Indian pharma market to grow at 15.3% by fiscal 2014

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The growth rate for the domestic Indian pharmaceutical market is set to rise over medium-term, according to a research report.

The revenue CAGR (compound annual growth rate) over the past three years had been 12.4 per cent, but it is expected to be up at 15.3 per cent from FY12 to FY14, Barclays Capital Equity Research said here in its report - India Healthcare & Pharmaceuticals.

The growth is expected due to factors like new product launches, focus on improving effectiveness of field force additions and favourable pricing environment, it said.

Most of the pharma companies are expecting to continue with product launches in India over the next 2-3 years.

The pricing environment in the Indian market has been a favourable one, and past growth has in part been driven by price increases of 2-4 per cent annually.

The National Pharmaceutical Pricing Authority (NPPA), which monitors and controls pricing in the Indian market for essential medicines, through the Drug Price Control Order (DPCO), could pose a potential headwind to industry growth, Barclay's Balaji Prasad said.

The DPCO currently controls pricing for around 25-30 per cent of the pharma market. The current revised proposal, called the Draft National Pharmaceutical Pricing Policy (NPPP) 2011, seeks to use the average price of the top three brands as a ceiling price, and this is bringing significant uncertainty to the pricing environment.

The current pricing mechanism is cost-based. However, uncertainty prevails about the final form of the policy, the extent of the medicines being price-controlled and the potential impact it could have on revenues, it said.

Indian domestic pharma market growth has shown a strong recovery after a weak 2011 in the past two quarters, posting high-teens q/q revenue growth.

The latest March and April revenue growth data shows growth rates in excess of 20 per cent for the overall domestic market.

Indian pharma's growth story has been a largely export-oriented one to date, with the critical market of US generics driving growth since 2005.

Since 2005, Indian pharma companies have capitalised on the generics expiries and demand for lower-cost drugs, and have grown revenues at an impressive CAGR of 20.4 per cent over FY2005-12.

While previously there were no Indian companies in the top-20 generics firms in the US, currently 4-5 of Indian firms are present in this list, according to 2011 prescription trends (IMS data).

While the net revenue CAGR from Indian coverage group has been 20 per cent over FY2005-12, the US revenue CAGR for the group has been 24.5 per cent, accounting for a large portion of the growth.

After the 'big bang' expansion of Indian pharma into the global markets that started in 2003-04 turned challenging to handle, companies toned down their expansion plans. Instead, most companies focused on the profitable and easier US market.

"However, we believe, the time is right for Indian firms to focus on the other markets with greater intensity, especially since growth from the US market may begin to taper from 2015," Prasad said.