India Pharmaceuticals and Healthcare Report Q2 2012

BMI View: India’s pharmaceutical market is highly attractive to drugmakers but it also has several negative characteristics. Combined sales of over-the-counter (OTC) and prescription medicines are expected to grow rapidly and out-of-pocket spending predominates. The key drawbacks are the risk of more compulsory licences, lack of data protection, narrow standards for patentability, a considerable backlog of unexamined patent applications, government price controls on medicines, barriers to foreign direct investment (FDI) and unfavourable import policies.

Headline Expenditure Projections

• Pharmaceuticals: INR730bn (US$15.6bn) in 2011 to INR846bn (US$17.4bn) in 2012; +15.9% in local currency terms and +11.5% in US dollar terms. Our forecast has been revised upwards moderately since Q112 due to analyst intervention.  
• Healthcare: INR3,353bn (US$71.8bn) in 2011 to INR3,748bn (US$77.3bn) in 2012; +11.8% in local currency terms and +7.6% in US dollar terms. Our forecast has been revised downwards moderately since Q112 due to analyst intervention.  
• Medical devices: INR139bn (US$3.0bn) in 2011 to INR156bn (US$3.2bn) in 2012; +12.2% in local currency terms and +8.0% in US dollar terms. Our forecast has been revised downwards significantly since Q112 due to analyst intervention.  

Risk/Reward Rating: India’s Q212 Pharmaceuticals Risk/Reward Rating (RRR) rating of 56.0 out of 100 is unchanged from Q112. However, the country’s ranking has increased from 10th out of 18 countries in the Asia Pacific region to ninth due to a decrease in New Zealand’s score from 56.3 to 53.9. India scores highly for the absolute size of its pharmaceutical market, as well as projected growth, but it is let down by low annual per capita spending on medicines.  

Key Trends And Developments

• In December 2012, the Ministry of Commerce and Industry extended the deadline for compulsory barcodes on pharmaceutical products for foreign markets till January 2013. The deadline was previously July 1 2012, set by the Directorate General of Foreign Trade (DGFT), but it has been extended after the Pharmaceuticals Export Promotion Council (Pharmexcil) asked for more time as smaller companies lack the infrastructure to meet the original deadline. The deadline on primary packaging has been extended to early 2013 and for secondary packaging it has been extended to July 1 2012.  
• In Q112, the Ministry of Health established an autonomous Central Procurement Agency (CPA). The new agency will be responsible for buying all medicines, vaccines, contraceptives and medical equipment for the government’s disease control programmes. It will have an estimated annual budget of INR20bn (US$284.6mn). A senior official said the ministry aims to register the CPA as a society in Q212. They said that the agency would enable the government to remove deficiencies and streamline the drug procurement and distribution system in the country.  

BMI Economic View: India’s latest industrial production figures have emboldened our belief that the country has not quite reached the bottom of its cyclical economic slowdown. The lack of any meaningful recovery in capital goods production, combined with the entrenched downtrend of money supply growth, suggest to us the downturn may last another one or two quarters and, as such, we remain comfortable with our real GDP growth forecast of 6.8% in FY2011/12 (April-March). The downgrade of consensus projections towards our own adds further weight to this view.  

BMI Political View: Embarrassing setbacks on the reform front capped a miserable 2011 for the ruling United Progressive Alliance (UPA), putting leading coalition member the Indian National Congress (INC) firmly on the back foot. With key state elections taking take place in March 2012, the INC will concentrate on pushing through populist policies to shore up its support base. From our perspective, only a major growth correction would force the government to adopt a more comprehensive market reform strategy.