Pharma Industry to shift focus on niche segments: ICRA

Says the focus is likely to shift in favour of niche segments like combined dosages, novel drug delivery areas etc

As the domestic pharmaceutical industry faces near-term challenges of price control together with the budgetary constraints, lack of resources to effectively monitor quality across manufacturing chain the focus is likely to shift in favour of niche segments like combined dosages, novel drug delivery areas etc, says a recent ICRA report.

The ICRA report on the Indian Pharmaceutical sector of March 2013, says, " Government's pro-generic initiatives may not also impact the industry structure at least in the medium-term as challenges in its execution, budgetary constraints, lack of resources to effectively monitor quality across manufacturing chain and more importantly a market that is predominantly self-paying in nature and largely physician-influenced, a meaningful shift in favour of 'pure generics' is unlikely. However, as the industry prepares for these challenges, focus is expected to shift in favour of niche segments (i.e. combined dosages, novel drug delivery areas), in-licensing (with innovators), building OTC business and capturing growth in tier II and III cities. "

Some of these initiatives may exert pressure on cost structure, especially in form of higher promotional spend (to market new products) and field force productivity, resulting in moderation in profitability indicators, which have otherwise been the best among other segments, it adds.

Driven by patent expirations, limited competition opportunities and proficiencies in regulatory know-how and manufacturing, the US generics space has emerged as one of the key growth driver for leading Indian pharmaceutical companies. The report says, "Though with limited number of blockbuster drugs going off-patent in the coming years, the growth prospects for Indian companies would benefit from sizeable generic opportunity (drugs with brand value of $ 80 billion are expected to face generic competition over the next 4-5 years), strong pipeline of ANDAs pending approval, with high proportion of complex generics incrementally and market share improvement given the relatively small base (share of leading Indian companies is less than 10 per cent in the US generics space)."

Acquisitions to gain technical capabilities and focus on strengthening branded business (albeit on a small scale) are gaining momentum as companies feel the need to diversify, ICRA says.

As 'patent cliff' and limited competition opportunities continued to underpin strong operating performance for generic companies in the US, the scenario has been somewhat contrasting in the European markets despite generic substitution potential in markets with relatively low generic usage and patent expirations on blockbuster drugs in mature markets. Pricing pressures in wake of healthcare reforms and changing market dynamics have largely offset the impact of expanding product portfolio and geographic footprint for companies in Europe.

"A relook at business strategies appears to be therefore a common theme with focus on expanding presence in relatively underpenetrated markets (i.e. France, Spain & Italy), branded generic markets in East Europe and niche areas like complex generics, OTCs etc. In general, Indian pharmaceutical companies generate a relatively lower share of their revenues from Europe with profitability also subdued compared to other markets.

Amongst new frontiers, evolving generic market in Japan (world's second-largest pharmaceutical market with only 23 per cent generic penetration) and biosimilars provide long-term growth prospects for Indian companies.