Indian pharma firms need to increase R&D investment: S&P Global ratings

Pricing pressure will continue to hurt operating and financial performance of Indian pharma firms

Indian pharma firms need to increase investments in research and development and quality of manufacturing to comply with global regulatory standards and take on competition, S&P Global Ratings said today.

"We believe Indian pharma companies will feel growing pains, at least over the next two to three years," S&P Global Ratings credit analyst Vishal Kulkarni said.

However, companies that continue to invest in meeting compliance standards while growing are likely to emerge stronger over the longer term, thanks to their still-healthy margins, low leverage, and support from promoters, he added.

As per the report titled 'Indian Pharma Companies Need To Pass The Trials, But Can They Shape Up?', the rating agency does not expect any let up in the scrutiny of Indian pharma companies by the US Food and Drug Administration (USFDA).

"These companies will therefore need to strengthen systems and controls to effectively address regulatory issues," the report said.

The pricing pressure will continue to hurt the operating and financial performance of Indian pharma firms due to intensified competition among generics companies and continued consolidation of distribution channels in the US, it added.

"We expect Indian drug makers to continue to push into complex, speciality drugs to negate margin pressures," Kulkarni said.

New product opportunities in this segment are relatively lucrative and pricing pressure is lower due to limited competition and bargaining power for buyers, he added.

The impact of the proposed US and Indian government policies on drug makers is untested, S&P Global Ratings said.

Some of the policies currently being discussed in the US, especially related to tax changes to lower trade deficit and bring manufacturing to the US could affect margins of Indian drug makers, it added.

At the same time, the government's focus on lowering healthcare costs will benefit Indian companies because it will promote use of generics, S&P Global Ratings said.