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 India supplies nearly a third of medicines sold in the United
States, the world's largest healthcare market. Cut-price generics
sold by India's small- and medium-sized drugmakers have been
critical in bringing down prices there.
A more protectionist stance by President Donald Trump, with the
prospect of import tariffs and the U.S. boosting local drug
manufacturing, mean the operating environment for smaller generic
players will get worse, executives at Indian companies said.
"If the challenges keep increasing, competition will reduce, and
this could actually increase prices there," said D.G. Shah,
secretary general of the Indian Pharmaceutical Association, which
represents 20 large Indian drugmakers.
J. Jayaseelan, who owns Nuray Chemicals, a maker of drug
ingredients, said many Indian firms are reconsidering, or putting on
hold, U.S. expansion plans.
Ajanta Pharma <AJPH.NS> is one such firm. The mid-sized generics
drug maker said it had no plans to scale up its U.S. business and
would invest more in Asia and Africa instead.
"It's not a major market for us right now ... you've got to look at
the risk-reward ratio," said Rajeev Agarwal, general manager of
finance at Ajanta.
The risks comes as U.S. revenue growth for these firms is falling.
U.S. revenues for Indian drugmakers rose 15 percent in 2016, half
the average annual growth rate of 33 percent between 2011 and 2015,
ratings agency ICRA said. It expects the growth rate to fall further
this year.
Consolidation among U.S. drugs distributors and a federal
investigation into drug pricing have also reduced the pricing power
of drugsmakers.
The U.S. drugs regulator, the Food and Drug Administration, has also
banned dozens of Indian drug factories from supplying the U.S.
market following inspections that found inadequate quality-control
practices. Companies have invested significant sums to raise their
quality standards.
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Firms that want to focus on the United States will have to increase
investment in higher-margin niche therapies, or products requiring
specialized manufacturing, said Mitanshu Shah, senior vice president
of finance at Alembic Pharmaceuticals.
"Smaller companies with a few regular products and no long-term
vision for the United States won't last," Shah said.
Even with a vision, the U.S. market is just getting tougher for
companies to operate in, said Vijay Ramanavarapu, the head of the
U.S. business of drugmaker Granules India <GRAN.NS>.
"You have to fight twice as hard today," Ramanavarapu said. "It will
be harder for new entrants to enter the U.S. market unless they are
able to find niche areas."
(Reporting by Zeba Siddiqui in Mumbai)
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