Health of pharma companies will be better in 2022

The rapid segment in the domestic market drove the growth this year. Data from India Ratings and Research Pvt. Ltd shows that the Sharp segment has witnessed strong performance since March (average growth of 29% year-on-year). This data also showed that average IPM (Indian pharma market) growth from June to November has been healthy (11.6%), after normalizing to the high growth months of April (51.5%) and May (47.8%). Growth in April-May was aided by sales of COVID remedies and related products. Also, last year the Aadhaar was favorable due to the lockdown.

As we move into 2022, while Sharp segment sales may remain stable, the base will be high, and that’s a challenge. Besides, the sales growth in the old segment is expected to pick up. Broadly speaking, analysts expect 2022 to be better, with the growth momentum continuing in India. Additionally, larger product approvals and launches are also likely to support growth in US sales.

“In India, sluggish due to pickup in patient visits to doctors and a more benign basis, older drugs should see an improvement in growth after 2021. Prashant Nair, an analyst with Ambit Capital Pvt Ltd, said there is an opportunity for above average price hike in NLEM (National List of Essential Medicines) drugs in April 2022.

This should benefit companies with high domestic market exposure, including Cipla Ltd, Dr Reddy’s Laboratories Ltd, Glenmark Pharmaceuticals Ltd and Cadila Healthcare Ltd.

Additionally, the US market is important to many Indian manufacturers. Even though sales in the US market have picked up, competitive intensification and continued pricing pressure remain problems. To address pricing pressures, companies need to launch larger products in the US, many of which are pending approval. This will be a major monitorable in the coming year.

Companies such as Lupine, Cipla and Dr Reddy’s expect to see the approval and launch of generics of respiratory products including Spiriva, Advair and the multiple myeloma drug Revlimid, which could potentially change their growth trajectory in a meaningful way. But progress may be a bit slow. “The next round of flagship US product for Indian generic companies is expected to take place in H2CY22 only; “Sells may improve in the next two-three quarters,” said Naveen Kulkarni, chief investment officer, Axis Securities.

In the meantime, note that the US drug regulator has resumed plant inspections following the easing of travel restrictions. This means that companies whose facilities have been under the purview of the US drug regulator for a long time can get relief. For example, Lupine’s Goa facility, which was under import alert since 2017, has finally got the nod. On the other hand, more oversight in manufacturing facilities of other pharma companies will increase the risk of new regulatory issues emerging.

In general, active pharma ingredients and contract manufacturers remain in good health, helped by a projected decline in raw material prices. Manufacturers could also benefit as global customers move away from China. Year-on-year, the Nifty Pharma index rose 6%, outperforming the Nifty 50 index, which gained 22% during the same period. “There is no demand for an assessment of the healthcare sector relative to the broader market. With the improvement in growth, it should attract more interest from investors,” Nair said.