Domestic drugs formulations market to be worth Rs 5.5 trn by 2034: Report

'Significant under-penetration' in domestic market, especially in smaller towns and rural areas

The domestic pharmaceutical formulations market will be worth Rs 5.5 trillion by 2034 by growing at a compound annual growth rate (CAGR) of 10 per cent, said investment banker Avendus Capital in a report on Wednesday, noting companies have scope for growth in smaller towns and rural areas.

It predicted a shift from doctor-branded prescriptions to a more diversified marketing mix that is driven by strict quality regulations and streamlined supply. "Despite India's reputation as the pharmacy of the world, there is significant under-penetration in the domestic market, especially in Tier II/III+ towns and rural areas," said Anshul Gupta, managing director and head of health care investment banking at Avendus Capital.

Lifestyle-related diseases are increasing as life expectancy improves in the country. The trend combined with people’s awareness of such diseases and their ability to seek treatment will drive sector growth. Chronic and lifestyle-related therapies such as cardiovascular, neurology, anti-diabetic and dermatology are expected to see faster growth rates.

“The government of India’s Pharma Vision 2047 aims at making medicines more equitable, accessible, and affordable while ensuring high quality and more sustainable manufacturing practices," said Gupta.

Trade generics (TGx) and Jan Aushadhi Kendra, government-run stores, are expected to contribute approximately 30 per cent to pharmaceutical volume in the next decade. Despite this shift, branded generics (BGx) are projected to retain 65-70 per cent of the market value with a CAGR of more than 8 per cent. The channel shift may result in moderate ebitda margin contraction, which could be mitigated by cost optimisation measures such as medical representative rationalisation and reduction in free samples and doctor-related expenses, said the report, referring to earnings before interest, taxes, depreciation, and amortisation.

Emerging markets such as Latin America, Africa, Russia and Commonwealth of Independent States, and South-East Asia are growing at 1.5-2 times the rate of regulated markets, making them attractive for Indian pharma giants.

"Domform (domestic formulations market) has attracted large strategic and private equity investments worth over $14 billion in the last six years. We estimate the market will continue growing at a 9-10 per cent CAGR over the next decade," said Prasshanth Hari, director of healthcare investment banking at Avendus Capital.

Pharmaceutical companies will expand their portfolios by focusing on new chronic and lifestyle therapies or branching into adjacent sectors like over-the-counter (OTC), point-of-care diagnostics, medtech, and nutraceuticals. Increasing competition in the OTC segment, which is dominated by multinational corporations, has spurred Indian pharmaceutical companies to become more aggressive in this space.

Indian companies may refocus on the domestic market as the health care market in the United States stabilises and a “patent cliff” emerges, said the report, referring to expiration of patents for branded products, opening the door for competitors to introduce generic versions at lower prices. Emerging markets in Latin America, Africa, Russia, and Southeast Asia are also attracting Indian pharmaceutical giants due to their faster growth rates.