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01 - 15 January 2012  
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Home - Market - Article

Indian pharmaceutical industry—growth story to continue

Global pharmaceutical MNCs have adopted prudent strategies to expand their footprint in emerging nations. Ajit Mahadevan, Partner – Life Sciences, Ernst & Young analyses the same

The global pharmaceuticals market grew rapidly in the 1990s and in the early 2000s, spurred primarily by market demand in North America and Europe. However, with impeding patent expiries, declining R&D productivity, increasing regulatory and pricing pressures, growth in these markets have been slowing down. As a result, pharma companies are looking for new avenues of driving growth and ways to improve operational efficiencies. In this context, emerging markets represent a potential growth driver for the industry – its contribution to the growth of the global pharma market increased from eight per cent in 2003 to 40 per cent in 2010. Consequently, global pharma MNCs have adopted prudent strategies to further expand their footprint in emerging markets such as Brazil, Russia, India and China.

Burgeoning Indian pharma industry

India is among the most significant emerging markets for the global pharma industry, given that it will feature among the world’s top 10 sales markets by 2020. Currently, it is regarded as one of the fastest-growing pharma industries globally, primarily driven by a large population, evolving patient demographics, increasing health care expenditure, growing urbanisation, rising life expectancy, and active private-sector participation. (Source: Sanofi and Kantar health presentation at EphMrA)

Contribution of emerging markets to overall sales of key pharma MNCs (current and future estimates)

Domestic companies are transforming their business model to play a larger role in global pharma market

The Indian pharma industry has been able to claim a share in the global market by leveraging its strengths and enhancing its regulatory and technical maturity. Formulations manufactured in India constitute 20 per cent of the global generics market by value, and the overall share of Indian manufactured formulations is as high as 46 per cent in the generics segment in the emerging markets. However, with the onset of the patent regime, the traditional reverse engineering capabilities of Indian pharma companies are no longer helpful, as they would not be able to replicate the patented product and launch it in the domestic market. Hence, going forward, India would be required to leverage its strengths in supply of low cost medicines across the world and invest in newer areas to drive growth. Opportunities exist ranging from the low-value added segment, comprising of NDDS ($134 billion opportunity by 20131), super generics ($135 billion worth of product expiring between 2010 and 20152) and biosimilars ($115 billion worth of biologics expiring by 20153), to the high value New Chemical Entity (NCE)/New Biopharmaceutical Entity segment. Thus, domestic companies can look forward to pursue all these opportunities and build capabilities to conduct drug discovery and in house development.

Indian pharmaceutical market by 2020 (US $ billion)

Pharma MNCs to continue active participation in India

After years of anaemic growth in the Indian pharma market until the 1990s — mainly due to a feeble intellectual property environment — pharma MNCs have recorded steroid-led growth in the domestic market. They have increased investments in the domestic market over the past few years and are now comfortably placed to capture a substantial share of the domestic market. Evidently, pharma MNCs are projected to capture a 35 per cent market share of the market by 2017, compared with 28 per cent in 20095. Over the years, pharma MNCs have adopted India-focused strategies to tap the growing potential of the country’s pharma market.

Increased patented drug launched in India: The advent of the product patent regime in 2005 instilled confidence in the country’s IP regime. With renewed confidence, large pharma MNCs are now looking to launch their patented drugs in India and such product launches are expected to increase further in future.

Adopting inorganic route to enhance presence: Pharma MNCs have been considering acquisitions of domestic players to gain sizeable share in the domestic market. These acquisitions have also enabled pharma MNCs to access the infrastructure, distribution networks, and management capabilities of domestic players, thereby strengthening their business operations in the country. On the other hand, licensing agreements with Indian companies have helped pharma MNCs access a ready basket of generic products. Going forward, these deals are likely to accelerate the launch of products in various emerging markets while offering MNCs the advantage of cost-effective manufacturing. Furthermore, pharma MNCs consider India as a preferred strategic outsourcing partner with services ranging from Contract Research Manufacturing (CRO) and clinical research services to sales and marketing, information technology, finance and accounting, and customer-relationship management.

Differential pricing strategy to strengthen market reach: In a bid to compete with domestic generic players, pharma MNCs are launching patent-protected drugs in India at relatively low price points than those in developed markets. Simultaneously, a differential pricing strategy is helping these MNCs to enhance their market reach by addressing affordability issues. Drugs such as Diovan (Novartis), Januvia (Merck Sharp & Dohme), and Galvus (Novartis) are being sold at discounts of up to 80 per cent on global prices.

Rural-centric initiatives to enhance market access: Robust consumption in the rural economy is expected to be a key growth driver. Rural India accounts for more than 70 per cent of all Indian households and close to 40 per cent of the total consumption pie. Henceforth, a large number of companies are organising their efforts to derive a major portion of their overall sales from this untapped market.

Additionally, pharma MNCs are looking to implement new and effective business models in India and improve the health of patients. Delivering patient health outcomes implies getting involved in the cycle of care, rather than just delivering drugs to a health care system.

Few examples include: Sanofi-Aventis’ Saath 76: In 2009, Sanofi-Aventis launched the Saath 7 programme in India, in which certified counsellors help diabetic patients understand their diseases and provide personalised consultation through home visits.

Merck’s Sparsh7: In 2009, Merck’s Indian subsidiary, MSD Pharmaceuticals, launched Sparsh, a multilingual helpline for diabetics on its drugs Januvia and Janumet to provide diet, exercise, and adherence advice.

J&J’s Mobile Health for Mothers8: In September 2010, Johnson & Johnson (J&J) launched a mobile health initiative for expectant mothers in India. Mobile Health for Mothers provides free text messages on prenatal care, appointment reminders and calls from health coaches.

Pfizer-ITC 9: In July 2011, Pfizer collaborated with FMCG major ITC to enhance its product sales in the rural markets. According to the agreement, Pfizer will sell its over-the-counter products through ITC channels in rural areas.

Such noble initiatives can be expected to help pharma MNCs further augment their brand awareness in the domestic market and help tap the segment’s growth potential.

Shifting disease burden in India

Favourable demographics and changing disease patterns characterise increasing demand

India has witnessed rapid epidemiological transition as a consequence of economic and social change. Historically, acute disease segments have dominated the market, with the anti-infective sub-segment contributing a major share. However, with growing urbanisation, the disease profile of the Indian population has become increasingly skewed toward lifestyle-related ailments such as obesity, heart disease, stroke, cancer, diabetes and respiratory diseases. The number of people suffering from chronic diseases such as cancer, diabetes, neuropsychiatric conditions and cardiovascular disease is set to double in India by 2020. Thus, change in patient demographics will fuel demand for quality and affordable products in the domestic market.

Adequate government support to further boost the domestic market

In the last 10 years, the Government of India (GoI) has aggressively adopted prudent strategies to boost the country’s healthcare industry. From granting 100 per cent Foreign Direct Investment (FDI) in the drugs and pharma sector to establishing various pharma SEZs across the country, a range of initiatives have further strengthened the Indian pharma industry. Moreover, the GoI is providing incentives to encourage investment in the pharma sector.

In August 2010, the GoI announced its plans to set up a $639.56-million venture capital (VC) fund to give impetus to drug discovery and strengthen the country’s pharma infrastructure. Both domestic and MNC pharma players are expected to leverage these initiatives to expand their operations in the country9.

The Department of Pharmaceuticals has prepared “Pharma Vision 2020,” aimed at making India one of the leading destinations for end-to-end drug discovery and innovation. It envisages meeting this objective by building top-notch infrastructure for talent and research, encouraging public-private partnership (PPP) models, offering financial incentives to encourage and incubate innovation and shaping a favourable regulatory environment2. The GoI also aims to position India among the top five pharma innovation hubs by 2020, with one out of every five to 10 drug discovered worldwide by 2020 originating from the country.

The GoI’s long-term vision is to provide quality and affordable health care services to all classes of Indian society. Consequently, the GoI plans to cover at least 50 per cent of the country’s population under health insurance by 2020, compared with the current average of 15 per cent10.

Expanding health care infrastructure and changing demographics to supplement growth

The Indian healthcare sector is forecast to reach $280 billion by 2020, contributing expected GDP expenditure of eight per cent by 2012, compared with 4.2 per cent in 2009, according to a report by an industry body. Over the past two decades, India’s thriving economy has driven the need for urbanisation, thereby creating an expanding middle class with increased disposable income to spend on healthcare. Other key growth drivers for this sector include a growing population, the opening of new hospitals, growing lifestyle related health issues, less expensive treatment costs, the growth of medical tourism, improving health insurance penetration, government initiatives and enhanced focus on PPP models.

The overall growth of the Indian healthcare sector is likely to create a sizeable demand for quality and affordable medicines, thereby providing significant growth opportunities for both domestic and pharma MNCs.

In the sum…

India’s pharma market has evolved and shifted gears to set foot on an accelerated growth path. In conclusion, as emerging markets become increasingly important and India’s role among these becomes progressively significant, both domestic and pharma MNCs will need to adapt their business models, organisations and processes and create customised strategies. Overall, active participation from domestic and international pharma companies, increased investments and strategic initiatives will likely underpin future growth and enable the Indian pharma market to break into the global top tier in the present decade.

References:
1.Drug Delivery Systems", Freedonia, September 2009
2 Market Opportunities for Super generics, Business Insights, November 2010
3 Teva Pharma investor presentation, accessed on November 11, 2011.
4 Outlook Magazine, February 2011 issue, accessed on November 11, 2011.
5 BMI, Ernst & Young research
6 Community programs, Sanofi-Aventis India website, www.sanofi-aventis.in/l/in/en/layout.jsp?cnt=11737C37-34DD-4B96-AF3D-F8BCBD5C5368, accessed on November 11, 2011.
7 Responsibility, Merck Sharp & Dohme India website, www.msdindia.in/responsibility/home.html, accessed on November 11, 2011.
8 "J&J's Mobile Health for Mothers, but what about Text4Baby?" Mobihealthnews website, http://mobihealthnews.com/8851/jjs-mobile-health-for-mothers-but-what-about-text4baby/, accessed on November 11, 2011.
9 Ranbaxy, Pfizer in pact with ITC to boost rural sales, Moneycontrol.com website, http://www.moneycontrol.com/news/news/ranbaxy-pfizerpactitc-to-boost-rural-sales_564249.html, accessed on November 11, 2011.
10 Report on India's Pharmaceutical Industry, Asia Pacific Business & Technology website, www.biztechreport.com/story/1610-report-india%E2%80%99s-pharmaceutical-industry, accessed on November 9 2011.
11 Indian pharma industry to be in global top 5 by 2020: Ikon Marketing Consultant, The Economic Times website, http://articles.economictimes.indiatimes.com/2011-09-/news/30149346_1_pharma-industry-health-insurance-health-care, accessed on November 2011.
12 India Emerging, Ernst & Young-OPPI report 2011

(The co-authors for the article are Aditya Bhargava, Analyst, Ernst & Young; Ruchi Malhotra, Manager, Ernst & Young and Rohit Srivastava, Manager, Ernst & Young)

 


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