(Sarvesh Kumar Sharma/Mint)
(Sarvesh Kumar Sharma/Mint)

US disruption may have singed Indian pharma but it is emerging stronger

  • A higher market share coupled with cost-control measures should help Indian firms recoup some of the lost ground
  • The rise in market share coincides with the change in the competitive landscape in the US drug market

An analysis of pharmaceutical sales trends in the US by Nomura Financial Advisory and Securities (India) Pvt. Ltd shows Indian companies are gaining share in the world’s largest drug market.

The share of Indian companies in total generic prescriptions rose to 45% in the March quarter of this year, compared to 35% at the end of 2017, shows an analysis of the sales data from IQVIA by Nomura. IQVIA is an information and services provider in the healthcare sector.

The rise in market share coincides with the change in the competitive landscape in the US drug market. Consolidation of the market at the purchasers’ end and heightened competition have eroded prices. This crimped prices, impacting the earnings of the generic drugs providers. As a consequence, several market participants, including large drug makers, recalibrated the product portfolios and exited less profitable drugs.

This is yielding ground to Indian drug companies. “Over the years, Indian companies have been gaining market share in US generics. But the pace of gain has increased significantly starting early 2018 when Teva, the largest generic player, decided to exit certain non-profitable products," Nomura said in a note.

The churn is reducing pricing pressure, bringing stability to the generic drug business, added Nomura. The findings corroborate pharmaceutical firms’ commentaries that price erosion in the US generic drug market is reaching a tipping point. “The US generics scenario is slowly but surely improving as highlighted by the managements of most Indian companies in the recent conference calls," ICICI Securities Ltd said in a note last month.

But also note that much of the incremental growth in sales has come from new products for most companies. However, given recent challenges some firms have faced in the ramp-up of new products, sustainability remains a question mark. “The contribution of new launches (products launched over the past two years) to US revenue was the most for Lupin, Cadila and Cipla. However, these products’ specific opportunities may not be sustainable over the long-term, in our view," added Nomura.

Also the gains in the market share should percolate into earnings. Indian companies are gaining share in the low-price market. Besides, a rise in raw material costs and compliance costs have impacted profitability of Indian drug companies. Higher market share coupled with cost-control measures should help Indian companies recoup some of the lost ground. How well the companies deliver on this will determine earnings benefits and stock returns.

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