Mumbai: Even as generic drug sales growth in the US, the largest market for Indian pharmaceutical companies, is slowing mainly on account of pricing pressure, the sheer size of the market offers significant opportunities and the country remains a key destination for expansion, according to ratings agency Moody’s Investors Service.

Consolidation of distribution channels in the US and increased competition has constrained pricing power of generic drug makers, thereby curbing revenue growth. For most Indian pharmaceutical companies, the US accounts for 40-50% of total sales.

The US generic drugs market, currently valued between $75 billion and $80 billion, is expected to grow at a compound annual growth rate (CAGR) of 5% to reach $94 billion by 2020, as against a CAGR of about 15% during 2011-15, Moody’s said in a research report released on Monday.

“In our view, acute pricing pressures from consolidation and expansion of alliances amongst the key distributors in the US will remain a challenge. In addition, a moderate proportion of large-size drugs going off-patent—about $51 billion for 2017 through 2020, against $70 billion from 2013 through 2016—will limit growth potential for generics," the report said.

However, in the next 18-24 months, the US generic drugs market may grow around 10%, supported by $20 billion-$25 billion worth of branded drugs going off patent and the government’s focus on reducing health care costs, which will push approvals of generic products, the ratings agency said.

The pace of generic drugs’ approval by the US Food and Drug Administration (FDA) has improved and in the 12 months ended September 2016, approvals rose about 32% from a year earlier.

Despite these challenges, the US remains a natural choice for inorganic expansion for Indian companies, as it is the world’s largest pharmaceutical market, currently valued at $400 billion-$430 billion.

In the report titled “Inorganic Expansion to Drive Generic Majors’ Growth", authors Kaustubh Chaubal, vice-president and senior analyst, and Diana Beketova, associate analyst at Moody’s, said Indian pharmaceutical companies will continue to seek growth through the acquisition of overseas assets in the next 18-24 months, with the aim of deepening their geographical and product diversity, and further increasing their presence in developed and emerging markets.

The report focuses on six leading Indian pharmaceutical companies that have acquisition-led growth and/or have a sizeable presence in the US, namely, Sun Pharmaceutical Industries Ltd, Dr Reddy’s Laboratories Ltd, Lupin Ltd, Cipla Ltd, Aurobindo Pharma Ltd and Cadila Healthcare Ltd.

Subscribe to Mint Newsletters * Enter a valid email * Thank you for subscribing to our newsletter.

Share Via