Outlook for Indian pharmaceutical companies continue to remain a bit muted given multiple headwinds in their core markets of US and India and dwindling margins, with higher R&D investments. This also could be an interesting opportunity to consider select good pharma cos for investment.
Steep price erosion in US continues to hurt as evidenced by recent results
Channel consolidation has driven prices significantly down for generic players and most companies have reported sharp decline in margins, especially for companies where the product concentration is relatively higher. Further, there has been an increased competitive intensity as USFDA has significantly expedited generics approvals for incumbents as well as competitors
Companies are hit by the most recent consolidation - ClarusONE joint sourcing (for Walmart and Mckesson) and WBAD - Econdisc sourcing agreement
Cost control exercises (ex- R&D) also gained prominence this quarter and most companies made strong efforts towards cutting off unwanted flab in operating costs
Domestic market has seen some recovery versus Q1FY18, but inventory levels are way off historical levels and the recovery has only been partial.
Evidence of inventory fill-ups post GST implementation in Q2 FY18, with most companies expecting trade restocking to completely happen through H2FY18
Investments in R&D continue to soar, as most companies look beyond the plain vanilla generics and move up the value chain with investments in complex and specialty products which entail higher costs
New launches are critical for continued momentum in US businesses facing price erosion
Strategic M&A activity remains focused on adding specialty drugs to portfolio - as evidenced by Lupin’s recent acquisition of Symbiomix - and bolstering domestic portfolios with branded product lines
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