What Lies Ahead for the Indian Pharma Sector?

Fri, 27 Jan Pre-Open

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The pharmaceutical sector in India is dominated by generic drugs over branded ones.

Generic drugs are copies of branded drugs. They have exactly the same dosage, intended use, effects, side effects, route of administration, risks, safety, and strength as the original drug. They are manufactured after the patent for the branded drugs expire.

The United States has witnessed a patent expiration wave in the last five to seven years. This has opened up a huge market (>$65 billion) for generic drugs in the US. India has been a major beneficiary of this trend.

Drug production cost in India is 60-65% less than in the US, and 50% less in the Europe. The low cost advantage coupled with requisite expertise has made India an attractive destination for manufacturing these stocks.

Indian pharma accounts for around 40% of the generic medications consumed in the US. The Indian pharma sector has consistently grown at a CAGR of 15-18% in last five years.

However, the journey for the sector has not been smooth. The sector has always been wary about the observations and warning letters issued by the US food and drug administrator (FDA).

Even the biggest players have had a rough ride with the US regulator.

In fact, as per an article in Mint, in recent years the regulator has increased staff in India, which has resulted in increased frequency of warning letters by FDA.

The big question is - after serving the US market for a decade, how long will India's generic drug Industry take to gain FDA's trust?

The recent observations in Divi's Labs Ltd has again posted a serious threat to the Indian pharma sector.

So while pharma has enjoyed the tailwinds of patent expiration in the US markets, it has failed to gain the FDA's trust.

Further, the newly elected US president, Donald Trump, wants that drugs sold in the US should be manufactured in the US itself.

The uncertainties in the sector posts a significant challenge for Indian pharma companies.

However, with more than 40% of market share in the US pharma market and the significant cost advantage over its global peers, Indian pharma companies are most likely not going anywhere.

We would be interested to see how Indian companies deal with the stringent regulations of FDA and whether they can win its trust over time.

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