Global unlocking may not be good news for pharma firms; Q1’s strong revenue growth may not sustain

Indian pharma companies posted strong revenues despite headwinds from the US.

While Indian pharmaceutical companies posted good performance in Q1FY21, they are unlikely to sustain good margins with the reopening of economies across the globe. “With global unlocking, both operational expenses and active pharmaceutical ingredient (API) prices would normalise,” a report by India Ratings and Research (Ind-Ra) said on Tuesday, adding that pharmaceutical companies are unlikely to post healthy operating performance. Their healthy performance in Q1FY21 can be attributed to the strong revenue growth in the Active Pharmaceutical Ingredient business while the operating expenses have been lower. On a yearly basis, the API business has witnessed a jump of 31% due to a spurt in demand from global and Indian formulation players amid a pandemic.

Further, companies also saved up on other costs with restricted movement of medical representatives across the country, the report said. All in all, pharma companies shaved off 8% operating expenses on-year amid the lockdown and 19% on-quarter, which aided profitability.

Indian pharma companies posted strong revenues despite headwinds from the US. For Indian pharma companies, the single biggest market is the United States of America with 36% of the revenue share. However, in the last quarter of the last fiscal year, the US business was hit as patients chose to stay at homes and avoided clinics and hospitals, which resulted in quarter-on-quarter revenue decline in Q1FY21. Following the United States is the domestic market at 31% share. On the other hand, 16% of their revenue comes from active pharmaceutical ingredients (APIs).

Future outlook

Going further, there will likely be a moderation in API business of the pharma companies. “As the global economies reopen, procurement strategies are now gradually being recalibrated and are looking at gradually diversifying their procurement sources away from China or seeking alternative sources,” the report said. With supplies drying out from China, domestic API players benefitted.  However, API business will taper off in coming time as companies will be able to normalise buying patterns.