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Icra sees pharma industry growth tapering to 7-10% over FY18-FY20

LiveMint logoLiveMint 03-07-2017 Isha Trivedi

Mumbai: The Indian pharmaceutical industry is likely to witness a slowdown in growth over the next three years because of pricing pressure and regulatory interventions in the US as well as in domestic market, ratings agency Icra Ltd said in a report on Monday.

Icra expects aggregate revenue growth for 21 leading Indian pharma companies at 7-10% between fiscal years 2017-18 and 2019-20 after mid-to-high double digit growth over last five years.

In the US, a major market for Indian firms, growth is seen tapering on account of price erosion due to increased competition, compliance issues with the US Food and Drug Administration (FDA) and moderate proportion of large-size branded drugs going off patent.

“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. 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,” Gaurav Jain, vice president and co-head, corporate sector ratings, Icra, said.

Meanwhile, in domestic market, continued regulatory interventions are expected to put some pressure in the near term on pharma industry’s growth, though long-term prospects remain healthy given increasing penetration, accessibility and continued new launches by players, the ratings agency said.

Last year, government’s moves such as ban on fixed-dose combination drugs and demonetisation of high-value currency notes hurt growth of pharma companies. Further regulatory action in terms of price control of drugs or making prescriptions of medicines by their generic name instead of brand names, if implemented by the government, remain key threats for the industry.

Icra, however, expects the credit metrics of leading drug makers to remain stable on the back of steady growth prospects in regulated markets and relatively strong balance sheets. The capital structure and coverage indicators are likely to remain strong despite some pressure on profitability and marginal rise in debt levels given inorganic investments.

In spite of these ongoing challenges, several Indian pharma companies have ramped up their research and development (R&D) spend, targeting a pipeline of specialty drugs, niche molecules and complex therapies, which will help in capturing new opportunities in the developed markets.

“ICRA expects the increase in R&D budgets witnessed over the past few years to continue...Top companies are expanding their presence in complex therapy segment such as injectables, inhalers, dermatology, controlled-release substances and biosimilars,” Jain said.

The key sensitivity to ICRA’s view remains productivity of R&D expenditure, increasing competition in the US generics space and operational risk related to increased level of due diligence by regulatory agencies, the report said.

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