The export of finished medicines by domestic drugmakers is likely to grow 7 to 9 per cent in the 12 months up to March 2024, a tad lower that FY23, said a CRISIL Ratings study.

The growth projection was on the back of lower price erosion of existing products and higher number of new product launches in the US, and steady demand from the rest of the world (including semi-regulated and regulated countries excluding the US), it explained. Formulation exports contribute about half the total revenue of domestic pharmaceutical players, with US and RoW sales contributing almost equally.

Formulation exports grew 10-12 per cent (FY23), aided by depreciation in the Indian rupee and a lower base, said Anuj Sethi, Senior Director, CRISIL Ratings. Without these factors, the difference would be just a tad lower, he told businessline.

Annual revenue

The study covered about 180 pharmaceutical companies, which accounted for half the estimated ₹3.8-lakh crore annual revenue of the sector (FY23). It also red-flagged unanticipated increase in litigation costs in ongoing US anti-trust suits, sizeable debt-funded acquisitions and adverse regulatory developments, such as increased Official Action Initiated directives from the US Food and Drug Administration (USFDA).

Production facilities of local drugmakers catering to the US need to be USFDA compliant and periodic inspections undertaken by the the regulator help certify new facilities, besides clearing previously issued OAI status for plants, thereby paving the way for new launches.

Sethi added: “Increased inspections by USFDA after the pandemic and higher withdrawals of abbreviated new drug applications due to intense competition are leading to moderation in overall supply of existing drugs. Consequently, the double-digit price erosion witnessed in the US generics market during the past couple of years should stabilise at high single-digits this fiscal. To also increase exports, large pharmaceutical companies are developing higher-margin complex/specialty drugs and introducing new generics which have only recently gone off patent and where competition is moderate.”

Thus, US formulation exports may grow 6-8 per cent this fiscal after an extended period of underperformance, the study said.

Domestic drugmakers would be able to register 8-10 percent growth in revenues from RoW markets, this fiscal, it added. “Increasingly, pharmaceutical companies are venturing into tender-based, institutional sales and enhancing marketing channels across the globe.” However, it added, domestic drugmakers may not be aggressive on driving growth in markets, such as Latin America, due to high currency volatility and geopolitical risks.

Aditya Jhaver, Director, CRISIL Ratings added: “Focus on RoW markets increased substantially over the past few years, mainly to derisk dependence on the US market and enhance geographical presence.”

Better volume growth in formulation exports, and softening price erosion should also help stabilize operating profitability for Indian pharmaceutical players at 20-21 percent (FY24) after two consecutive years of margin moderation, the study said.