Growth Pill

Entry barriers and revenue losses in the US‚ Europe and emerging markets have compelled pharma companies to lean on India

 pharma companies are shifting their attention to the Indian market as they see declining revenues in the US, European and emerging markets. Realising there is a significant opportunity for healthy revenues domestically, mid-sized companies like Eris Lifesciences and the recently-listed Mankind Pharma are also keeping an eye on the Indian market, joining the likes of market heavyweights Sun Pharma, Dr. Reddy’s and Cipla, among others.

“India remains our priority market, and we are committed to continuing to grow this business at a healthy rate,” Erez Israeli, CEO of Dr. Reddy’s, said during an analyst call. The revenues of the India division of Dr. Reddy’s in Q4FY23 grew 32 per cent year-on-year. For the entire year, its sales jumped 17 per cent to `4,893 crore. While the US market recorded 36 per cent YoY growth in the March quarter of FY23, emerging market sales declined 7 per cent due to a high base. Global brokerage firm Bernstein downgraded Dr. Reddy’s stock from “outperforming” to “market-perform” on May 18, citing near-term gaps in the US growth story and weak or unpredictable emerging markets performance.

One more factor that has led to greater focus from pharma companies is the Indian market’s strong growth in recent times. The Indian pharma industry grew 9.3 per cent in FY23 and 14.6 per cent in FY22, per credit ratings agency India Ratings and Research. Its strong performance was the reason why India was a priority market for Cipla, Umang Vohra, MD & Global CEO of the pharma major, said recently. For instance, in FY23, Cipla’s India branded prescription business maintained momentum across all of its medicines, achieving 13 per cent YoY growth (excluding Covid-19). The Indian pharma market is expanding rapidly, especially in the wake of the Covid-19 pandemic, making the nation a promising market.

Also, there is much headroom for growth. Sample this: per capita pharma spending in India is $15, compared to $700 in developed countries and $100 in China. GDP and drug spending correlate strongly worldwide. “If the Indian pharma market grows at 9-10 per cent per year until the end of the decade, per capita spending will grow from $15 to $30,” says V. Krishnakumar, Executive Director and COO of Eris Lifesciences, adding that this will offer a big opportunity for growth.

In addition, in the past five years, small molecules, which are India’s strength, have witnessed only 35 per cent of patent expiries compared to over 80 per cent earlier. These days, most of the patent expiries, say experts, are happening in biologics, a segment where Indian pharma companies are not very active. So, overall the pipeline of US patents that are about to expire has decreased rapidly from an Indian pharma industry perspective, while the number of Indian firms wanting to be in the US market has increased.

“This is a perfect recipe for price competition, which is what you’ve been seeing in the US market, that gives very bad pricing, very bad margins, or in many cases negative margins. This is the reason why larger firms who are present in multiple markets, have suddenly refocussed on India,” says Krishnakumar. Which means, this is a good time to be in the pharma space in India.

THE INDIAN PHARMA INDUSTRY EXPANDED AT A RATE OF 9.3 PER CENT IN FY23 AND 14.6 PER CENT IN FY22