For the first time in at least five years, price is the key factor driving the Rs 1.4-trillion Indian pharmaceutical market (IPM). During FY20, price accounted for over 55 per cent of growth in the sector.
In the last five years, it ranged from -15 per cent to 36 per cent, according to data from pharma market research firm AIOCD-AWACS. The other two components of IPM growth are volume and new product launches, which accounted for 20-25 per cent each.
Sector experts and analysts pointed to factors like premiumisation, growth of trade generics, and product rationalisation for the higher contribution of price to the growth mix. Aditya Khemka, fund manager of DSP Healthcare Fund, said: “Drug majors are using brand extensions to premiumise their portfolio. This is helping boost price growth.”
Ipca’s Zerodol brand, along with its multiple variants used in treating pain and inflammation, is an example of how this trend is playing out. The Zerodol franchise, now valued at over Rs 500 crore, grew over 20 per cent in FY20.
Abhishek Sharma and Rahul Jeewani of IIFL said: “More and more firms are refocussing their efforts on creating large brands. It is clearly more profitable and sustainable to build large brands.”
Companies may have better pricing power with larger brands. Further, multiple launches increase marketing costs and lead to a cluttered portfolio.
Consequently, new product launches by Indian drug majors — who control 80 per cent of the market — are on a decline. The contribution from new products is now at a five-year low; they now account for 24 per cent of the pharma growth, compared to 45 per cent in FY17.
The rapid growth in the trade generics market, which accounts for a third of IPM volumes, is another trend impacting volume and the overall growth of the branded segment.
An analyst at a domestic brokerage said: “The buying capacity of consumers has reduced in light of the slowdown, with growing preference for generics and lower-priced medications. This is eating into volumes of branded generics players.”
Higher sales of trade generics and Jan Aushadhi stores, to a smaller extent, are eating into volumes/pricing of the branded market, especially in tier-3 and tier-4 towns.
IIFL believes that of all risks to the India branded generics market, the emergence of trade generics is the most potent that could impact growth rates of branded players.
On the overall pharma growth, Praful Bohra and Rajat Srivastava of Emkay Global had said in an earlier report that growth driven by price hikes was not sustainable, and the declining volume growth trend remained a worry.