Indian Pharma Can Grow In One Corner Of U.S. Generics Market: DSP Investment

Facing stiff competition and pricing pressure in the U.S. generics market for years, there's one segment that offers an opportunity to expand in the copycat drugs segment—non-oral drugs.

That's according to Chirag Dagli, fund manager at DSP Investment Managers. In the last three to four years, Indian pharma companies have invested majorly in non-oral complex generics or medicines that cannot be administered orally, he said. But, they are yet to tap the category in the U.S.

In the oral segment, Indian companies' market share of the U.S. generic market is almost 45-50%, Dagli said. But it's 8-10% in the non-oral market, he said.

While prices have stabilised in the first quarter of FY22, India's ability to supply products that competitors in other markets cannot will help increase India's generic exports.

Growth Potential For APIs

As India looks to reduce dependence on China for active pharmaceutical ingredients, there is an opportunity for Indian API companies to grow, said Dagli.

India imports about $2.5 billion worth of APIs and intermediates from China. It is largely because China makes it available for cheaper, even though India has the technology and expertise to make these products, said Dagli.

But now, apart from the ‘China plus one' policy, the Indian government is also looking to become self-dependent, offering Indian API companies chance to “grow and gain market share”, said the investment manager, who expects double-digit volume growth for the category volumes.

Prefers Hospitals Over Diagnostic Chains

Hospital chains are more difficult to disrupt than diagnostic chains, said Dagli. The diagnostics business has high valuations and it's difficult to get a reasonable return of capital, making hospitals a preferred destination for investment, Dagli said.

According to him, the Covid-19 pandemic delayed surgeries, including elective ones, which make up 60% of overall surgeries. “This pent-up demand should garner reasonable volumes for hospital companies," he said. "The return ratios of investment into hospital companies also remain elevated and they're on a good wicket as capacity addition is easier than for diagnostic companies.”

Apart from that, a new entrant in the diagnostics market can easily disrupt existing players, he said. Pharma companies launching their own diagnostic arms, and the advent of better technology will only push the disruption rate higher, Dagli said.

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