India Drugmakers' Margins Under Threat. Here's Why
The demand for branded generics could fall, hurting India's pharma companies.
Indian drugmakers' margins may come under pressure as the push for unbranded and trade generics could hurt volumes of the industry dominated by branded medicines.
The majority of medicines in India are branded generics—or copycat versions suggested by doctors and manufactured by recognised drugmakers with a label. Trade generics, however, are sold directly through distributors and are not promoted like branded medicines. And unbranded generics are sold by their chemical name without any label.
Nomura cites three key reasons why branded generics sales volumes could be impacted:
The government’s Janaushadhi scheme—which provides generic medicines at steep discounts to branded generics to make them affordable—has gained strong traction with a 4.2% volume share in the Indian pharma market.
Medplus has announced the launch of its own generics in pharmacies.
Dr Reddy’s Laboratories Ltd. is also launching a trade generic division.
"These trends could have a greater impact on the chronic segments—ailments that persist over the years, like diabetes, hypertension, heart disease, and cancer," Nomura said in its June 26 note.
That could have a negative impact on Indian pharma players, according to Vishal Manchanda, a pharma analyst with Systematix. Also, even if big pharma were to move to trade generics, margins could be highly impacted, he said.
"Trade generics are usually sold at a steep discount to branded generics, and companies would be required to sell four times their branded generics volume to make similar margins on trade generics."
Janaushadhi Scheme
Nomura said the Pradhan Mantri Bharatiya Janaushadhi Pariyojana—providing generics medicines at steep discounts to branded generics—is gaining traction.
There are 9,300 centres under the scheme as of FY23, making it the largest pharmacy chain in the country.
The sales under the scheme recorded a 54% CAGR over the past five years.
There is strong traction in chronic therapies under this scheme with diabetes and cardiovascular medicines as the largest-selling products.
The brokerage estimates that Janaushadhi has captured around 4.2% of the Indian pharma market and is growing at over 30% year-on-year.
The government intends to further expand its reach.
Medplus' Foray Into Generics
Medplus will introduce its generic medicines, particularly in the chronic segment, at a discount to branded generics.
Currently, it is only available in Hyderabad.
If successful, the brokerage expects this can be expanded to other cities with the presence of Medplus pharmacies.
This move by Medplus highlights the risk of volume growth in the branded generic segment.
Dr Reddy's Trade Generics
Dr Reddy’s launched its trade generics division on June 23. "The branded generic business in India is at risk of substitution with generics," said the company's management in a recent interaction with the brokerage. The company aims to roll out its trade generics across cities and towns in India, including rural areas.
Earlier, Torrent Pharma launched a trade generic business.
Dr Reddy’s will initially focus on acute products, according to Nomura's interaction with management.
Over time, the company can expand into the chronic segment.
The brokerage said company has the scope to expand its presence in trade generics without materially impacting its branded sales.
The focus in trade generics shall largely be on products where the brand presence is limited.
In key therapy areas, even in acute segments, the market coverage of Dr Reddy’s is much below peers like Alkem Laboratories Ltd.
Trade generics have lower margins estimated in mid-teens.