Indian pharmaceutical companies had a good run in semi-regulated markets, but have lost that momentum in recent years. The outlook in these emerging market (EM) economies indicates growth will remain under stress in the near-to-medium term, according to a report by India Ratings and Research Pvt. Ltd (Ind-Ra).

Weak economic and political conditions in Africa and currency volatility in Latin America are the main causes for this outlook, with Asia the only region looking relatively better. At a time when sales to the US generic market are under stress, and domestic sales are below normal growth levels, this pocket too is failing to deliver.

Semi-regulated markets referred to in this report are spread across Africa, Asia, Latin America, countries in the Commonwealth of Independent States and the Middle East. These markets offer easier access relative to regulated markets, and are a favourite hunting ground for Indian firms looking to grow sales with a relatively shorter lead time.

In fiscal year 2017 (FY17), sales to this market grew by a mere 0.7% and reversed a pickup in growth seen in the previous year ( see chart 1). Africa contributes to nearly a fifth of exports to semi-regulated markets and its sales were down by 7%, according to Ind-Ra. South Africa was the main reason for this slump, with sales down 23%. Weak economic conditions, currency volatility and high cost of imports have affected sales. Asia recovered in FY17, with exports increasing by 13.9% compared to 7.6% growth in the previous year. Its strength in the mix though is low with a share of exports at 10.5%.

The volatility and weak economic conditions have made Indian exporters cautious. Several Indian companies have been caught on the wrong foot in Venezuela, for instance. The Ind-Ra report says companies are avoiding markets where the risks outweigh opportunities. Compared to earlier, when companies were ramping up filings to drive sales growth, they are giving more importance to margins and cash flows. That can explain the slower sales growth too.

While the FY17 performance paints a rather gloomy picture in most parts and remains so in the near-to-medium term (see chart 2), Ind-Ra is optimistic about the longer term. It expects demand for generic drugs, where Indian companies have an edge, to remain high due to a rising incidence of chronic diseases. The rating agency also mentions that an increasing drive for universal healthcare insurance in developing Asian markets and Gulf Cooperation Council countries are likely to spur generic drug sales. One aspect to keep a watch on is the ease with which Indian companies can get market access to launch their products.