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Indian Pharma Market remains
sluggish; focus now shifts to GST impact
* The Indian
Pharma Market’s (IPM) growth remained subdued in May’17, with the overall
growth rate at 7%. We attribute the ongoing slowdown partly due to the
continuing government intervention in the sector.
* The key
reasons for the poor sector growth has been the declining price growth and
softer volume growth. Declining price growth is attributed to the crackdown on
FDCs (Fixed Dosage Combinations) where companies had greater leeway in pricing.
* Weak
volume growth in the past has been a function of anemic economic activity. We
believe some of the recent tepid volume trend may also be due to
demonetization.
* The past 3
years’ data clearly shows that price growth has declined in the Indian market
since early CY16 and is now the lowest for nearly 18 months. This despite the WPI
index (on which price revisions are indexed) rising over the same period. We
believe that the weakness in price growth seems to have coincided with the
government’s unsuccessful crackdown on FDCs, which constitute c45% of the IPM
by value. While the move was stayed by courts, our discussions with industry
players clearly indicate that most companies are now trying to move away from
the lucrative FDC-led growth model. We believe this has had a significant
impact on the overall price growth in the sector.
* Surprisingly,
volume growth has also been sluggish. Overall volume growth, which averaged
well over 5-5.5% in CY16, is well below 3% in YTD CY17. Weak volume growth
usually is accompanied by either muted economic growth or poor underlying wage
growth. The only data shoring up the overall IPM seems to be NI growth, which
though trending downward, is still healthy at c5%. We have detailed the impact
on continuing govt. led crackdown impacting sector growth in our note titled
Healthcare industry in government crosshairs dated 5th May 2017.
* We believe
that the street would focus on the extent of disturbance caused by the
impending GST implementation and its impact on the industry growth. This would
last only for a quarter, but post that we expect focus to return to whether IPM
growth can revert to mid-teens, which given the above data appears difficult.
We believe that in the medium term, the overall IPM growth would be sluggish
for most companies.
* May 2017:
Domestic pharma market grew by 7% (as per IMS)
* IPM
reported sales of Rs97.6bn in May’17, a growth of 7% against 6% in Apr’17.
US FDA shows it has a bark and a
bite
* New US FDA
commissioner acts on his promise to limit access to opioid substances by
requesting Endo Pharma to withdraw opioid brand Opana ER from the market
* The new
regime at FDA had specifically highlighted abuse of opioid medicines and faster
generic approval timelines with lower backlogs as key targets for the agency
* Indian
generic industry has limited exposure to Opioids space but with the agency
showing that it is serious about pursuing its agenda, should be cause for
concern for the entire generic industry from an increasing competitiveness
perspective.
The US FDA
last week has asked Endo Pharma (ENDO) to withdraw its opioid painkiller Opana
ER (oxymorphone hydrochloride) from the market on the grounds that risks from
the product far outweigh its benefits (Link here). Opioid addiction is a public
healthcare crises in USA where by painkiller/controlled substances are often
misused for addiction. To put this in context, in India similar reasons have
been expounded by the government in order to restrict or ban (unsuccessfully)
certain codeine based syrups.
* While the
Indian generic companies has limited exposure to Opioid business (largely with
SUNP and CDH), the development is still very important from the perspective of
the US FDA getting more serious on the issues it has highlighted to resolve.
The new US FDA commissioner Scott Gotlieb has been quite vocal on two specific
issues 1). To limit or restrict access to Opioid drugs in order to contain the
opioid epidemic plaguing US healthcare system & 2).to get the FDA to step
up the pace of generic approvals including streamlining the approval process to
allow ANDA filings to jump queues, prioritize ANDA applications where drug
costs are high, eliminate within a year the backlog of 2640 generic drug
applications etc. We have written extensively on this earlier in our note
titled Radical moves by new US FDA head for shorter generic timelines dated
June 7, 2017.
* While ENDO
likely to explore legal options in order to continue the Opana franchise, the
FDA acting against Endo shows its strong intent to pursue the objectives set
out under the new regime at the agency. Note that this is the first time that
FDA has taken steps to remove a currently marketed opioid product from the
market place.
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