| Domestic growth implications from changing regulations on clinical trials and new drug approvals | ||
The domestic pharmaceutical industry growth was impacted last year by the implementation of new pharma pricing policy and the subsequent trader boycott (on lower distributor/retailer margins). While much of the disruption and volatility related to the new pricing policy is behind the industry with growth improving from the Sep-Oct lows, we would like to highlight a risk to long term growth of the domestic market from the slowing clinical trial and drug approval process given regulatory changes. The declining number of new drug approval for marketing and fixed dose formulation (as per CDSCO data) has impacted the growth driven by new product launches, in our view. As per DRRD 20F filings, new products launched in the preceding 24 months accounted for 6-8% of growth historically and we believe this has declined to low-single digit over the last year. While players can introduce brands of exiting drugs given the simpler approval process, this would only increase the price erosion for players and impact margins of the domestic business, in our view. The introduction of new drugs is a key driver for profitable growth for the sector in the domestic market in the medium term, which depends on clarity in the approval process and timeline.
· Regulatory changes impacting clinical trials in India. The Supreme Court, in a ruling in Jan-2013, revoked powers of the drug regulator (Central Drugs Standard Control Organization under the DCGI) to approve trials for NCEs given lack of regulations. The apex court also disallowed clinical trials for NCE unless supervised, personally vetted and cleared by the Union Health Secretary. This was followed by a SC ruling in Oct-13 that directed the health ministry to review the 157 clinical trials cleared by the DCGI without being cleared by the health ministry between Jul-Aug 2013. The government appointed an expert committee chaired by Prof. Ranjit Roy Chaudhury in Feb-13 to formulate policy and guidelines for clinical trials, new drug approvals and banning of drugs. Media reports (pharmabiz) indicated that the recommendations in the expert committee’s report were accepted by the government. Therefore, the applications for clinical trials and new drugs are now reviewed by the reconstituted Subject Expert Committees (previously called as New Drug Advisory Committees), followed by Technical Review Committee (TRC) and the final approval is then given by CDSCO based on the recommendations of TRC.
· While impact on CROs more near term, pharma companies likely to witness slowing approval process and cost escalations: It is believed that ~60% of clinical trials are conducted by pharmaceutical companies (including Indian companies), while the remaining are outsourced to contract research organizations (CROs) in India. Several Indian companies are investing in NCE/NBE pipeline to build a new product pipeline for growth in the medium to long term. Companies like SPARC (NC) and Biocon (NC) have indicated the increasing shift of clinical trials to overseas locations given the delay in permission and regulatory clearances in India, which has added to the cost of development. Our conversation with some CRO players also pointed to slowing growth trends in contract research given regulatory/approval issues.
· New drug approval has also been slowing in India: The Prof. Ranjit Roy Chaudhury expert committee report also outlined recommendation for new products including clinical trial requirement for a drug, which is considered generic drug in other countries (like USA) but not approved in India, local trials for generic/bio-similars in other countries for its approval in the country, bio-equivalence study for approval of new drugs already approved in the country, etc. Media reports (Mint) have highlighted the delay in approvals for new products that required only bio-equivalence and bio-availability studies, which has impacted the pace of launches of new products in the domestic market. The article highlights that the number of new drug launches have declined 25-30% in the Dec quarter vs. prior year period. As per CDSCO data, the number of drugs approved for marketing has declined from 140 in CY11 to only 24 last year, while only 11 fixed dose combinations have been approved vs. 61 in CY11.
Figure 1: India’s Approvals for Drugs and Fixed Dose Formulations
Source: CDSCO.
· Industry growth also is dependent on ability to launch new products. Historically, volume growth and new product launches has been the key driver for domestic pharma industry. While the regulatory factors like the DPCO had near term impact on volume growth in the industry in 2HCY13 (destocking and subsequent trade disruption), it will help improve the accessibility of drugs longer term. However, it is the slowing growth from new product launches recently, which is concerning, in our view. Our channel checks indicate that growth from new products has declined from mid-high single digit in 2011 to low single digit in 2013. While it is unclear if the expert committee recommendations have been implementation by the authorities, clarity in regulations and timelines would be positive for the industry.
Figure 3: Indian Pharma Market Growth has slowed… Source: DRRD 20F Filings (based on ORG IMS data) and Media reports. | Figure 4: …Growth from New Products (launched in preceding 24 months) has been declining over the last two years |
· Delay in new drug launches could impact margin for the India business, in our view: Most India companies have a concentrated domestic sales profile with Top 10 brands accounting for ~20-45% of revenue for the large players. However, any slowdown in the pace of new product approval and launches is a key risk to domestic market growth and also growth of the players, in our view. Moreover, several players are shifting revenue toward high growth chronic therapy or entering new therapies, which require approval of new drugs/brands. While the inability to launch new drugs could be offset by companies introducing brands of exiting drugs, we believe this would only increase the price erosion for existing players and therefore, impact margins of the domestic business.
Table 1: Indian Pharma companies – Contribution to Revenue and Focus Therapy Areas
India as % of revenue
|
Focus areas
| |
SUNP
|
26.0
|
CVS, Anti-Diabetic, Neuro Psychiatry, GI
|
LPC
|
25.2
|
CVS, Anti-Biotics + Cephs and Anti-Diabetic
|
DRRD
|
12.5
|
Cardiology, GI, Antineoplastics
|
GNP
|
26.4
|
Dermatology, Cardiology and Gynecology
|
Source: Company reports.
Pharmaceuticals & Healthcare Services
No comments:
Post a Comment