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Indian pharmaceutical sector outlook

August 14, 2015

All rights reserved. Domestic formulations  Bulk drug exports © 2015 CRISIL Ltd.  Formulation exports 2 .

 Market growth to sustain double digit growth Brings price control on 108 drugs in Chronic segment of anti-diabetic and cardiovascular.(LHS) 2016-17P 417 6.Growth to remain healthy despite price controls Sharp improvement in growth led by volumes gr in existing and new products. – Healthy volumes growth in both existing products and new launches improve recovery during FY-15 Double digit growth expected to sustain despite pricing interventions 3 .0% 10.0% 845 12.0% 8. Market sees launch of 2200 new brands 661 2013-14 1. Cardiovasculars. etc Generic drug sales dominate domestic market.9% 13-14% 13-14% 13-14% 14.8% 2009-10 1600 1400 1200 1000 800 600 400 200 0 2014-15E Rs bn Healthy growth will be led by Chronic segments such as Antidiabetics.0% 6. DPCO implemented in May. total market brought under price control nearly 17 per cent in value terms by 2014-15. healthy volume growth leads to higher growth – Medicine price increases remain inline with WPI inflation as per DPCO order.0% 18.0% 12.5% 15.0% 4. CRISIL Research  Follow on pricing order in 2014 brings further drugs under price control –   © 2015 CRISIL Ltd.0% 0.13 – 348 drugs under price caps – Mostly acute segment drugs impacted – Prices of formulations capped as opposed to price caps on bulk drugs earlier – Trade margins reduced for retailers/wholesalers Source: Industry.0% 12.0% 14-15% 14-15% 16.0% 2.5% 746 17.0% 20. FY 15 growth improves.0% 2015-16P 15.359-[VALUE] Gr rate (RHS) 2019-20P 623 2012-13 2018-19P 557 2011-12 2017-18P 482 2010-11 Estimated market size. All rights reserved.

2 12-14% Neurology 41.9 13-15% Key Acute Anti-infectives Total  2014-15 E © 2015 CRISIL Ltd.7 8-10% Gastro Intestinal 81.0 10.1 13.2 25.5 11-13% Gynaecologicals 37.WPI linked price increases allowed each year 4 .3 11-13% 110. diseases incidence due to Chronic causes up from 39% to 51% in a decade – Key therapy areas of Anti-diabetics.9 14.0 13-15% Respiratory 63.2 8-10% Vitamins/Minerals/Nutrients 59.2 16. CRISIL Research Therapy (Rs billion) Growth y-o-y CAGR Per cent Next 5 years Key Chronic Anti Diabetic 61.1 14. All rights reserved.2 11-13% Pain / Analgesics 58.8 8.1 11.Domestic market witnessing rising lifestyle disorders Chronic segment to be key driver Leading causes % contribution to DALYs 2000 Tuberculosis 3% Diarrhoeal diseases 8% Respiratory infections 9% Other communicable diseases 30% Total communicable 50% Cancers 3% Diabetes 1% Mental disorders 6% Cardiovascular diseases 10% Respiratory diseases 6% Other non-communicable diseases 13% Total Non-communicable diseases 39% Injuries 11% 2012 2% 6% 5% 24% 37% 5% 2% 8% 13% 8% 15% 51% 12% Source: WHO.1 18-20% Cardiology 94.2 9.8 12.7 13-15% Others 93.5 12.2 11-13% Dermatology 45. Respiratory. Neurology and Cardiology to witness high growth – Impact from DPCO to taper off.6 9. Leading causes of disease Long term growth to be driven by Chronic care drugs – Rising incidences of chronic diseases • As per WHO.6 12-14% 745.

0 2.6 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 Regulated markets ($ bn) 6.2 3.2 3% 6.6 9-10% 9.3 5.  Growth to remain strong despite near term hiccups Regulated market opportunity to remain buoyant despite hiccups – Developed countries rely on generics to reduce healthcare costs – Opportunity supported by lucrative patent expiries over next 5 years. eg Africa 5 .6 9-10% 12% 5. FY-15 – Moderate sales growth to US in FY-14 and FY-15 due to import alerts.20% 3 yr CAGR Regulatory factors coupled with country specific issues impact growth in FY-14. All rights reserved.3 3. rise in ANDA approval times – FY-15 EU sales affected due to currency headwinds.0 5.Formulation exports growth slows down in 2014-15 Near term headwinds impact FY-14.8-10.1 4.8 5% 10% 6.2 4.9 5. No India specific Bias Growth in Semi-regulated markets to continue at past levels – Companies expanding footprint in regions with less developed local Industry.7 3. pricing pressures.1 2015-16P 2019-20P Semi Regulated markets ($ bn) Source: CRISIL Research   © 2015 CRISIL Ltd. – Compliance issue for few firms.3-10.30% 3 yr CAGR Semi-regulated. 9.0 4. FY-15 growth Regulated market.

India well placed to tap regulated market opportunity India’s high share in ANDA approvals 250 Region $bn 50% 43% 5yr CAGR expected 200 USA 73.6 7-9% 5-7% 37% 35% 28% 150 Europe 45% 40% 29% 30% 34% 40% 35% 31% 30% 25% 21% 100 20% 15% Total regulated generic market 82 130 165 201 155 0 155.4 76 Japan YTD 2015 Indian approvals as % of total approvals Source: US FDA © 2015 CRISIL Ltd. Estimated generic market (2014-15E) 587 FDA approved sites provide cushion to any fallouts from Import alerts on few firms – ANDA opportunity firmly in Indian favor. All rights reserved.7 7-9% Source: CRISIL Research 5% 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 Final approval for Indian players  130 10% 126 50 126 13-15% 111 10.8 55. large share in total ANDA approvals – Small and mid sized players too entering lucrative opportunity driving higher sales 6 .

2-11.2 2009-10 4.6 8% 6.3 2016-17P 4. anti-infectives. Regulated markets ($ bn) 9-10% 7.2 9-10% 2015-16P 2013-14 3.7 2014-15E 5.2 CAGR. revival in long term Pricing pressures and lower offtake by customers impact growth in FY-15 10.14% Indian companies largest suppliers of Antituberculars.4 2012-13 8% 2019-20P Regulated market CAGR.API exports to reach nearly $21 bn by FY-20 Pricing pressure and lower offtake impact FY-15. Global players to continue to rely on Indian API supply chain – Higher demand from off-patent generics to drive growth.7 2010-11 6.11-13% 10.3 6.6 2.10-12% CAGR. pricing ability could be limited Regulated markets to witness higher growth.1 2018-19P 2017-18P 6. more tie-ups with Indian players – On patent market to witness slower growth due to expected muted growth of branded on-patent drugs 7 .7 4.2-11.20% Semi-regulated CAGR.8 Semi-regulated market ($ bn) Source: CRISIL Research  Africa to be prime growth markets in semi-regulated –  © 2015 CRISIL Ltd.2 3.9 5.4 2011-12 5. Growth to continue on account of India’s strong portfolio of cost effective generic drugs. All rights reserved.

Regulated markets to be prime focus area for growth India’s large share in total DMF filings 50.7% 48.9% 47.0% 300 42.1% 500 400 45.2% 700 45.0% 800 48. All rights reserved.9% 47.0% India's DMF filings Total Filings India's proportion of filings Source: US FDA  Indian players to continue to file large no of DMF filings in the US – Strong process chemistry skills and large approved manufacturing base enabling filings across all major therapy areas – Higher DMF base to enable both higher exports to regulated markets as well as make available robust supply for captive consumption by Indian formulation players © 2015 CRISIL Ltd.0% 233 517 262 571 293 632 352 730 318 665 330 694 388 762 355 741 347 724 285 597 100 168 390 200 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0 40. 600 50.6% 47.9% 47.4% 46.8% 8 .0% 46.0% 38.0% 47.9% 900 52.0% 43.1% 44.

1% 23.Margins to remain stable for the Industry Profitability of large formulators 25.4% 20.4% 23.0% 20.4% 24-25% 24-25% 17.0% 5.8% 17.0% FY 2011 Large formulators (EBITDA margins) Bulk Drug manufacturers FY 2014 FY 2015 E FY 2016P FY 2017 P Mid and Small sized (EBITDA margins) Source: CRISIL Research   Formulation player to witness similar levels of margins – Higher R&D and compliance costs will limit margin expansion for Lager companies.0% 15. © 2015 CRISIL Ltd. – Margins for mid-sized players too will remain stagnant due to increasing compliance costs.8% 10.6% 20.0% Margins for API makers to remain stagnant – Pricing pressures and intense competition to drive move towards high value low volume generics – Higher compliance costs to exert pressure on margins 9 .9% 18.9% 17-19% 17-19% 17% 17-19% 17-19% 19. 30.9% 23.0% FY 2012 FY 2013 18.9% 18. All rights reserved.4% 23.0% 25.3% 16.

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