pharma update January 2020 issue

Vol.1 Issue 03 January 2020 Price - ₹100/-

PHARMAUpdate

Anant Thakore
Founder

Avik Pharmaceutical Limited

Pharmaceutical and Medical Credit profiles of hospitals to be Pain for big pharma as
Products Practice stable despite regulatory actions US FDA warnings double

Page No. 5 Page No. 11 Page No. 12

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PHARMAUpdate 02

Vol.1 Issue 3 January 2020 Anant Thakore
Founder
Editor
J. P. Sethi Avik Pharmaceutical Limited
[email protected]
Pharmaceutical and Medical Credit profiles of hospitals to be Pain for big pharma as
Corporate Advisor Products Practice stable despite regulatory actions US FDA warnings double
Vishnu Ajitsaria Fca
Page No. 5 Page No. 11 Page No. 12
Hyderabad Correspondent
Hanuman Prasad Quality & R&D Drives Success ................................................................................................. 2
Pharmaceutical and Medical Products Practice ............................................................... 5
[email protected] Indian Pharmaceuticals Industry to Grow by 9% To 12% in Next Five Years ........ 8
Complex generics, domestic demand to help pharma weather regulated
Layout Designer market de-growth ....................................................................................................................... 10
Jyoti Singh Credit profiles of hospitals to be stable despite regulatory actions .......................... 11
Pain for big pharma as US FDA warnings double ............................................................. 12
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PHARMAUpdate

Interview

Quality & R&D Drives Success

Avik Pharmaceutical Limited

Anant Thakore - Founder

It is now a cliché when one says that enhancement of quality has been the but in many countries because of our
quality is the focus of a business. But motto and a core business principle for consistency in quality and it is a big
when a company says that it believes Avik Pharmaceutical Ltd. (Avik strength,” says Anant Thakore,
that quality is one of its financial Pharma) since it was established in Managing Director of Avik Pharma.
strengths, in addition to being a core 1978.
strength, one has to sit up and take The focus on quality had also
note. KNOWN IN MANY COUNTRIES prompted Thakore to establish a
specialised R&D department even
Quality adherence and continuous “We are recognised not only in India though the company was an MSME.

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PHARMAUpdate

Interview

QUALITY & INNOVATION and partly because he was able to company was to get UGMP
visualize the immense opportunity the certification for its Corticosteroids
Quality and innovation “are most sector had in India about 50 years ago. and other products which has enabled
important aspects in the pharma the company to export to 35 countries
industry,” notes Thakore. When he decided to start a pharma all across the world.
company, first as an importer of raw
“We are a EUMP company and a materials for pharma, from scratch , This is reflected in the continuous
regulatory company. Our impurities Thakore realised that the “industry in growth in exports for the company.
are much lower than the latest India was very small…the formulation
pharmacopeia standards which are a was imported….so there was a big “Our exports have grown in the last
safeguard for those companies that are scope.” one year by about 15 to 20 per cent.
exporting to other countries. Bow now We have registered growth every year
considering the fact that those Having started off with import and by about 10 to 15 per cent. And since
countries that manufacture and export export of pharma raw materials and we are regulatory company we are a
formulation medicines also need to pharma products, Thakore established UGMP company, I believe that more
import API that is approved. For Avik Pharma as his company’s countries will be convinced and
example, the API that we make are manufacturing wing. attracted to import our products in
able to meet European standards, then the next few years,” says Thakore.
other countries will buy from us. PRODUCER OF HIGH VALUE
Hence quality is very important,” says PRODUCTS VERY BRIGHT FUTURE
Thakore.
“We are a manufacturing unit also It needs to be mentioned that many of
“One of the major reasons that we where we make high value products - the countries follow the regulations
have been able to establish good Corticosteroids and Hormones APIs. prevalent in Europe and the United
quality because we have a good The value of the products may range States. And therefore if a pharma
laboratory and follow high R&D from `80,000 to `2 lakhs per kilo. We company has the UGMP certificate as
standards despite our company being were the first Indian company to start Avik Pharma possess, countries that
in the MSME segment of industries. manufacturing the product. At that follow the regulations of the US and
Very few MSMEs have an R&D time there were multinationals like Europe are typically more willing and
department but we have one,” Glaxo in the Indian market. But we ready to purchase from such
Thakore adds. were the first to start the companies.
corticosteroid business in India,”
CONSTANT IMPROVEMENT Thakore recalls with pride. This is because of the focus on quality
by Thakore. “We offer products that
The company therefore constantly However he has very strategically conform to all the latest
endeavours to ensure that it is stayed away from the formulation pharmacopeia standards for API. That
constantly able to improve quality, business. is one of our strengths,” reminds
lower impurities and meet the latest Thakore.
pharmacopeia standards. GOODWILL OF 50 YEARS
With almost all the top pharma
INNOVATIVE IDEAS & PRODUCTS He also recognizes that his focus on companies of India being its client,
quality and continuous quality the future for Avik Pharma is very
“Additionally, we are also working on development has helped the company bright as seen by Thakore.
new products – which even though are to develop and establish a great deal
not innovative, they are those that no of good will in the last 50 years. “I would say that the opportunities in
one else manufactures in India,” adds pharma are great. The average rate of
Thakore. “We grew along with the industry. growth of the industry is 10-12 per
Almost all the leading pharma cent where as the volume of export is
Thakore as a young man from a science companies in India know us,” Thakore equal to the domestic requirement. It
background was attracted to the says with a great sense of pride. is a big growth rate. And export for
pharma industry partially by the fact this sector is equal to about 50 per
that his parents belong to the industry One of the major achievements of the cent of total production - which is

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PHARMAUpdate

Interview

great. India is the generic medicine LAUNCHING 3 NEW PRODUCTS MARKETING KOREAN PRODUCT AS
capital and in generic formulation of DIVERSIFICATION
the world. And if there is The company is in the process of
accompanying domestic growth, there launching three new products that will The company is also distributing and
will be better growth,” he says. be manufactured for the first time in marketing a Korean product that is
India. “In our R&D part, there are used to reduce pollution in the
BLUE CHIP CLIENTS three products that are in the final mining, brewery and chemical sectors
stages of development and none of the in India. It is also marketing a product
The company is a regular supplier of three products are manufactured in that can be applied on cables in
raw materials needed for drug the country. We will introduce those companies or in home and it will not
production to almost all of the large products,” announces Thakore. catch fire for 90 minutes which will
and established Indian companies such help in controlling the spread of a fire
as Sun Pharma, Lupin, Glenmark, Dr And despite the slowdown in the and reduce damages significantly.
Reddy’s, etc. Indian economy, the pharma sector
has been doing good, he says and adds But all said and done, Thakore
“Most of the good and established that he is confident that Avik Pharma believes that the core strength of the
pharma companies are our customers. will be recording growth at between success of the company has been his
The multinational companies also 15 and 20 per cent every year. constant focus on quality and quality
know as well,” says Thakore. enhancement, which he believes will
also be at the core of the success of
the company in the years to come.

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PHARMAUpdate

Sector Update

Pharmaceutical and Medical Products Practice

India Pharma 2020 Propelling access and acceptance, realising true potential

Global pharmaceutical markets are in for healthcare products and services McKinsey&Company
the midst of major discontinuities. had grown at a compounded annual
While growth in developed markets growth rate of 14 per cent from 2000 cent compounded annual growth rate
will slow down, emerging markets will to 2005. The pharmaceutical industry between 2000 and 2005. Most of the
become increasingly important in the had grown at a compounded annual growth drivers have kept pace with
coming decade. The Indian growth rate of 9 per cent during that expectations (Exhibit 1). India's GDP
pharmaceuticals market, along with period. We felt in 2007 that the Indian from 2005 to 2009 grew at about 8 per
the markets of China, Brazil and pharmaceutical market was poised for cent. Growth in medical
Russia, will spearhead growth within a clear and discernable step-up in its infrastructure and health insurance
these markets. growth trajectory. coverage has been in line with
expectations. The treatment of
The Indian pharmaceuticals market In our earlier report, India Pharma chronic diseases has gone up. The
has characteristics that make it 2015 – Unlocking the Potential of the remarkable success of a few recent
unique. First, branded generics Indian Pharmaceutical Market, we launches has demonstrated the true
dominate, making up for 70 to 80 per projected that the market would grow potential of patented products.
cent of the retail market. Second, at a compounded annual growth rate
local players have enjoyed a dominant of 12 to 14 per cent to become a USD Our analysis shows that the Indian
position driven by formulation 20 billion to USD 24 billion market by pharmaceuticals market will grow to
development capabilities and early 2015. This growth would be driven USD 55 billion by 2020 driven by a
investments. Third, price levels are primarily by rising incomes, and be steady increase in affordability and a
low, driven by intense competition. supported by five other factors: step jump in market access. At the
While India ranks tenth globally in enhanced medical infrastructure; rise projected scale, this market will be
terms of value, it is ranked third in in the prevalence and treatment of comparable to all developed markets
volumes. These characteristics chronic diseases; greater health other than the US, Japan and China.
present their own opportunities and insurance coverage; launches of Even more impressive will be its level
challenges. patented products; and new market of penetration. In terms of volumes,
creation in existing white spaces. India will be at the top, a close second
In 2007, we undertook an exercise to only to the US market. This
assess the potential of the market by These factors are now bearing fruit, combination of value and volume
2015. At that time, the country was and market growth has kept pace with provides interesting opportunities for
beginning to witness greater projections. Various industry reports upgrading therapy and treatment
affordability and higher spending suggest that the industry has been levels.
across a range of categories driven by a growing at 13 to 14 per cent over the
decade of reforms. The total market last 5 years—a sharp rise from the 9 per Pricing controls and an economic
slowdown can wean away investments
and significantly depress the market,
allowing it to reach only USD 35 billion
by 2020. On the other hand, the
market has the potential to reach USD
70 billion provided industry puts in
super normal efforts behind the five
emerging opportunities, and
enhances access and acceptability in
general.

The mix of therapies will continue to

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PHARMAUpdate

Sector Update

gradually move in favour of specialty therapies have 50 to 80 per cent product launches.
and super-specialty therapies. prescriptions originating from
Notwithstanding this shift, mass specialist physicians. While these are all steps in the right
therapies1 will constitute half the direction, a lot more needs to be done
market in 2020. Metro and Tier-I 2 We define metros as cities with to fully capture the potential of the
markets2 will make significant population of over 1 million, Tier-I as market. The requirements for
contributions to growth, driven by cities with population between 0.1 leadership have gone up manifold.
rapid urbanisation and greater million and 1 million, Tier-II as towns Enhanced competitive intensity and a
economic development. Rural markets with populations between 5000 and rapidly evolving market have left
will grow the fastest driven by step-up 0.1 million, and rural areas as villages limited room for complacency. For
from current poor levels of with population less than 5000. instance, a few years ago, market
penetration. On balance, Tier-II creation entailed expanding therapies
markets will get marginally squeezed IMPLICATIONS FOR INDUSTRY to new doctor segments and
out. The hospital segment will geographies, identifying
increase its share and influence, Over the next decade, the market will opportunities in underpenetrated
growing to 25 per cent of the market in proliferate, presenting a variety of therapies, and deepening penetration
2020, from the current 13 per cent. opportunities. To lead, players must in established markets. These levers
F i n a l l y, t h e fi v e e m e r g i n g not only participate across multiple remain important, but are not
opportunities will grow much faster opportunity areas, but also sufficient anymore. Market creation
than the market, and will have the significantly modify their business during the next decade will involve
potential to become a USD 25 billion models to enable a profitable scaling collaborating with a broader set of
market by 2020. up. partners to enhance diagnosis rates
and compliance, thereby changing the
Over the past 5 years, the distinction Pharmaceutical companies have taken very nature of the patient funnel.
between local players and note of new opportunities and begun
multinational companies has to make meaningful investments in Another suitable example is the rising
increasingly blurred. We believe that if these areas. On balance, importance of large brands,
market leadership is the aspiration, multinational companies have particularly in the context of
the implications and imperatives will probably covered more ground. Most dwindling generics launch
be common for both groups of players. leading multinational companies have opportunities. Not only can the large
They will need to strengthen three sets set bold aspirations for their India brands make up for the gap created in
of commercial capabilities: marketing businesses, adopted a localised model the topline, they can also bolster
excellence, sales force excellence, including dramatic sales force ramp- profitability. Unfortunately, over the
and commercial operations. In ups and branded generics launches, last few years, large brands have not
addition, players will need to put in and made major investments in their kept pace with the market and lost
place two enablers: strengthen the local organisations. Leading local share. This is a cause for concern.
organisation to be able to sustain players have made investments in
performance and manage rising market creation, developed While winning in the Indian market
complexity; and collaborate with differentiated business models and will require cross-functional focus,
stakeholders within and outside the maintained the momentum of new the capabilities that require the most
industry to drive access and shape the
market. The government will need to
make investments to expand access to
healthcare, while ensuring that
industry remains viable and
competitive.

1 The definitions of therapy areas have
been kept consistent with our earlier
report. Mass therapies have more than
50 per cent of prescriptions generated
by GPs and CPs, while specialty

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PHARMAUpdate

Sector Update

substantial improvements are related which this spending is increasing at 18 contain healthcare costs: Drug prices
to the commercial model. We believe per cent annually, will take the in India are among the lowest in the
that three commercial capabilities will government's healthcare spending up world driven by intense generics
be critical. These capabilities will to 1.6 per cent of GDP by 2020. The competition. Any further controls on
need to be supported by a strong gap between this achievement and the pricing will impair the viability of the
organisation and collaborative stated aspiration will have a material industry, reduce investments and
partnerships with stakeholders within impact on the trajectory of the wipe out USD 20 billion market
and outside the industry. healthcare sector in general, and the opportunity by 2020. Hence, policy
pharmaceuticals sector in particular. makers should consider measures
THE GOVERNMENT NEEDS TO PLAY A beyond price control (e.g., wider
CRUCIAL ROLE Invest in healthcare infrastructure, health coverage, reimbursement
particularly in Tier-II and rural control) to control overall healthcare
The government needs to play a direct markets: The government plans heavy costs.
role in driving access to healthcare investments in medical infrastructure
through long range initiatives. during the next decade. A majority of Reduce the shortage of physicians:
Moreover, it needs to ensure that the this spending will go towards Allowing for private investments in
industry maintains its confidence and upgrading infrastructure in primary medical education was a major step in
is not affected by extraneous shocks. and secondary care centres, i.e., this direction. Beyond setting up new
In particular, we believe that the district hospitals, PHCs and CHCs. medical education centres, the
government needs to fulfil five roles: Executed well, these investments will government needs to encourage
Raise healthcare spending to stated 3 create real options for the poorer innovative ways to address the talent
per cent of GDP: The government has underserved segments to access deficit. The Bachelor of Rural
announced plans to increase its quality healthcare. Medicine and Surgery (BRMS)
spending in healthcare to 3 per cent of programme, launched in Tamil Nadu,
GDP. The current growth trajectory, in Adopt a broader set of measures to is a case in point.

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PHARMAUpdate

Sector Update

Indian Pharmaceuticals Industry to Grow
by 9% To 12% in Next Five Years

Introduction India's biotechnology industry Ÿ The exports of Indian
comprising bio-pharmaceuticals, bio- pharmaceutical industry to the US
India is the largest provider of generic services, bio-agriculture, bio-industry will get a boost, as branded drugs
drugs globally. Indian pharmaceutical and bioinformatics is expected grow at worth US$ 55 billion will become
sector industry supplies over 50 per an average growth rate of around 30 off-patent during 2017-2019.
cent of global demand for various per cent a year and reach US$ 100
vaccines, 40 per cent of generic billion by 2025. Government Initiatives
demand in the US and 25 per cent of all
medicine in UK. Investments and Recent Some of the initiatives taken by the
Developments government to promote the
India enjoys an important position in pharmaceutical sector in India are as
the global pharmaceuticals sector. The The Union Cabinet has given its nod for follows:
country also has a large pool of the amendment of the existing Foreign
scientists and engineers who have the Direct Investment (FDI) policy in the Ÿ In October 2018, the Uttar Pradesh
potential to steer the industry ahead pharmaceutical sector in order to Government announced that it will
to an even higher level. Presently over allow FDI up to 100 per cent under the set up six pharma parks in the state
80 per cent of the antiretroviral drugs automatic route for manufacturing of and has received investment
used globally to combat AIDS (Acquired medical devices subject to certain commitments of more than `5,000-
Immune Deficiency Syndrome) are conditions. 6,000 crore (US$ 712-855 million)
supplied by Indian pharmaceutical for the same.
firms. The drugs and pharmaceuticals sector
attracted cumulative FDI inflows Ÿ The National Health Protection
Market Size worth US$ 15.98 billion between April Scheme is largest government
2000 and March 2019, according to funded healthcare programme in
The pharmaceutical sector was valued data released by the Department of the world, which is expected to
at US$ 33 billion in 2017. The country's Industrial Policy and Promotion (DIPP). benefit 100 million poor families in
pharmaceutical industry is expected to the country by providing a cover of
expand at a CAGR of 22.4 per cent over Some of the recent developments/ up to `5 lakh (US$ 7,723.2) per
2015–20 to reach US$ 55 billion. India's investments in the Indian family per year for secondary and
pharmaceutical exports stood at US$ pharmaceutical sector are as follows: tertiary care hospitalisation. The
17.27 billion in FY18 and have reached programme was announced in
US$ 19.14 billion in FY19. Ÿ Between Jul-Sep 2018, Indian Union Budget 2018-19.
Pharmaceutical exports include bulk pharma sector witnessed 39 PE
drugs, intermediates, drug investment deals worth US$ 217 Ÿ In March 2018, the Drug Controller
formulations, biologicals, Ayush & million. General of India (DCGI) announced
herbal products and surgicals. its plans to start a single-window
Ÿ Investment (as % of sales) in facility to provide consents,
Indian companies received 304 research & development by Indian approvals and other information.
Abbreviated New Drug Application pharma companies* increased from The move is aimed at giving a push
(ANDA) approvals from the US Food and 5.3 per cent in FY12 to 8.5 per cent to the Make in India initiative.
Drug Administration (USFDA) in 2017. in Fy18.
The country accounts for around 30 per
cent (by volume) and about 10 per cent Ÿ In 2017, Indian pharmaceutical Ÿ The Government of India is
(value) in the US$ 70-80 billion US
generics market. sector witnessed 46 merger & planning to set up an electronic

acquisition (M&A) deals worth US$ platform to regulate online

1.47 billion pharmacies under a new policy, in

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PHARMAUpdate

Sector Update

order to stop any misuse due to easy years, leading India to become one of programmes, lifesaving drugs and
availability.
the top 10 countries in terms of preventive vaccines also augurs well
Ÿ The Government of India unveiled
'Pharma Vision 2020' aimed at medicine spending. for the pharmaceutical companies.
making India a global leader in end-
to-end drug manufacture. Approval Going forward, better growth in Exchange Rate Used: INR 1 = US$
time for new facilities has been domestic sales would also depend on 0.0159 as on March 31, 2019
reduced to boost investments. the ability of companies to align their
product portfolio towards chronic References: Consolidated FDI Policy,
Ÿ The government introduced therapies for diseases such as such as Department for Promotion of Industry
mechanisms such as the Drug Price cardiovascular, anti-diabetes, anti- and Internal Trade (DPIIT), Press
Control Order and the National depressants and anti-cancers that are Information Bureau (PIB), Media
Pharmaceutical Pricing Authority to on the rise. Reports, Pharmaceuticals Export
deal with the issue of affordability Promotion Council, AIOCD-AWACS,
and availability of medicines. The Indian government has taken IQVIA, *Top 10 companies as per
many steps to reduce costs and bring research by HDFC Securities
Road Ahead down healthcare expenses. Speedy
introduction of generic drugs into the Disclaimer: This information has been
Medicine spending in India is projected market has remained in focus and is collected through secondary research and
to grow 9-12 per cent over the next five expected to benefit the Indian IBEF is not responsible for any errors in the
pharmaceutical companies. In same.
addition, the thrust on rural health
(courtesy: https://www.ibef.org/)

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Industry News

Complex generics, domestic demand to help
pharma weather regulated market de-growth

regulated markets. We expect R&D
spend to increase ~700 basis points
over fiscal 2017 to reach 30% of annual
revenue from the regulated markets
over the medium term.

Another factor offsetting the
slowdown in exports is steady revenue
growth from the domestic market,
which accounts for 55% of industry
revenue. Strong demand will help
firms maintain 10-11% growth and
healthy profitability, despite intense
competition and frequent regulatory
actions.

Revenue growth of 9% and healthy following scrutiny from the US Food Growth in domestic demand will
cash flows to support credit profiles and Drug Administration (FDA). sustain backed by better access to
healthcare, higher penetration of
CRISIL believes the Indian This trend, however, is set to reverse. health insurance and increasing
pharmaceutical industry will weather Revenue growth from regulated lifestyle diseases.
the current headwinds of slowdown in markets will gradually increase to >7%
exports caused by regulatory scrutiny1 annually over the medium term, and “Steady growth, strong profitability
and intensifying competition, by also augment overall exports growth and modest capital expenditure will
monetising opportunities in complex to ~6% annually. Faster product drive healthy cash flows from the
products2 in the regulated markets, approvals from the FDA, especially for domestic market, and support
and because of resilient domestic complex products, will be the driver. enhanced R&D spend for the
demand. regulated markets,” said Akshay
“We are seeing successful resolution Chitgopekar, Director, CRISIL Ratings.
The sector's revenue is seen growing at of regulatory actions from
~9% per annum over three years ending remediation efforts made over the CRISIL rates over 300 pharmaceutical
fiscal 2020. Exports, which account for past three years, even as regulatory firms, over 55% of which have an
nearly 45% of industry revenue, will scrutiny remains intense. For international presence. Besides
see another year of tepid ~1% growth in instance, warning letters on 9 Indian business strength and diversity, the
fiscal 2018, gradually recovering plants were resolved in the past 15 credit profiles for most firms are
thereafter. months, which is considerably higher backed by low reliance on debt. This is
than the 4 seen between fiscals 2013 reflected in the credit ratio (upgrades
Over half of exports are to the and 2016,” said Anuj Sethi, Senior to downgrades) exceeding 1.5 times
regulated markets. The latter is set to Director, CRISIL Ratings. for CRISIL-rated pharmaceutical
de-grow ~5% this fiscal, after growing portfolio since fiscal 2015. CRISIL
~3% last fiscal, for two reasons: greater Besides remediation efforts, firms are believes these credit profiles will
price erosion in existing products increasing their research and sustain backed by healthy cash flows
because of intensifying competition, development (R&D) spends to despite near-term challenges in the
and delayed launches of new products capitalise on the $20 billion-a-year regulated markets.
or import ban on existing products complex products opportunity in the

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PHARMAUpdate

Industry News

Credit profiles of hospitals to be stable
despite regulatory actions

Revenues to grow @15% till 2020 - ended 2017. Small and medium synergises the best practices and
Managing profitability pressure, hospitals will also follow suit, based on infrastructure of large chains with the
project risks critical their ability to fund expansions. local market knowledge and
experience of regional players.
The `4.8 lakh crore healthcare “Hospital firms are likely to sustain
delivery sector in India has been their credit profiles despite large “While revenue growth prospects
showing strong demand growth and capex, backed by strong demand r e m a i n h e a l t h y, o p e ra t i n g
stable cash flows, and should maintain growth, stable cash flows from profitability (~14% in fiscal 2017) has
its momentum despite regulatory existing beds, and strengthening of come under pressure in recent
hiccups. business profiles through quarters because of regulatory
geographical diversification,” said actions,” said Akshay Chitgopekar,
While strong demand will necessitate Anuj Sethi, Senior Director, CRISIL Director, CRISIL Ratings. “We see
capital expenditure (capex), stable Ratings. “Prudent funding mix and hospitals taking steps to restore
cash flows from existing operations longer loan-repayment tenure will profitability and contain impact on
will continue to support credit further support credit profiles amid credit metrics.”
profiles. Profitability of hospitals, large capex.”
however, could see some pressure These include diversifying service
because of regulatory interventions, Stable cash flows from mature beds offerings, rationalising costs and
and they are expected to cope by (aged >5 years) enable better recalibrating prices of services to
adjusting cost and pricing structures. absorption of gestation losses from offset price caps on coronary stents
newer beds. That's why rating and knee implants, and the limit on
We foresee sector revenues growing at upgrades of hospital firms have cash transactions up to `2 lakh.
a strong 15% annually over the next outnumbered downgrades 1.5 times
three fiscals (2018-20), led by rapid over since fiscal 2011 - despite “But specialty hospitals focusing
expansion in health insurance sizeable capex. At present, for large only on a few therapeutic segments
coverage through government- hospital chains, mature beds account would remain vulnerable to
sponsored schemes. The number of for a healthy ~60% of capacity. regulatory action,” Chitgopekar
people covered by health insurance said.
has nearly doubled to 42 crore in the Another factor that supports credit
past three fiscals and government profiles is the measured approach that Even as demand prospects remain
remains focused on enhancing access corporate chains take when healthy, CRISIL will closely assess the
to affordable healthcare. Changing undertaking capex to enter new individual hospital firms' ability to
lifestyles, ageing population and markets. In Tier I and II cities, for respond to evolving regulations on
increasing health awareness are the example, they prefer buyouts or tie- prices of medical devices and
other drivers of demand. ups with regional hospitals to reduce services, and their project risk
the time-to-market and to improve management.
A study of 144 hospital firms rated by return on investments. This approach
CRISIL shows significant bed additions
being undertaken to capitalise on
demand prospects. Large corporate
chains (> `400 crore revenue) are seen
increasing capacity by 25% between
fiscals 2018 and 2019, entailing an
investment of ~ `5,000 crore. That
would be 50% more than the annual
average capex in the past three fiscals

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PHARMAUpdate

Industry News

Pain for big pharma as US FDA warnings double

18% of new products to be delayed; products – these filings have risen to over the next two fiscals from the
strong balance sheets cushion credit about 25% of the overall new product current 19%. Therefore, cost
metrics pipeline from nearly zero three years optimisation and rationalisation of
ago. A substantial delay in resolution research and development expenses
Warning letters issued by the US Food of regulatory issues and/or will be critical to arrest further
and Drug Administration (FDA) to large heightened scrutiny could derail the decline in operating profitability of
Indian pharmaceutical firms1 more US growth story.” these players.
than doubled in the first ten months of
calendar 2019 compared with 2018. A similar trend was noticed in calendar Says Tanvi Shah, Associate Director,
This will impact about 180 abbreviated 2015, when FDA scrutiny of Indian drug CRISIL Ratings, “The players are,
new drug applications, or 18% of the makers had intensified largely citing however, taking steps to contain the
total pipeline of large drug makers, data integrity issues by and large. impact of regulatory scrutiny and
delaying new product launches, a Consequently, US revenue growth had moderate its impact on exports to the
CRISIL analysis of current regulatory dropped to 6% in fiscal 2017 as new US. De-risking strategies such as dual-
actions, including adverse product launches got delayed amid product filings from different plants
observations on FDA audit indicates. inherent price erosion. and transfer of high-value products to
The US market accounts for more than unaffected plants through FDA
a third of overall revenue of the big However, the recent FDA observations approvals, which reduce the
drug makers or `55,000 crore of sales are relatively less severe and pertain dependence on a single plant may
annually. l a r g e l y t o u p k e e p o f f a c i l i t y, help partially contain the impact.”
cleanliness, and enhanced
Says Sameer Charania, Director, CRISIL manufacturing systems. As a result, Besides, steady double-digit domestic
Ratings, “With intensifying regulatory resolution is expected to be faster. sales growth, prudent capital
scrutiny, sales growth from the US expenditure, and strong balance
market will drop to 10-11% during That said, remediation costs to sheets are expected to help the big
fiscals 2020-22, compared with a resolve the regulatory observations pharma companies maintain healthy
growth of 16% in fiscal 2019. Large are likely to increase for big pharma. credit metrics. The debt-to-EBITDA
players are banking heavily on This is expected to shave off operating ratio is expected to sustain at 1.6-1.7
successful launch of complex generic profitability by 100-150 basis points times over the medium term.

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