Growth from emerging markets slows down for drug cos: Report

While the emerging markets have remained a strong growth factor for pharma companies in the recent past, according to a research report by credit rating firm ICRA, the operating environment has turned relatively less begnign and thereby the emerging markets portfolio in major pharma companies showed a decine in FY15.

"While growth prospects remain strong in most of the emerging markets, the operating environment has turned relatively less benign over the past couple of years. This can be attributed to a confluence of factors including frequently evolving regulatory landscape, increasing competition (from both local as well foreign players) and more recently weakening macro environment across some of the oil dependent economies," it said.

The report further added that, the growth in the emerging markets portfolio slowed down from 24 per cent in FY 2013 to 16 per cent in FY 2014 and further to 5 per cent in nine months of FY 2015 with Q3 FY2015 growth being lowest at 2.7 per cent.

"This trend is expected to continue in near term as Russian Ruble and Venezuelan Bolivar has depreciated quite sharply over the past few months. The local currency growth, though, remains healthy across markets like Russsia and Venezuela indicating increasing market share of domestic pharma companies. In addition, companies are increasing presence in markets like Mexico and South East Asia though contribution still remain marginal," it explained.

ICRA feels that acquisitions remain the key route for Indian companies to scale-up presence in emerging markets as organic route has proven to be fairly time consuming given the branded generic nature of many markets. "We expect companies to remain fairly active in the M&A space and look for in- organic route to fill gaps in their portfolio," the report added.

The operating environment in Europe also remained challenging as implementation of healthcare reforms and resultant prices cuts continue to impact performance of drug manufacturers. In 9M FY 2015, the revenues of Indian companies from European markets de grew by 1 per cent in Indian currency terms.

To some extent the impact of political instability and weakening macro-economic environment in East Europe also contributed to the slowdown, the report said. "Given the challenging environment in Europe, companies have been altering their business plans with focus shifting in favour of segments or markets that offer higher profitability, making their operations leaner and even exiting certain segments," it added.