of the total approval pie for Indian companies.  

"Indian pharma companies have accounted for 42-48 per cent of the ANDA approvals by the USFDA in recent years. With continued capital allocation by major players towards business in the US, this trend is expected to continue in the future as well. Indian players have a larger share of oral dosages in their ANDA approvals as compared to other global pharma companies," Shah stated. 

Pricing Policies & Inflation Impact: 

Lately, we have experienced WPI-linked price hikes for products under the National List of Essential Medicines (NLEM) and annual price hikes for non-NLEM products. Non-NLEM drugs can take an annual increase up to a maximum of 10 per cent, and changes in WPI do not have a direct impact on price increases. While for NLEM drugs, price hikes continue to be decided based on the change in WPI. Due to higher inflation, the annual price hike allowed under NLEM was 10.8 per cent and 12.1 per cent in 2022 and 2023, respectively. This is the second consecutive double-digit hike for NLEM drugs. 

In spite of this hike, Shah underlined the reduced average prices of NLEM drugs, commenting that despite the 12.1 per cent hike in 2023, the average prices of NLEM drugs have gone down since April 2023 as the capping of ceiling prices for 651 drugs (out of 870 falling under NLEM) by the NPPA resulted in a 16.6 per cent decline in prices. 

Impact of US FDA Inspections & Compliance 

The US being the largest market for pharma, restrictions on the launch of new products or the sale of existing ones in the US have had some negative impact on the business of Indian players. While US FDA inspections were kept on hold during the pandemic, the pharma industry has now witnessed an increasing influx of US FDA inspections. 

"There have been several instances of adverse observations, including Form 483s, OAIs, warning letters, etc. Since the resolution of these processes can be a lengthy process, including several iterations of to and fro with the US FDA, multiple rounds of inspections, additional consultancy fees, etc., it has an impact on the performance of the company. However, these companies are able to combat the same to some extent through dual filings for products and an increased level of contract manufacturing on an outsourcing basis," Shah delineated. 

Conclusion

The Indian pharma market presents opportunities for growth despite challenges in other regions. The market's rapid growth, favourable demographics, and increasing focus on complex generics and specialty products contribute to the industry's success. Indian pharma companies play a significant role globally, and their performance in the domestic market as well as emerging markets helps offset pricing pressures. However, compliance with regulatory standards and addressing pricing policies remain crucial for sustained growth and success in the Indian pharma industry.