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The domestic pharmaceutical sector is set for a sharp turnaround in the new fiscal year with a 20-22 per cent growth in operating profit – the fastest pace since 2014, while revenue may grow at 9-11 per cent, according to a report. “The projected good run is premised on a decline in regulatory alerts for larger companies as well as a bigger pipeline of high-value drugs compared to the past two years. Operating income and profit will see a course reversal with a 20-22 per cent growth, while revenue may clip at 9-11 per cent,” rating agency Crisil said in a report.
This will be primarily on the back of strong growth in the overseas market, particularly in the regulated markets of the US and the EU, while the domestic market will continue its healthy growth in the past years, it said.
It can be noted that although exports account for only 50 per cent of revenue for the domestic pharma industry, its contribution at the operating profit is higher owing to relatively superior profitability of products sold in regulated markets and that the haemorrhage over the past two years can be pinned squarely on dwindling exports to regulated markets, particularly these two markets.
The US and the EU together account for over 90 per cent of the regulated market exports and close to 50 per cent of formulation exports for the domestic companies.
However, the report warns that lower generic opportunity, rising competition, supplier consolidation, and increase in regulatory alerts on domestic plants are the major headwinds for the industry.
Noting that relief from regulatory alerts will result to increase in abbreviated new drug application (ANDA) flows, the report says rising competition and supplier consolidation and the resultant pricing pressure, will continue to impact exports to these key markets in FY19.
Sales to the US and the EU are expected to rise 7 per cent against a decline of 3 per cent between fiscals 2016 and 2018. One of the factors working in favour of larger pharma companies is a marked reduction in the number of regulatory alerts in 2017, a welcome change from 2015 and 2016.
Official action indicated (OAI) came down significantly to 16 in 2017 from 28 in 2014 due to the efforts taken by large formulation companies during these years towards remediation.
Issuance of an OAI indicates objectionable conditions were found and will result in regulatory and/or administrative sanctions by the US. Typically, non-closure of an OAI results in a warning letter or an import alert. Increased efforts towards remediation have also resulted in close-out of some regulatory alerts for big players in the past one year.