Strict regulations, tough policy approach under President Trump and pricing pressures force Indian firms to look beyond U.S.
For the $17.3 billion Indian pharmaceuticals export sector, there could be no better time than now to look beyond its largest market — the US.
An upsurge in challenges in the U.S. market — from the long-standing regulatory issues to increased pricing pressure amid a tougher policy approach on the part of the Trump administration — coincided with a decline in India’s shipments to the world’s largest market for medicines last fiscal. Exports fell 7.4% to $5.35 billion in the 12 months ended March, from $5.77 billion in 2016-17.
‘Exports to US shrink’
North America, primarily the U.S., accounted for more than 30% of India’s pharma exports in FY18. While it may continue to remain the single largest destination for some more time to come, the fact is it also was the only market to have recorded a contraction in India’s drug export basket.
With the headwinds in the U.S. showing no signs of abating any time soon, a shift in focus seems more of a necessity than a choice.
“It is difficult to predict how long these trends will last,” said Dr. Reddy’s Laboratories Chairman K. Satish Reddy and CEO G V Prasad, in a letter to shareholders in the 2017-18 annual report.
DRL, one of India’s largest drugmakers, has for some quarters now, been highlighting price erosion in the U.S. due to channel consolidation and increased competition as a key pressure point on the company’s margins. The U.S. accounts for 52% of DRL’s global generics sales.
“Our focus… instead of worrying about our exports to [North] America [should be] to simultaneously explore the markets of Africa, Latin America and Europe,” said Ravi Uday Bhaskar, director general, Pharmaceuticals Export Promotion Council (Pharmexcil). “Where there is a question of affordability and a weak economy, there, Indian generics are very much relevant,” he asserted. Decades of experience in exporting to the highly regulated U.S. and European markets should, in fact, serve as a big advantage for Indian drugmakers looking to tap other global markets, according to Bhaskar. Efforts in this direction are already under way, according to HDFC Securities analyst Amey Chalke.
“Most companies [with] a branded presence in India are exploring opportunities outside the U.S., Europe and India,” said Chalke. “They are looking at branded markets like Africa, Latin America and Asia, which are non-regulated or semi-regulated markets.”
One concern for drugmakers exploring newer markets would be profit margins. “If you are in Europe, it is a generic market. It is like the U.S. but under price control. So obviously, the margins would be lower in Europe. In case of other markets like Africa, Asia and Latin America, margins could be substantially higher if you have a good, branded portfolio. It may be less than India, but could report substantial profitability,” he said.
‘High volume game’
Volumes, though, could be substantially higher, added Mr. Bhaskar of Pharmexcil, a body under the Union Ministry of Commerce tasked with facilitating exports.
Ajantha Pharma, he pointed out, has substantial presence in Africa and earns more than 30% Ebitda margins in the continent. There are also companies that procure products from cheaper sources in China and then supply the drugs to the African market.
Acquisition is another path. Aurobindo Pharma’s acquisition of Canadian generic major Apotex’s European operations is an example. The acquisition is in line with Aurobindo’s strategy to strengthen and grow its European business and to expand in Eastern Europe. It already has a presence in nine countries in the continent and posted €577 million sales last fiscal.