India’s pharma market’s missing the pep

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Sales of medicines in the Indian market slowed down in the June quarter, growing by only 6.4% over a year ago, according to data from market research agency AIOCD Awacs. In the preceding quarter, growth was 9.5% but even this was lower than the December quarter’s 14.9%. The addition of new drugs to the list of medicines under price control and the after effects of the ban on several fixed dose combination (FDC) drugs are the two main reasons for slower growth.

Between the two, the FDC problem’s contribution to the slowdown is bigger. For instance, in June, sales of FDC drugs were down by 14.6% over a year ago, while that of non-FDC drugs were up by 7%. The ban’s effect will continue for about three more quarters.

The domestic market may thus disappoint. However, note that these are retail sales whereas companies report sales made to the trade (distributors or stockists), which can vary. One bit of news to cheer is that Indian-owned companies are doing better than foreign-owned ones, based on 12-month data till June 2016.

After the US, India is the main contributor to sales for most Indian generic drug companies. Unfortunately, even the US market has not been in top form as several problems such as price cuts, delays in getting approvals for new drugs and compliance-related hiccups are affecting sales growth.

Still, pharmaceutical stocks are putting up a brave face. Of the top five pharmaceutical stocks by market capitalisation, their prices are up by between 4.3% (Sun Pharmaceutical Industries Ltd) and 16.9% (Dr. Reddy’s Laboratories Ltd) from a month ago. Reasons such as recent acquisitions and a few drug launches could be behind this increase.

Of late, some plants have begun getting approvals after re-inspection by the US Food and Drug Administration (FDA). High-profile cases have not yet seen closure but smaller wins have kindled hope that they might. This too may have contributed to the run-up in shares.

The first reality check will be from the quarterly results, especially on the US sales front. If growth does not improve and neither does visibility on getting clearances from the US FDA, these gains may become difficult to hold on to.