India Ratings and Research (A Fitch Group Company) has maintained a stable outlook on the pharmaceutical sector for FY21. Emerging price stability in the US generic drug market and robust growth in the domestic market are likely to sustain in FY21 and support cash generation for most large issuers, led by a margin improvement and lower capex. Furthermore, SG&A and R&D expenses for most pharma companies have stabilised and could come down marginally in FY21.
The demand-supply situation in the US generic drug market favours complex generics. India Ratings and Research expects most large issuers to aggressively invest in new product platforms to strengthen their market-readiness for the medium term. This could constrain the cash flows and hamper the sector’s deleveraging progress. However, new product launches and overall price increase trend would ensure stable sales growth in the domestic market, where India Ratings and Research sees the chronic therapies will maintain faster–than-market growth than acute therapies. De-risking product portfolios from potential price control actions and enhancing presence in the chronic segment will drive the investments of domestic market focused companies.
India Ratings and Research expects the supply of active pharmaceutical ingredients and key starting materials originating from China to be stable in FY21, but there will be uncertainty on the price movement of active pharmaceutical ingredients. Any threat from China has the potential to impact the manufacturing of critical drugs in India.
Indian pharma companies have seen a significant increase in the US Food and Drug Administration (USFDA) scrutiny in 2019. USFDA issued 19 warning letters to Indian companies in 2019 (2018: 11). USFDA pending issues will have an impact on obtaining new approvals from the administration. Further escalations or delays in resolution would impact the US sales of Indian companies.
India Ratings and Research believes opening of the China market presents a long-term opportunity for Indian companies who hold a large US product pipeline. This is because of the regulatory relaxation from The China Food and Drug Administration such as fast-track approvals for drugs already cleared by the USFDA, removal of clinical trial requirements with Chinese patients and removal of drugs from the category of fake medicines (legal in foreign countries but not approved in China). The agency has seen several positive developments (setting up of JVs with Chinese companies /setting up manufacturing facilities in China) from Indian pharma players in this direction.-MB Bureau