Pharma MNCs focus on branded generics in India to drive growth

Overseas drug companies operating in India are expected to increase their focus on branded generics business in India, as part of their increased focus towards generic business globally.

According to rating agency ICRA, large innovator companies in the global pharmaceutical industry have been reporting sluggish growth over the last few years, being held back by several factors including implementation of cost containment measures in developed countries, lack of strong product pipelines, and expiry of patents on existing products.

Emerging markets including India, in contrast, represent an growth opportunities given the countries' own strong growth potential.

Pharma MNCs are currently launching branded generics in the Indian market via product localisation, a strategy that involves local branding, sourcing and pricing.

This strategy helps them launch products at competitive prices, thereby addressing affordability issues. With localisation, the pharma MNCs operating in India have been able to improve their growth rates and this strategy is expected to yield future growth.

The scaling up of field force by pharma MNCs in India to increase geographic penetration and the launch of new products in the Indian market has led to an increase in personnel costs for them.

However, along with the increase in promotional and marketing expenditure on new launches, the scaling up of the field force has brought pressures on operating margins, although still largely within the range of comfort.

The margins are expected to improve once the incremental investments in marketing and sales translate into higher sales and profits.

The inorganic route remains one of the preferred routes for pharma MNCs looking to enter the Indian branded generics market or expand their market share therein.

Through acquisition, pharma MNCs get access to a ready product basket and infrastructure, besides management capabilities in the Indian market.

While M&A activity in the Indian market has so far involved large size deals, smaller acquisitions including licensing opportunities that could increase the market shares of the pharma MNCs and fill critical gaps in their portfolio may also be expected in future. (See: Read more: ICRA Sector Note on Pharma MNCs)