Outlook for pharma companies positive: ICRA

Mumbai: Pharma companies will continue to benefit from recovery in the domestic market and strong growth potential in generics market in developed countries though pricing policy would have near-term impact, a report by credit rating agency ICRA said Thursday.

Painting a favourable picture for the domestic pharmaceutical companies, ICRA said balance sheets of major pharmaceutical companies remain strong and provide adequate room for fund raising if required.

Aided by strong growth from US generics business, increasing footprint in new territories and currency tailwinds, ICRA's coverage group comprising of 23 companies with diverse business models witnessed a growth of 22 percent in revenues during the first nine months of the fiscal and relatively stable EBITDA margins.

Overall, margin pressures were limited to a few companies and lack of new product introductions in the US resulting in lower gross margins, higher R&D costs and one-time charge related Generic Drug User Fee Act (GDUFA) pay-out were the most common factors.

However, a positive rupee depreciation impacted earnings of companies with debt profile skewed in favour of foreign exchange borrowings.

In addition, most companies also provided for higher tax provisioning due to conclusion of tax holidays at many locations and revised policies on taxation of partnerships, which shaved-off part of the earnings growth.

However, as the industry steps closer to a new pricing policy, it is finding itself in the midst of uncertainties as some of the nuances of the policy remain blurred.

While price control remains a near-term challenge, ICRA says that it believes that the industry should revert to a growth of 13-14 percent over the medium-term as structural growth drivers remain intact.

The government's pro-generic initiatives may not impact the industry structure at least in the medium-term, the ICRA report said.

Challenges in its execution, budgetary constraints, lack of resources to effectively monitor quality across manufacturing chain and a market that is predominantly self-paying in nature and largely physician-influenced, make a meaningful shift in favour of 'pure generics' unlikely, it said.

The growth prospects for Indian companies would benefit from sizable generic opportunity as drugs with brand value of USD 80 billion are expected to face generic competition over the next 4-5 years, it added.

The strong pipeline of ANDAs pending approval, with high proportion of complex generics incrementally and market share improvement given the relatively small base also expected to benefit the industry.

Pricing pressures in wake of health care 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 under-penetrated markets namely France, Spain and Italy, branded generic markets in East Europe and niche areas like complex generics and OTCs, it said.

PTI