Domestic pharmaceutical industry, the largest producer of generics drugs in the world, is expected to continue to face the pricing headwinds that they had faced in FY18 mainly in the U.S., muting its revenue growth, says a report.
“We expect generic drug pricing headwinds, witnessed in FY18 mainly in the U.S., to continue over FY19 and keep the sectoral revenue flat and operating margins subdued.
“But, the current level of competition in the U.S. generic market is not sustainable as several small players, who lack scale and efficiency will eventually exit, thereby easing competition,” India Ratings said in a report.
The rating agency, however, maintained the stable outlook for the sector in FY19 on expectation of stable growth in domestic market and a likely improvement in volume growth of generic drugs in the key export markets such as the U.S. and Europe.
Rating headroom
Low leverage and strong operating cash flow generation capability are likely to enable most of the large pharma issuers to maintain comfortable rating headroom in FY19. A more robust solution to overcome competitive pressure in the regulated market will be to move up the value chain into complex difficult-to-manufacture chemical drugs, which command relatively high defensible prices and margins than commoditised solid oral drugs, according to the report.
