Domestic growth, launches in the US to aid pharma cos

Market


After a challenging 2022, Indian pharma companies may post better earnings performance during this calendar year. Analysts are bullish about the revival in the domestic pharma market, easing cost pressures, and improved outlook for the US market on the back of new product launches and limited competition.

In 2022, growth in the Indian market was impacted by a high base of the previous year, which included contribution from covid treatment and management drugs. The growth momentum in Indian Pharma Market (IPM) picked up pace at the end of the year with November and December seeing strong double-digit growth.

Anand Rathi analysts said demand rose across therapies, including acute therapies in December. Decent growth is expected for acute therapies, while volume growth in chronic therapies will continue to do well, they added.

Analysts at Emkay Global Financial Services said due to a high base of FY22 the industry may expect mid-to-high, single-digit growth in Indian pharma market in FY23, but they expect secular trend growth of 10-11% YoY for FY24.

With domestic growth momentum remaining supportive with contribution from both acute and chronic therapies, they are also optimistic about improving prospects in the US. Major product launches by the companies are likely to help drive earnings momentum.

Analysts at HSBC Securities and Capital Markets (India) Pvt. Ltd in a recent report said: “We believe 2023 will mark a notable move in US value chain for Indian companies on the back of upcoming big launches (respiratory treatment drugs as generic Spiriva for Lupin, generic Advair for Cipla etc).”

Several complex and differentiated product launches will not only drive US sales and earnings in the near term, but also over the long run. The products do not face significant competition and therefore, are long-term growth drivers for sales and earnings in the US. They will help reduce companies’ need to cut prices on competitive generics to gain volumes, and restore some price sanity, they added.

For differentiated products, inhalers and peptides are most relevant considering that HSBC analysts see addressable opportunities worth $4 billion and $6 billion, respectively, for their coverage universe over 2023-25. Domestic formulations business will remain the steady growth pillar for most companies, they added.

Dr Reddy’s Laboratories launched the generics of Revlimid in September with an exclusivity of 180 days for two strengths. More Indian companies are likely to benefit from this large product opportunity. In the December quarter analysts at Phillipcapital said the incremental benefits of the generic Revlimid will be supportive for Dr Reddy’s, Cipla and Zydus Lifescience, and a strong flu season will help Aurobindo Pharma, Lupin and Zydus Life.

Sharekhan analysts said improving performance in the US, Indian and emerging markets will drive top-line growth in Q3. Cost pressures impacting profitability could see some respite. Shipping and container costs and chemical prices are normalizing, so cost pressures will ease despite remaining higher than pre-covid levels, they added.

While the sector may underperform marginally for the near-term, our outlook remains positive led by tailwinds in the US generics, a healthy domestic formulations segment and normalization in input cost, said analysts at Prabhudas Lilladher.

Key factors to be watched from Q3 performance will be updates on on regulatory headwinds and USFDA inspection at manufacturing facilities, the channel inventory in the US and progress in complex/specialty products, impact of cross currency headwinds in emerging markets etc , even as appreciating dollar is likely to help exports.


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