Pharmaceutical companies in India are forecast to come under increased pressure in 2017, a new report has revealed. Pricing pressure, along with stricter US regulatory and legal controls and higher research and development expenditure are being blamed for what looks to be a year of flat EBITDA growth.
The report, carried out by brokerage firm Motilal Oswal, stated that operating margins were expected to be low in the year ahead, even after a strong start to 2017.
The slowdown in profits this year is likely to hit the generic pharmaceuticals industry the hardest; they currently make up more than 70 percent of the drugs market. As prices become even more competitive, the already low retailing prices of generic drugs could mean many generic pharma companies struggle to set substantial margins while the situation persists.
Saving grace for exporters
Indian pharma companies contribute around 2.4 percent to the global pharmaceuticals industry in value and ten percent in volume, so any hit to the country’s industry this year could have a knock-on effect on the pharmaceuticals industry the world over. Drugs developed in India are shipped to more than 200 counties and states around the world, with the US being the main market. That said, there could be some saving grace for the pharmaceuticals industry; the depreciation of the rupee against the dollar is forecast to benefit companies that make their income mainly from exporting. The rupee has depreciated 2.3 percent against the dollar over the past year, meaning more profit for Indian companies shipping to the United States.
Continued investment in pharma
Although any report of a potential slowdown is unwelcome news for India’s pharma industry, the impact isn’t likely to be long-term. The Indian government recognizes the significance, prosperity, and potential of its drugs industry, and therefore has set up various initiatives to boost drug discovery and strengthen the infrastructure of the country’s industry. Over the next couple of years, we are likely to see the introduction of a US$640 million venture capital fund to assist with these ambitious goals.
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