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Growth and Challenges Faced by Franchise in Pharma Companies

Till a couple of decades ago Indian pharma companies were fairly rare. What we had were mostly the global giants. Technology and exposure were both severely limited. A closed market not just stopped the inflow of information, it also stopped Indian companies from reaching out to global markets or invest in their own R&D.

Even a decade years ago, the sector was largely dominated by a few names. But over the last few years the situation has dramatically changed. Franchise in pharma companies, small and medium industries are slowly, but steadily carving out their own niche.

The Numbers

The Indian pharmaceutical industry today accounts for a giant share of the global trade in the field. Over the last five years the compounded annual growth rate of the Indian pharma industry has been more than 15%.In terms of volume, it is 3rd in the global share and 14th in when it comes to value.

Valued at over 80,000 crore, much of this trade comes from emerging and developing economies and the large demand for affordable generic drugs in these markets. Fuelling much of this growth is the SME sector. They account for 35-40% of the annual production. Their share in production volume stands at 48% of the total export volume. The sector also counts as a massive employment generator.

There are a number of factors that are fuelling this growth:

  • Growing healthcare concerns
  • Rising disposable incomes
  • Improving infrastructure
  • New finance avenues
  • Rise in demand in emerging markets
  • High cost of generic drugs from bigger corporations.

Future Growth

Here we have both good news and bad news. While the growth story will continue, it will slow down. Experts warn that from impressive double digit growth it will now come down to single figures. The revenues posted by the top 21 leading companies in FY2017 is 7.4%. This is a drop from the 10.1% of the previous year.

The growth will stay moderate in the next few years, not expected to go into double digits. The reasons for the slowdown are multiple:

  • Increasing competition within the domestic and international markets.
  • Drop in exports to countries like the US because of regulatory measures.
  • Saturation in the generic drugs market internationally.

But these are just growth pangs. The growth in pharma companies, including franchise in pharma companies will remain robust and healthy. However, this also depends on how we address the coming challenges with the industry.

Challenges

Some of the factors of the slowing down in the pharma sector are inevitable, such as increasing competition and market saturation. But much more still needs to be done.

- Lack of proper regulatory framework: One of the major slowdown for the growth of the sector is the significant fall of exports to more developed countries. Indian trade volume may be impressive, but the value is still fairly low and that is because of our inability to exploit high-value markets.

For instance, from 14.4% in FY 2016 the growth in exports to US fell sharply just to 4% in FY 2017. The fourth quarter is showing negative growth. What accounts for this sharp decline? The reason lies in the poor regulatory framework in the domestic industry.

A number of Indian companies were disqualified because these failed to clear drug tests in the more regulated markets. This has severely impacted future trade as well. Indian authorities must either ask for better clarification or ensure that the domestic framework remains rigorous and in tune with stringent international rules.

- Lack of R&D: The pharmaceutical industry depends on innovations and patents. But the truth is that Indian companies spend very little on R&D with little interest in producing drugs. This is despite the high numbers of technicians and experts that the country has. A lack of financing and understanding still hampers this sector.

- Lack of consolidation: The industry is highly fragmented with little cooperation between the smaller players, let alone among the smaller and larger companies. This impacts every facet of the industry as they are not able to present their concerns in a unified manner.

Conclusion

Despite some slowdown (which should be seen as the inevitable plateauing of the industry), the future of the pharmaceutical industry looks healthy. All sectors, including franchise in pharma companies will record growth. However, we do need to pay attention to challenges facing the industry, such as the need for R&D and a rigorous regulatory environment.

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