Indian big pharma R&D spend grows even as US growth slows

This has come in at a time when the revenue growth has slowed down

Indian pharma firms are gearing up to take on their global peers in terms of expenditure on research and development (R&D), which has shown a steady increase in the last five years. This has come in at a time when the revenue growth from both domestic business as well their US operations has slowed down. 

An analysis of the top seven pharma firms in the country including Cipla, Dr Reddy's Laboratories, Lupin, Aurobindo, Cadila Healthcare (Zydus), Sun Pharmaceuticals and Glenmark shows that their spend on R&D as a percentage of their operating income (OI) has increased from 5.8 per cent in 2011-12 to 9 per cent in 2016-17. 

Rating agency ICRA shared that during the same period, the growth rate for US market has tapered significantly from 56.2 per cent in FY12 to just about 4 per cent in FY17. In fact, the last fiscal saw a steady decline in the US market growth; from a 15.1 per cent growth rate in the first quarter FY17, the growth slipped to negative trajectory (-16 per cent) in Q4FY17 for these seven firms.

The domestic market, in comparison, has fared better. From a 15 per cent growth rate in FY12 it has slowed down to 9 per cent in FY17. However, this is on a higher base. From a Rs 70,500 crore size as on March 2013, the Indian pharma market size has swelled to Rs 1.14 lakh crore as on March 2017. 

Gaurav Jain, vice president and co-head, corporate sector ratings, ICRA felt that while the growth rate in the US has slowed down, as such the investments in R&D, both in absolute terms and also as percentage of OI, would continue to increase in the coming years as well. "Given the commitment that big pharma has for complex and niche product filings, the first-to-file (FTF) opportunities etc, the R&D investments would continue to rise. This would also ensure growth in revenue and profitability in the medium term," he said.

The base basket of products for pharma firms is under pricing pressure. Jain said that in the last one year or so, the pricing pressure on base basket has increased from mid-single digits (5-8 per cent) to low double digits.

The US generics market is an opportunity Indian pharma, which accounts for roughly 40 per cent generic drugs sold in US, cannot afford to miss. The US generics market is expected to touch $71.9 billion by 2018.

Therefore, as such the number of abbreviated new drug applications (ANDAs) too has increased significantly with growth in R&D expenditure. ICRA data showed that from 1961 cumulative ANDAs in FY15, the number of cumulative filings has increased to 2446 ANDAs in FY17.

Approvals too have been growing. Data collated from the FDA website show between January and June, Indian companies, including their US-based subsidiaries, received 141 drug approvals. This is significantly higher than the 94 approvals received during the same period last year, up 50 per cent. In comparison, the growth rate in drug approvals for non-Indian companies is lower at 15.27 per cent.

Sample of Companies includes Cipla, Dr. Reddy's Laboratories, Lupin, Aurobindo, Cadila Healthcare (Zydus), Sun Pharmaceuticals and Glenmark

 

Sample of Companies includes Cipla, Dr. Reddy's Laboratories, Lupin, Aurobindo, Cadila Healthcare (Zydus), Sun Pharmaceuticals and Glenmark