Pharma exports to witness a sharp fall as value of off-patent drugs declines

Exports growth in pharmaceutical formulations (in US dollar terms) is expected to witness a sharp fall to 10-12 percent annually over the next 5 years, compared with a growth of 19 percent seen in the last decade, according to a Crisil Research report.
 
Exports of generics have been the growth engine of the industry for a long while now, but the script is changing because the value of drugs going off-patent is declining even as pricing pressures are increasing. For example, as per the report, the annual sales growth of generic drugs in the US, the largest generics market, is seen slowing to 8-9 percent over the next five years, and decelerate even more after that.
   
Therefore, for growth to sustain beyond 2020, domestic companies will have to step up investments in new molecules and draw up a roadmap to deal with lower generics growth, said the Crisil report.
 
In the past decade and more, Indian pharma industry depended on process chemistry skills – which helped companies clone drugs going off-patent by tweaking their molecules – and low-cost manufacturing. But, according to Crisil report, competition has been intensifying, particularly for the large players, because of the huge number of abbreviated new drug applications (ANDAs) being filed with the US Food and Drugs Administration (FDA), including by mid-sized domestic ones looking to step up presence in the biggest market.
 
Further, consolidation of distribution channels in the US could reduce the pricing power of domestic drug makers.
 
Ajay Srinivasan, director, Crisil Research, said, “Sharper focus on innovation and R&D has become imperative. Our analysis of new drug applications (NDAs) approved by the US FDA reveals that Indian companies got approvals for just 26 products between January 2006 and June 2015 - a fraction of the 840 garnered by global pharmaceutical companies. Their global generic competitors such as Teva and Mylan had 48 and 33 NDAs to their credit as of February 2016.”
 
An NDA is a dossier filed to gain approval to sell a new drug in the US market based on pre-clinical and clinical studies. An ANDA, on the other hand, is a filing to gain approval to market a generic version of a patented drug based on bioavailability and bioequivalence studies.
 
Indian companies have indeed increased their R&D spend. For example, for the top 30, it has shot up to 6.5 percent of revenue in fiscal 2015 from 3.8 percent a decade back. However, this pales in comparison with global majors, who spend close to 16 percent. Typically, a chunk of the expenditure of domestic pharmaceutical companies is for launching generic therapies, changing product mix in generics, and process development.
 
Some top pharma firms have launched R&D programmes aimed at new drug discovery. Crisil Research's analysis indicates that 14 companies together have about 39 products in various stages of clinical development. These companies have adopted various approaches - such as in-house development, joint development and out-licensing - to manage the risk-return trade off. However, none has launched a new molecule in a regulated market such as the US.