Indian pharma sector faces growth pains

Bengaluru, March 6 (IANS) The Indian pharmaceutical industry growth is projected to be in single digit this fiscal (2016-17) due to several headwinds, a study said on Monday.

"The aggregate growth of the Indian pharma industry is expected to be in single digit in 2017 due to slowing growth in the US, intense competition and regulatory overhang," said the study by leading credit rating agency ICRA.

According to the study, revenue growth from the US slumped to 12 per cent in the first nine months (April-December) of this fiscal (2016-17) from 15 per cent in the last fiscal (2015-16) and 33 per cent Cumulative Average Growth Rate (CAGR) during 2011-15 despite consolidation and currency benefits.

"The growth momentum is likely to face further pressure. Increased regulatory scrutiny, consolidation of supply chain in the US market resulting in pricing pressures and higher research and development expenses will have an impact on profitability of the companies," it said.

Aggregate revenue of leading firms grew 9 per cent annually for the third quarter (October-December) of FY 2017, while the nine-month growth was 8.9 per cent and as against 10.1 per cent growth in FY 2016.

"The revenue growth of the Indian pharma industry remains moderate for the US, where the base business facing single digit price erosion regulatory overhang for select firms and impact of demonetisation on domestic growth," said ICRA group Vice-President Subrata Ray.

Similarly, the domestic formulations business registered 9.3 per cent growth in the third quarter (October-December) as against 14.1 per cent in the second quarter (July-September), with demonetisation resulting in channel de-stocking though the growth should come back in the next few months.

Many pharma firms have, however, ramped up their research and development spend, targeting specialty drugs, niche molecules and complex therapies despite facing the challenges on multiple fronts.

At the same time, growth from key emerging markets benefited from currency tailwinds though macro-economic challenges remain.

Regulatory interventions in the domestic market are expected to put pressure in near term though long-term growth prospects for domestic pharmaceutical market remain healthy given penetration, accessibility and new launches.

"Aggregate revenue growth is projected at 9-11 per cent in fiscal 2018-19 from 2016-17 after mid to high double digit growth during the last five years," Ray said.

The industry's profitability remained stable despite growth pressures, increased R&D spend and compliance-related investments, with 24.8 per cent aggregate operating margins for the third quarter of this fiscal.

"Many pharma firms have increased their annual R&D budgets to nine per cent from six per cent over the last couple of years to grow in regulated markets and complex molecules/therapy segments," recalled the study.

The R&D spend is expected to grow as leading firms are expanding their presence in complex therapy segment such as injectables, inhalers, dermatology, controlled-release substances and bio-similars.

Observing that the credit metrics of leading firms would remain stable on steady growth prospects in regulated markets and strong balance sheets, the study said the capital structure and coverage indicators would remain strong.

"In our view, productivity of R&D spend, competition from the US generics space and operational risk due diligence by regulatory agencies," said the study.

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