New Delhi, July 05, 2017: Indian drug makers’ revenue growth may cool off to 7-10 percent over next three years after mid- to high double-digit growth over last five years faced by rising competition, fewer blockbuster drugs going off-patent and regulatory overhang in the US market, according to rating firm ICRA according to Moneycontrol.com.
The overall aggregate revenues of 21 leading players grew by 0.2 percent during the fourth quarter ended March with FY17 growth at 7.4 percent as against 10.1 percent growth in FY16, ICRA said.
Revenue growth from US during FY2012-17 period for ICRA’s sample set experienced a compounded annual growth rate (CAGR) of 19.3 percent.
US contributes around 40-50 percent to sales for most of the large Indian drug makers, while the price erosion is expected to be in the range of high single digit to low teens.
“The growth momentum is likely to face further pressure going forward, led by limited near term first to file (FTF) generic opportunities and pricing pressure on generic base business,” said Gaurav Jain, vice president & co-head, corporate sector ratings of ICRA.
“Besides increased regulatory scrutiny and consolidation of supply chain in US market resulting in pricing pressures along with increased R&D expenses will also have an impact on profitability of Indian pharmaceutical companies,” Jain said.
The domestic market considered to be the safe bet for Indian generic drug makers with favorable macro-economic indicators and predictable regulatory regime is also expected to be under some pressure.
“As for the domestic formulations business, companies registered growth of 4.5 percent in Q4 FY17 as against 9.3 percent in Q3 led by destocking following impending GST implementations and lag effect of demonetization,” ICRA report said.
ICRA’s also views, continued regulatory interventions in domestic market will put some pressure in near term though long term growth prospects remain healthy given increasing penetration, accessibility and continued new launches by players.
According to the reports filed by viswanath pilla and published in Moneycontrol.com in spite of these ongoing challenges, the ICRA report says several Indian pharma companies have ramped up their R&D spend, targeting pipeline of specialty drugs, niche molecules and complex therapies.
“They have gained adequate scale and drug development capabilities over last decade of growth which will keep them in good stead to capture new opportunities in the developed market,” the report added.
The growth pressures along with increased R&D and compliance related investments, industry’s profitability has remained relatively stable with aggregate EBITDA margins for ICRA’s sample at 18.3 percent for Q4 2017 vis-à-vis 21.7 percent in Q4 FY16 and 24.6 percent in Q3 FY17.
The average R&D spends of top few domestic companies increased from 5.9 percent of sales in FY11 to close to 9.1 percent in FY17 as companies are expanding their presence in complex therapy segment such as injectables, inhalers, dermatology, controlled-release substances and biosimilars.
ICRA expects to see marginal rise in debt levels of pharmaceutical industry.
“The capital structure and coverage indicators are expected to remain strong despite some pressure on profitability and marginal rise in debt levels given inorganic investments,” ICRA said.
“The key sensitivity to ICRA’s view remains productivity of R&D expenditure, increasing competition in the U.S. generics space and operational risk related to increased level of due diligence by regulatory agencies,” the rating agency added.
