2013-03-02 15:35:24 - Fast Market Research recommends "India Pharmaceuticals & Healthcare Report Q1 2013" from Business Monitor International, now available

BMI View: India continues to be a key emerging market for many pharmaceutical firms, primarily due to its large population and a high burden of communicable and non-communicable diseases. However, we note that constant regulatory flip-flops will remain a downside risk for pharmaceutical investors looking to invest in this market. This is especially true for innovative drugmakers, as the government has revoked or rejected several patents on the basis that the drugs were 'not innovative' and too costly. Conversely, pharmaceutical firms that are able to provide drugs at a significantly cheaper cost will stand to benefit from volume sales.

Headline Expenditure Projections

Pharmaceuticals: INR730.0bn (US$15.6bn) in 2011 to INR837.6bn (US$15.7bn) in 2012; +14.7% in local currency terms and +0.1% in US dollar

terms. Forecast slightly down from Q412 due to macroeconomic changes.


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Healthcare: INR3,446.7bn (US$73.9bn) in 2011 to INR3,870.1bn (US$72.3bn) in 2012; +12.3% in local currency terms and -2.1% in US dollar terms. Forecast broadly in line with previous quarter.

Medical devices: INR172.9bn (US$3.7bn) in 2011 to INR194.3bn (US$3.6bn) in 2012; +12.4% in local currency terms and -2% in US dollar terms. Forecast upgraded due to new historic data.

Risk/Reward Rating: India's Pharmaceutical Risk/Reward Ratings score is unchanged since Q312 at 54.4, stabilising its position at ninth out of the 18 key markets in the Asia Pacific region. The attractiveness of the market is supported by the increasingly ageing and affluent population equating to a strong burden of both communicable and non-communicable diseases. However, growth opportunities will continue to be hinder by the government's extensive bureaucracy. Consequently while we expect improving regulations over the medium term. We caution, however, that there will not be a rapid enhancement in its attractiveness.

Key Trends And Developments

* In November 2012, India revoked the patent covering Roche's Pegasys (peginterferon alfa-2a), which is used for the treatment of hepatitis C. Following a petition by the Sankalp Rehabilitation Trust, the Intellectual Property Appellate Board (IPAB) said the medicine no better than existing and the product's high price meant it was unaffordable to the majority of patients. The decision is highly retrogressive as the Pegasys patent was actually the first awarded by India's then newly improved intellectually property regime in 2006.
* After India issued its first compulsory licence for a version of Bayer's Nexavar (sorafenib) in March, several multinational pharmaceuticals firms have fought or are currently fighting for patent protection in the country. This includes for drugs such as Roche's Tarceva (erlotinib), Novartis' Glivec (imatinib) and Pfizer's Sutent (sunitinib malate). In October, the Indian Patent Office (IPO) reversed a 2007 decision that granted patent protection for Sutent.
* In September 2012, under the new Direct Tax Code, India seeks to place a Minimum Alternate Tax (MAT) on SEZs introduced in the Union Budget 2011-12. The regulation, effective since April 1 2011 meant that SEZ units will have to pay a MAT of at least 18.5%. In response, Japan-based Eisai stated that the implementation of MAT will deter its further investments in the country. According to Simon Collier, Director of Government Relations at Eisai, the firm wanted to expand the Indian facility at Visakhapatnam substantially, but the business environment has deteriorated.

BMI Economic View: Real GDP growth in India fell to just 2.8% y-o-y in Q2FY2011/12 (July- September), according to the expenditure calculation, and 5.3% y-o-y according to the industry sector calculation. The breakdown of the data reveal the deleterious impact that fiscal profligacy is having on private sector growth, which will prevent a rapid economic recovery. That said, we believe there are areas for optimism regarding investment, and we maintain that FY2013/14 (April-March) will see a growth rebound to 6.2%.

BMI Political View: It took all of the United Progressive Alliance (UPA)'s political dexterity to defeat a parliamentary motion opposing its plans to liberalise India's multi-brand retail sector. While it may yet suffer a setback in the upper house, the government's newfound resolve bodes well for foreign investor sentiment. In terms of the equity market, consumer staples have already seen aggressive multiple expansion in recent months, and while we could see the market scale new heights in the near term, we find little value at current extremes.

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