Home >Market >Mark-to-market >Pharma sector gets in good shape for 2015

Shares of pharmaceutical companies did well in 2014, as can be seen from the 45% increase in the value of the S&P BSE Healthcare index in the year so far. The broad market has gained much less. Most of the large companies have done well during the year.

Sales in India improved in 2014, recovering from the slump in the previous year caused by the market’s reaction to the new drug pricing policy. In 2015, growth is expected to continue to be healthy, as the momentum continues and improving economic growth allows individuals more legroom to spend on health. Any major healthcare investment plans from the government could also improve the outlook for the domestic pharmaceutical market.

Meanwhile, the global market for medicines continues to look attractive. The developed markets, particularly the US, continue to be a good for Indian generic drug makers, which are increasingly turning their sights to emerging markets as well. In relatively new areas such as biosimilars, companies are finding it easier to tap emerging markets.

A recent report from IMS Institute for Healthcare Informatics had forecast that global spending on medicines will increase by 4-7% CAGR (compounded annual growth rate) between 2014 and 2018. The US is expected to drive growth, with spending there expected to increase between 5% and 8%, but emerging markets too are healthy growth drivers, with projected growth rates in the 8-11% range.

But the US remains a critical market for Indian companies and their profitability in particular is linked to how they perform in this market. An improvement in the country’s GDP growth is good news for Indian companies, if that helps improve spending on healthcare. But management talk heard post-quarterly results also indicates some concern about growing competition and the effect of channel consolidation on Indian companies.

One regulatory overhang exists in the US. The US Food and Drug Administration’s (FDA) inspections of Indian plants in the past few years have resulted in adverse reports in some instances, with some companies even facing bans on exports to the US market. While this was visible in 2014 as well, it may continue to be an uncertain factor in 2015.

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