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Table of Contents
Long-term export potential
Scenario & medium term outlook
Key growth drivers
Market Size and Outlook
Key growth drivers
Scenario and Outlook
Domestic market to be mainstay for growth in medium term
Players look to re-align their business model on exports front
Blockbuster drugs going off patent and marketing exclusivity aided the growth for the Indian exports formulation players during 2011-12 to 2015-16. However, regulatory woes,wholesale consolidation in US market and rising competition substantially impacted the formulation exports players in 2016-17 and 2017-18, leading to a flat growth during thefiscal.
Going forward, CRISIL Research expects the growth to recover to 6-6.5% CAGR during FY18 to FY23, aided by new launches by large players in the conventional genericssegment. Though pricing pressure in the base business is expected to continue in the US market, it is expected to be less severe from 2019 onwards. Though exports growth isexpected to slowdown, revenue from exports markets for Indian players is expected to grow at a faster rate of 10% CAGR, as large players are looking to develop capabilities inspecialty and biosimilar segment through inorganic route. The export growth in semiregulated markets would also improve slightly as players look at new markets with lowavenues for growth in regulated markets.
Domestic market growth to remain range-bound over medium term
After registering a healthy ~14% CAGR during FY08 to FY13, domestic market growth slowed down to ~10% CAGR during FY13-FY18 on account of pricing regulations from2013-14 onwards. NLEM (2015) primarily impacted the growth for the fast growing chronic segment, as large number of cancer related drugs were included under theNLEM. Going forward, CRISIL Research expects the growth to normalize and remain range-bound at 11-11.5% CAGR, as Government is likely to continue to keep a hold onpricing. Although the chronic segment would be a key driver in the strong volume growth, high numbers of cancer related drugs being introduced under NLEM would offset anincremental growth in the segment. Further, rising healthcare demand in the country as indicated by rising healthcare insurance and overall per capita health expenditure willcontinue to drive growth for domestic market.
Focus of Big Pharma to increase towards domestic market
After registering a drop in share from 57% to 53% during FY13-FY16, the share of domestic formulations industry has been increasing steadily. DuringFY18, it is estimated to account a 58% share in the overall pharma industry. With the slowdown in export markets, big players are likely to increasetheir focus into the domestic market. The share of domestic formulations industry in the overall pharmaceutical market is set to increase in the comingfive years on the back of the double-digit growth in the domestic market.
Transition to specialty segment and strong capabilities in high value API to support revival in bulk drug exports
During FY13 to FY18, bulk drug exports de-grew at 3.4% CAGR on account of competition from China and other Asian counterparts. Further, on account of patent cliffsduring 2012 to 2014, value of many key molecules supplied by Indian players to innovators dropped substantially during the period. Going forward, even though thepricing pressure on formulation players is expected to impact bulk drug players, growth is expected to recover to 3-3.5% CAGR, as transition towards specialty segment and highercapabilities of Indian players viz a viz Chinese players in high value API will support growth. On the domestic front, bulk drug production for captive consumption is likely tocontinue to record strong growth. Domestic bulk drug manufacturers are expected to continue to register double digit growth supported by strong domestic sales.
Profitability for large formulators to improve in 2018-19
During 2017-18, the margins for large formulation players dropped by ~600 bps on-year on the back of pricing pressure and weak product launches. However, in 2018-19,margins are expected to revive by 100-150 bps on-year owing to FTF launches and consolidation in pricing. On the other hand, margin revival for mid-sized players isexpected to be slower due to lower number of exclusivity launches.