Indian generic exports to decline 10-12% in next 5 years: CRISIL

Hyderabad: Drugmakers who earn the bulk of their revenues by selling copycat drugs in developed markets may see exports fall by 10-12% in the next five years as fewer drugs go off-patent in these markets, CRISIL Research said.

The projected decline is in contrast to compounded annual growth rate (CAGR) of 19% seen in the last decade.

India exported drugs worth $11.6 billion in 2014-15. Of this, exports to US alone was $3.8 billion, or a third of total exports.

Between 2011 and 2015, Indian companies accounted for an average of 37% of all abbreviated new drug application (ANDA) approvals—which enable a company to sell generic versions of innovator molecules —in the US market. This was just short of the 40% share held by US companies, but way ahead of the next competing countries—Israel and Germany—which had 5% each.

Large drug makers exporting to US are squeezed by more rivals filing ANDAs, and consolidation of distribution channels which has squeezed pricing power.

In 2012, Express Scripts and Medco Health Solutions merged in a deal valued at $29 billion. Similarly, in a more recent move in October 2015, Walgreen acquired Rite Aid for $17.2 billion. This creates large buying groups, which can push for higher rebates with drugmakers.

The value of drugs going off-patent which peaked in 2012 at around $48 billion is predicted to drop around $20 billion in 2016, according to the CRISIL report.

“The annual sales growth of generic drugs in US, the largest generics market, is seen slowing to 8-9% over the next five years, and decelerate even more after that,” the CRISIL report predicted.

To sustain beyond 2020, domestic companies need to urgently step up focus and investment on new drug development and biosimilars as contribution of generics is expected to taper, the report added.

“Sharper focus on innovation and R&D has become an imperative,” said Ajay Srinivasan, director, at CRISIL Research.

“Our analysis of new drug applications (NDAs) approved by the US Food and Drug Administration (US FDA) reveals that Indian companies got approvals for just 26 products between January 2006 and June 2015—a fraction of the 840 garnered by global pharmaceutical companies. Their global generic competitors such as Teva and Mylan had 48 and 33 NDAs to their credit as of February 2016,” Srinivasan said.

To be sure, Indian companies have indeed increased their research and development spend; for the top 30, it has shot up to 6.5% of revenue or ₹ 8000 crore in fiscal 2015 from 3.8% a decade back. However, this pales in comparison with global majors, who spend close to 16%. Typically, a chunk of the expenditure of domestic pharmaceutical companies is for launching generic therapies, changing product mix in generics, and process development.

Some of the leading companies have launched R&D programmes aimed at new drug discovery.

CRISIL Research analysis indicates that 14 companies together have 39 products in various stages of clinical development. These companies have adopted various approaches—such as in-house development, joint development and out-licensing—to manage the risk-return trade-off.

However, no one has launched a new molecule in a regulated market such as the US.