Indian Pharma Sectoral Outlook for 2024

Summary

Foresees several factors driving pharmaceutical exports, including the patent cliff, cost competitiveness of Indian players, a shift toward specialized drugs, an aging population, lifestyle-related diseases, and support from multilateral funding agencies in unregulated markets. These factors are expected to enable Indian pharmaceutical exports to grow by approximately 8% over the next two years.

The Indian pharmaceutical sector holds a prominent global position, particularly in the generic drugs market, ranking as the third largest by volume and thirteenth by value. From FY17 to FY23, the industry, encompassing both domestic and export markets, achieved a notable Compound Annual Growth Rate (CAGR) of 8%. This growth was driven by a 7% increase in exports and an 8% rise in the domestic market during the same period. As a result, the Indian pharmaceutical industry expanded from approximately USD 34.7 billion in FY17 to reach approximately USD 50 billion in FY23, with further growth expected to USD 57 billion by FY25.

The Indian pharmaceutical industry has established a robust presence in the generics segment globally, with pharmaceutical exports and the domestic market contributing equally to its overall stature. However, in FY23, the industry's growth rate moderated to approximately 5%, primarily due to pricing pressures experienced in export markets and the influence of a high base effect from the preceding fiscal year, FY22.

Approximately 80–85% of pharmaceutical exports consist of formulation products, which exhibited a CAGR of approximately 7% from FY17 to FY23. While growth remained subdued in FY22 due to the high base effect from FY21, the growth in FY23 was influenced by pricing pressures in the US market and continued emphasis on Covid-related drugs by multilateral funding agencies. Concurrently, the domestic market demonstrated consistent growth in consumption, leading to a CAGR of approximately 8%. CareEdge anticipates that domestic consumption will continue to grow at a CAGR of approximately 8% to 8.5% over the next two years, supported by upward price adjustments for essential medicines under the National Essential List of Medicines (NELM).

In terms of exports, CareEdge Ratings expects that the industry's increasing focus on the synthesis segment, complex and specialty products, along with easing pricing pressures in the US generics market, will provide support for medium-term growth. Improved access to healthcare services is also expected to drive higher growth in emerging markets.

The US accounts for approximately 40-45% of the global pharmaceutical market share, making it a crucial market for Indian pharmaceutical companies. Nearly one-third of India's total exports originate from the US market, followed by the United Kingdom and South Africa. CareEdge expects India's pharmaceutical exports to grow at around 8% over the next two years until FY25, with major contributions coming from generic formulations. Indian pharmaceutical companies are known for their cost-effective production of generic formulations. Changing demographics, with a larger population falling in the age range of 50 – 80 years and lifestyle-related diseases, are expected to benefit the industry's growth. Additionally, the top 20 Indian pharmaceutical companies' focus on research and development (R&D) of complex and specialty generic and biosimilar products is expected to drive export growth.

CareEdge Ratings projects that the growth of formulations in regulated markets will primarily be driven by two factors: the launch of new products in complex generics, specialty chemicals, and off-patent products, and the reduction of pricing pressure. In pharmerging formulation markets, growth is anticipated due to depreciating currencies, although it hinges on sufficient forex reserves. Further growth is expected through the exploration of new markets or increased generic penetration in existing ones.

Bulk drugs, contributing about 20% of exports, face potential risks from a revival of exports from China or price wars initiated by Chinese bulk drug companies, particularly impacting the Indian bulk drug industry in the medium term. However, CareEdge Ratings foresees benefits for the pharmaceutical industry through contract manufacturing for global players and supplying bulk drugs for branded generics in regulated markets. Opportunities will be enhanced by patent expirations in these markets, with patented products worth USD 224 billion set to lose protection from CY2022 to CY2026. This opens a significant opportunity for Indian generic formulation companies, which could realize an opportunity in the range of USD 4-5 billion due to these expirations in the next 3-4 years.

Indian generic formulation companies are strategically investing in developing complex and specialty drugs, with top listed companies spending 6% to 8% of their net sales on R&D over the past five years (FY18-FY23). This trend is likely to continue, focusing on the US and European markets. India's significant role in ANDA approvals by the USFDA, with a 35-40% share in recent years and 48% in CY22, is notable, as the country houses the largest number of USFDA-compliant

According to CareEdge Ratings, the growth of formulations in regulated markets is expected to be driven by two primary factors:

a. New Product Launches: Growth will come from the introduction of new products in complex generics, specialty chemicals, and products that are going off-patent. This includes the development of generic versions of patented products that are set to lose their patent protection, representing a substantial opportunity for Indian generic formulation companies.

b. Abating Pricing Pressure: As pricing pressure eases, the pharmaceutical industry in regulated markets is likely to experience improved growth prospects.

In addition, the growth of pharmerging formulations markets is expected due to depreciating currencies, although this growth depends on the availability of adequate forex reserves. Exploring new markets and increasing generic penetration in existing markets are also expected to drive growth.

However, there are potential risks to the Indian bulk drug industry, including the revival of exports from China or price wars initiated by Chinese bulk drug companies. Despite these challenges, the pharmaceutical industry is anticipated to benefit from contract manufacturing for global pharmaceutical players and the supply of bulk drugs for branded generics in regulated markets.

Furthermore, patent expirations in regulated markets provide opportunities for Indian generic formulation companies to enter the market. From CY2022 to CY2026, patented products worth USD 224 billion are set to lose their patent protection, offering significant opportunities.

Indian generic formulation companies have been strategically investing in capabilities to develop complex and specialty drugs, with a focus on the US and European markets. India plays a prominent role in ANDA approvals granted by the USFDA, securing a significant share of total approvals.

While regulatory challenges, including heightened inspections by the USFDA, impact compliance costs and profitability, large pharmaceutical companies are taking proactive measures to mitigate risks.

Overall, CareEdge Ratings foresees several factors driving pharmaceutical exports, including the patent cliff, cost competitiveness of Indian players, a shift toward specialized drugs, an aging population, lifestyle-related diseases, and support from multilateral funding agencies in unregulated markets. These factors are expected to enable Indian pharmaceutical exports to grow by approximately 8% over the next two years.