Domestic formulation business came to the rescue of Indian drugmakers in the second quarter of FY20, helping them beat almost flat growth in the US and other geographies.
All the top five drugmakers Sun Pharma, Lupin, Cipla, Dr Reddy's, Cadila Health, Torrent Pharma and Glenmark reported strong India numbers, despite wobbly growth in other geographies.
Sun Pharma reported 35 percent year-on-year (YoY) growth for domestic formulations, followed by Cipla at 13 percent, Lupin 11.5 percent, Cadila Healthcare 24 percent, Torrent Pharma 10 percent, and Glenmark 15.2 percent.
Most drugmakers said they are committed to investing in domestic formulation business, both organically and through acquisitions.
For instance, Lupin which sold its Japanese business said it will be investing the proceeds of the sale to grow the US and India businesses. Dr Reddy's too has been talking for a while under its new CEO Erez Israeli about focussing on India business.
"I think there are a few markets that you can bank on and the Indian market is one of them," said Nilesh Gupta, Managing Director of Lupin, in the company's recent earnings call.
"So there are more people that we've added, there are more divisions that we have created even in the last six months," Gupta said.
In the highly fragmented Indian domestic formulation business, Lupin has a 3.6 percent market share.
To be sure, the last two financial years FY18 and FY19 have been tough for Indian drug makers - even to grow their domestic formulation business, due to demonetisation, the rollout of goods and services tax (GST) and rising raw material prices.
What led to the growth
Analysts say the second-quarter growth rate was led by seasonal factors and stable growth of the chronic segment.
According to market research firm AIOCD-AWACS -- Indian pharmaceutical market (IPM) expanded 11.5 percent for the quarter ended September 30.
July-October, the wettest period of FY20, saw outbreaks of infectious diseases in many parts of the country, aiding the growth of anti-infective segment to 14 percent YoY in the second quarter, beating overall IPM growth.
But, apart from seasonal factors, which second quarter is known for, the stabilisation of raw material prices helped, Amey Chalke, pharma analyst at HDFC Securities said.
Prices of intermediates and active pharmaceutical ingredients imported from China have hit the roof in FY19 due to factory shutdowns there on account of the government drive to improve safety and curb pollution.
"The companies have seen prices of raw materials stabilise, they have also taken price hikes for key products, and have been pushing for a better product mix; all these have helped India business to grow," Chalke said.
Chalke warned about extrapolating the performance of domestic formulation business from only a quarter's growth but said FY20 is expected to better than FY19.
"Indian pharma can grow their domestic formulation business at 1.5 times of the GDP growth, from that standpoint we can see the market growing at 10 percent," Research Analyst at Phillip Capital said.
Patra said the competitive scenario in India market isn't going change overnight, as companies with differentiated portfolios with better quality perception in the market are the ones who will take advantage of the market.