Slowly but surely, the pharma scene is gearing up to a market reality rooted in transformation. The Indian pharma success story in the US market is about to encounter a near- dead end as the enabling factors viz. low penetration and the off-patent drug spree are now drying up, if not completely evaporated. To top it, the regulatory process of ANDA has slowed down considerably with the load of filings rising by the day.
The moderate market growth, at least for the next 3 to 5 years, would influence players to look for an acquisition-led growth track. Even a cursory glance at the figures makes the picture crystal clear. The domestic pharma growth rates are on a decline despite the 16% CAGR witnessed during the period 2008-11. All those factors that helped pharma reap rich dividends in the past viz. economic growth, better purchasing power in rural and urban markets, increased health awareness and sales penetration in rural and semi-urban areas and growing number of lifestyle diseases - are likely to lose some momentum in the immediate future, although the long term prospects seem rosy. Intense competition is another speed breaker. The Indian pharma market is highly fragmented with more than 20,000 players overall and at least 300 having a decent regional presence. No wonder, the market leaders command only about 5 percent of the total market. As for the US market, though the Indian companies are expected to establish peak gains in 2012, they cannot sustain the 30% growth for long given the fact that the US generics market is itself growing at a meager 3 to 5% growth. The emerging market offers good prospects but scaling to sustainable size is not as easy as it was few years back.
Given this scenario, the edge is likely to be with those players engaged in specialties and chronic therapeutics domestic market segment who would be better poised to counter the slowdown. On the bright side, acquisition opportunities are likely to appear both in the national and international markets. But it will beyond doubt take a strong balance sheet, proven track record and a potent M&A strategy to tap this route to gain competitive edge.
With all the success drivers in mind, Sun Pharma with its exclusive portfolio and strength in neuropsychiatry and gastrointestinal therapeutics and financial solidity is blessed with the right credentials to benefit from the inorganic route and thus would be able to sustain its rich valuations going forward. For the others, though this route is promising, standing tall in the crowd would be a challenge, especially for the fresh entrants in this space. Market consolidation between smaller players is likely to be the order of the day. On the whole, Indian players would do well to focus on the large markets like China, Brazil, Mexico and Russia. While China is growing at 20 to 22 per cent, the others are not far behind. And companies need to be selective about penetration as parallel ramp-ups in multiple markets may not give the leverage for achieving adequate RoIs. Besides, the diverse political, social and health care environments in different countries may also cause undue operating strain.