Last year saw India's top pharmaceutical companies go through one of their most challenging, if not the worst, periods in recent memory.
Over the past 12 to 18 months, many have got warnings from the US Food and Drug Administration, or USFDA, for not conforming to certain good manufacturing practices. The list includes Sun Pharmaceuticals, Dr Reddy's, IPCA Laboratories, Cadila Healthcare, Cadila Pharmaceuticals and Mylan Laboratories. This forced them to put in place costly corrective measures even as sales to their biggest market was affected. The US accounts for 40 per cent-plus sales of most big Indian pharmaceutical companies. In 2014/15, for instance, Dr. Reddy's 47 per cent sales came from the US; for Lupin, the figure was 45 per cent. This was just one issue. Another big problem, say experts, is commoditisation of the generics business, which is forcing the companies to invest in niche specialty areas.
What's more, attempts to make up for these losses by selling more to emerging markets did not succeed due to weakening currencies of these countries. "For most, the year has been challenging on two counts - one from the regulatory standpoint and the other from the point of view of emerging markets," says Saumen Chakraborty, Dr. Reddy's President & Chief Financial Officer and head of IT & business process excellence functions.
Emerging markets account for 20-25 per cent sales of leading pharmaceutical companies such as Dr. Reddy's, Glenmark, Torrent and Sun. However, these countries, too, failed to come to their rescue due to the weakness in their currencies. The fall in Brazilian Real from 2.8 to 3.8 against the dollar, for instance, meant a sharp dip in revenue in dollar terms. Several big emerging countries such as Russia, Brazil and South Africa are big exporters of commodities. That's why the movement of Rouble is linked to oil prices, while rand moves with prices of metals, especially that of copper and diamond. Real moves closely with prices of oil and other commodities that Brazil exports in large quantities. This hit Indian companies. For example, Dr. Reddy's reported a 28 per cent year-on-year decline in revenues from emerging markets in the third quarter of 2015/16. For Glenmark, the decline was over 18 per cent. The figures for other companies were not very dissimilar.
Another roadblock was approval for the launch of generics in the US. This was especially true of companies such as Sun and Dr. Reddy's that had been given warnings by the USFDA. Dr. Reddy's, for instance, got just a couple of approvals, as against 12-15 that it gets in a typical year. However, there were exceptions to this, too. Some, in fact, ended up with more approvals. Glenmark, for instance, got 18 approvals (four tentative) as against five in the previous year.
All this forced many to pin hope on the Indian market. But even here, latest sales data indicate that the companies have reasons to worry. "March sales grew 6.4 per cent, the lowest this financial year. The last time sales growth was poor was in November 2015 (9.1 per cent)," says a report by AIOCD AWACS, which tracks pharmaceutical retail sales in India.
All this is not good news for those banking on the Indian market for growth. For instance, in the third quarter, Dr. Reddy's revenues from India rose 34 per cent from the corresponding quarter of the previous year (partly due to acquisition of a few established brands of Belgian company UCB in India). However, in March, the growth was 7 per cent. For Cipla, it was 3.5 per cent, while for Zydus, it was 5.9 per cent, though three players among the top 10 still managed to grow in double digits - Lupin (20.6 per cent), Sun (12.3 per cent) and Mankind (11.9 per cent).