Markets
After a bumpy 2021, pharma yearns for a happy new year
Summary
- The acute segment has seen robust performance since March, according to India Ratings’ data
- Sales growth in the chronic segment is expected to pick up pace in the coming year
The year 2021 has not been particularly smooth for Indian pharmaceutical companies. Higher competitive intensity in the US posed challenges. This affected growth in the base business of some drugmakers. But, with covid-induced disruptions easing, overall US sales improved.
The acute segment drove growth in the domestic market this year. Data from India Ratings and Research Pvt. Ltd shows that the acute segment has seen robust performance since March (average growth at 29% year-on-year). This data also showed that after the normalization of the high growth months of April (51.5% growth) and May (47.8%), the average IPM (Indian Pharma Market) growth from June to November has been healthy (11.6%). The growth spike over April-May was aided by sales of covid treatment and associated products. Plus, the base was favourable due to the lockdown last year.
As we move into 2022, while the acute segment sales may remain firm, the base would be high, and that’s a challenge. Further, sales growth in the chronic segment is expected to pick up pace. Broadly, analysts expect 2022 to be better, with growth momentum continuing in India. Additionally, large product approvals and launches are likely to support growth in US sales, too.
“In India, chronic drugs should see a recovery in growth after a sluggish 2021 led by pickup in patient visits to doctors and a more benign base. There is also an opportunity for above-average price hikes in NLEM (national list of essential medicine) drugs in April 2022," said Prashant Nair, an analyst at Ambit Capital Pvt. Ltd.
This should benefit companies with high domestic market exposure, including Cipla Ltd, Dr Reddy’s Laboratories Ltd, Glenmark Pharmaceuticals Ltd and Cadila Healthcare Ltd, among others.
Additionally, the US market is key for many Indian manufacturers. Even as sales in the US market have gathered pace, competitive intensity and the resu-ltant pricing pressures are problems. To overcome pricing pressures, companies need large product launches in the US, many of which are pending approval. This would be a key monitorable in the coming year.
Companies such as Lupin, Cipla and Dr Reddy’s are expected to see the approval and launch of generics of respiratory products including Spiriva, Advair, and multiple myeloma drug Revlimid, which can potentially alter their growth trajectory meaningfully. But progress may be a tad slow. “The next round of key US product launches for Indian generic companies is expected only in H2CY22; that could improve sales going forward in the next two-three quarters," said Naveen Kulkarni, chief investment officer, Axis Securities.
Meanwhile, note that the US drug regulator has resumed plant inspections after travel restrictions were eased. This means many companies whose facilities have remained under the US drug regulator’s scanner for long may get respite. For instance, Lupin’s Goa facility, which was under import alert since 2017, has finally got clearance. On the flip side, more inspections at manufacturing facilities of other pharma companies would increase the risk of fresh regulatory issues erupting.
In general, active pharma ingredients and contract manufacturers remain in good health, helped by the anticipated fall in raw material prices. Manufacturers may also benefit as global customers move away from China. Year-to-date, the Nifty Pharma index rose by 6%, underperforming the Nifty 50 index, which increased by 22% during the same period. “Healthcare sector valuations relative to the broader market are not demanding. With the recovery in growth, it should attract greater interest from investors," Nair said.
