Strong US generic market lifts pharma growth

The pharmaceutical industry presented a strong show during the quarter ended 30 June 2004 (Q1-FY'15), helped by the US generic market and stable domestic formulations business.

Aggregate drug sales grew 17 per cent while net profit rose 29 per cent year-on-year. Overall operating margins for the industry moved significantly higher - by over 300 basis points - even as Cipla and Sun Pharma reported decline in margins.

Aurobindo Pharma, Lupin and Torrent Pharma were growth leaders while Sun Pharma disappointed with moderate double digit growth. Sales growth for multinational firms too remained subdued impacted by the national drug pricing policy.

Top nine pharm companies with quarterly sales of over Rs1,000 crore each for the last eight consecutive quarters showed 21 per cent rise in net sales and 56 per cent growth in net profit. Seven others with the Q1-FY'15 sales of Rs500-1,000 crore each continued to grow at single digit for the fourth consecutive quarter.

Torrent Pharma and Abbott India posted strong results in the Rs500-1,000 crore sales bracket while Wockhardt extended a continuing decline in sales and net profit to the fourth consecutive quarter, on the back of the USFDA ban on its manufacturing facilities.

Multinational pharma companies were impacted by pricing policies implemented by National Pharmaceutical Pricing Authority (NPPA). Glaxo SmithKline Pharma and Pfizer reported a paltry single digit growth in sales and a decline in net profit, Novartis showed decline in net sales and a flat net profit. The USFDA ban on manufacturing facilities impacted Ranbaxy. 

Among top 9 companies, Aurobindo Pharma's sales grew by over 70 per cent year-on-year, driven by the US and European markets. Growth in the European market was led by sales of the new-launch Actavis (Rs624 crore). Net profit of the company jumped to Rs415 crore in Q1-FY'15 from the low base of Rs19 crore, which was due to a forex loss of Rs172 crore in Q1-FY'14.

Among midsize firms, net sales of Torrent Pharma grew 21 per cent, driven by sharp growth in US sales (up 138 per cent). Sales revenue from the US market totalled Rs269 crore, of which new-launch Cymbalta contributed Rs110 crore. Thanks to a significant jump in operating margin the Q1-FY'15 net profit jumped by over 70 per cent.

Moving forward, Moody's Investors Service says India's pharmaceutical market will continue to grow in double digits; a rate which is more favourable than most other markets for the industry. However, drug companies in the country could face higher debt levels, as the pharmaceutical sector in India grow, resulting in mergers and acquisitions.

"As consolidation in the industry continues globally, particularly among generic drug companies, Indian firms will increasingly look to become involved in global mergers and acquisitions. We have already seen some Indian companies increasing their pace of acquisitions," says Michael Levesque, a  senior vice president at Moody's.

"Even if India's GDP growth slows or is uneven, the Indian pharmaceutical market would still represent a better growth opportunity than any other market, because of improving socioeconomic conditions and access to health care, against the backdrop of increasing prevalence of diseases such as diabetes and cardiovascular problems," says Kailash Chhaya, vice president and senior analyst at Moody's.

Pharmaceuticals sector quarterly growth rate %

Sales*

Profit*

Sales**

Profit**

Sales

Profit

Q2FY14

21.06

-1.07

6.83

-23.04

16.96

-8.35

Q3FY14

24.07

99.52

7.37

4.25

18.91

69.14

Q4FY14

19.90

27.10

5.05

-21.82

15.94

13.20

Q1FY15

20.87

56.14

3.90

-12.07

16.46

28.29

*Q1FY15 sales > 1000 crore

**Q1FY15 sales 500-1000 crore

Data source: Capitaline +