“Bucking the trend”
India’s drug market is starting to show signs of improvement after a rough few months, with everything from demonetisation to Donald Trump taking its toll. However, the future remains very much unclear.
The Indian pharmaceutical market (IPM) is “bucking the trend of a sequential decline” according to MoneyControl, growing 9.6 percent in March. Money Control attributes this growth, in part, to “the fading demonetisation impact.”
Drug stockists experienced “a sharp 18-20% drop in sales” following the abrupt demonetisation of all Rs 500 and Rs 1,000 by the Union Government on November 8 last year. Retail sales of drugs also dropped, by ten percent. Livemint anticipated drug sales “to remain subdued” for some months after demonetisation, due to a combination of demonetisation and the “seasonally weak December-March period for the industry.”
Trump spooks and squeezes the market
Pharma was also affected by Donald Trump’s upset victory in November’s U.S. presidential election. During a press conference on January 11, the then-president elect said he would stop the outsourcing of U.S. drug manufacturing; he accused pharma of “getting away with murder.”
Trump’s protectionist rhetoric “spooked” Indian pharma stocks, with the health index of the Bombay Stock Exchange (BSE) closing at 0.73 percent. Companies with “significant exposure to the U.S. market”, such as Sun Pharma and Lupin, saw their shares fall.
Overreaction was to blame for this drop, sector experts said according to the Business Standard. However, the U.S. market continues to prove troublesome for Indian pharma companies – and the sector is recovering only “in fits and starts” according to Livemint, the BSE Healthcare Index falling by 10.6 percent during the December quarter.
NDTV reports Indian drugmakers are facing “a squeeze” in the U.S. market, due to “tougher rules and the threat of higher barriers.” It is believed this will phase smaller companies out of the market, and threaten expansion plans by larger firms. This is manifesting in reduced profits, with U.S. revenue growth for Indian pharma more than halving in 2016, compared to the previous five years.
Some Indian pharmaceutical companies are trying to win favour with the Trump administration, on the basis that their exports of cheap generic drugs are in line with Trump’s stated goal of driving down drug prices. However, a Livemint report quoting a release from the Indian Pharmaceutical Alliance (IPA) says “early signs from the Trump administration do not augur well.”
Some are more optimistic, however. The IPA’s Secretary General D.G. Shah says “we save U.S. healthcare $80 billion in healthcare expenditures.” Shah further suggests “the bureaucracy in the U.S. would advise that…India cannot be antagonised, so it is unlikely that the Trump administration will be hard on India.”
Challenges in the U.S. are not limited to Trump, however. A number of pharmaceutical companies have their factories under import alert by the U.S. Food and Drug Administration (FDA), whilst six companies are being investigated for cartelisation by the U.S. Department of Justice, facing hefty fines in the process. Such legal and trading challenges are combining to threaten once smooth business for Indian pharma companies looking to sell in the U.S.
This means Indian drugmakers can expect slower rates of growth in the near future – especially generic (or ‘copycat’) drug manufacturers, whose exports could fall by ten to twelve percent in the next five years.
Others are more optimistic, however. Uday Bhaskar – director general of Pharmexil – is cited by Web India 123 as anticipating a growth rate of 30 percent for Indian pharmaceutical exports in the next three years, with profits reaching US$20 billion.
Blaming “price erosion” for revenue falls in the 2016-17 period, Bhaskar expressed hope that events such as the annual International Exhibition for Pharma and Healthcare (iPHEX) could “catalyse pharma growth for Indian exporters”, with products and low costs being advertised at the event to prospective international buyers.
India has long claimed the title of “the pharmacy of the developing world.” With speculation that U.S. challenges could drive Indian drugmakers to invest more in Asia and Africa, capitalising on that title could be the opportunity the sector needs.
The fact remains, however, that the U.S. is a key market for India’s pharma sector, which exported $3.67 billion worth of drugs to the country in 2014. Losing its market share in the U.S. would undeniably be a blow to India’s pharmaceutical sector. The future, it can be convincingly argued, is not looking too bright. That being said, with opportunities coming from in-licensing and from the developing world, the future is not looking too bleak either.