In the backdrop of increased investment on research and development (R&D) by Indian pharmaceutical companies, market research firms like ICRA expect in-organic investments to gain momentum in the medium term.
In a recent report, ICRA highlights that as Indian pharma companies have developed capabilities to target complex segments like injectables, inhalers, opthalmics and even biosimilars, they have been investing a higher proportion (around 6.5 to 8 per cent) of their sales in R&D activities over the past few years.
"We believe that there three key drivers for higher R&D spending by Indian companies - a) increased pace of product filings in US and Europe, b) focus on complex generics, some of which require clinical trials to demonstrate basic safety and efficacy and c) investments in developing biosimilars for emerging markets and eventually for developed markets," said the report.
In addition, the report also highlighted that in-organic investments are also likely to gain momentum in the medium term as companies plan to create stronger presence in emerging markets and build expertise in select therapy areas.
In particular, fast-growing branded generics markets in South-East Asia, Latin America and even some of the markets in East Europe will be of interest to Indian companies. "Besides, market-entry driven acquisitions, we also expect investments to add technical capabilies in selected therapy areas or delivery systems to also continue going forward in view of increasing focus on complex generics," ICRA said.
ICRA claimed that "Despite slowdown in India and evolving regulatory developments across many of the emerging markets, our coverage group comprising 22 leading pharmaceutical companies reported a steady growth of 11.6 per cent in revenues and stable EBITDA margins in the 23.5-25 per cent range during the Q1 2013-14."
Much of the growth was supported by strong US generic business where Indian pharma continues to leverage on limited competition launches, scale-up in product portfolio and market share gains. Margin pressures were limited to a few companies and were largely restricted to entities with either strong dependence on the domestic market (especially MNCs) or higher overheads (on account of rising R&D expenditure, manpower costs etc.). Apart from strong contribution from new product introductions, rupee depreciation has contributed towards stronger growth from the US market for many of the players.
It said, "Overall we believe, as pharma companies face greater regulatory scrutiny, they are likely give higher attention and invest in resources for adopting stringent manufacturing standards and compliance to good manufacturing practices."
