Generics drugs are a shrinking market, CDMO hasn’t delivered, hospitals and diagnostics better plays for investors

Generics drugs are a shrinking market, CDMO hasn’t delivered, hospitals and diagnostics better plays for investors

The global generic drugs market is in structural decline due to continued price erosion and mounting competition, and contract manufacturers have not delivered well so far, according to Kunal Vora, Head of India Equity Research at BNP Paribas.

Vora said he thus prefers India-focused healthcare plays like hospitals and diagnostics in an exclusive interview with N Mahalakshmi on the weekly Wealth Formula podcast.

“Generics is a shrinking space. The relevant revenue pool for Indian companies has declined over the past few years,” he said, citing persistent pricing pressure and the need for companies to constantly replenish their pipelines with new launches. “Products like Revlimid gave a one-time boost, but these are opportunities that fade unless new drugs step in.” The pipeline of innovators drugs going off-patent has been on a declining, diminishing the opportunities for generic drug-makers.

While India’s domestic pharma market continues to grow, it has slowed from 9–10% to around 7% now. Against this backdrop, Vora sees more attractive prospects in consumption-led healthcare segments like diagnostics and private hospitals, which cater to rising affluence and urban demand.

On the much-hyped CDMO (contract development and manufacturing organization) opportunity, the jury is still out, he said. “There was an expectation that global firms would look beyond China, and Indian players would benefit.

Some, like Divi’s Laboratories, have done well, but we haven’t seen a broad-based shift,” he said. “It’s unclear whether the supply chains will move to India or back to the US.”

Vora recommended Astral DM, a hospital chain, as one of his top mid-cap, high conviction ideas.