The Indian Pharmaceutical industry is highly fragmented with about 24,000 players (330 in the organised sector). The top ten companies make up for more than a third of the market. Globally, the Indian pharma market (IPM) is ranked 3rd largest in volume terms and 10th largest in value terms.
The domestic market grew by 14% YoY for the 12 months period ended in Dec 2012 to Rs 690 bn. In the last five years, the IPM has witnessed compounded annual growth of 12.5%. The pharmaceutical sector meets around 70% of the country's demand for various types of formulations and active pharmaceutical ingredients (APIs).
Besides the domestic market, Indian pharma companies also have a large chunk of their revenues coming from exports. While some are focusing on the generics market in the US, Europe and semi-regulated markets, others are focusing on custom manufacturing for innovator companies. Biopharmaceuticals is also increasingly becoming an area of interest given the complexity in manufacture and limited competition.
The drug price control order (DPCO) continues to be a menace for the industry. There are three tiers of regulations - on bulk drugs, on formulations and on overall profitability. This has made the profitability of the sector susceptible to the whims and fancies of the pricing authority. The recently announced pricing policy by the DPCO on 348 drugs has already impacted various pharma companies.
Introduction of GDUFA (Generic drug User Fee Act) in the US during July 2012 too had a negative impact on pharma companies. As per this Act, the generic companies are required to pay user fees to USFDA, for application of drugs and manufacturing facilities. This fee will be utilized by USFDA to engage additional resources in order to speed up the approval process. On back of this, various companies had withdrawn pending applications which they believed to be less accretive. Though the approval procedure is expected to escalate, this will happen only over a period of time.
As the patent cliff is approaching, Indian pharma companies have increased their R&D expenses. The companies are spending more to establish niche product portfolios for the future.
Higher for traditional therapeutic segments, this is typical of a developing market. Relatively lower for lifestyle segment.
Very high for certain therapeutic segments. Will change as life expectancy, literacy increases.
Barriers to entry
Licensing, distribution network, patents, plant approval by regulatory authority.
Bargaining power of suppliers
Distributors are increasingly pushing generic products in a bid to earn higher margins.
Bargaining power of buyers
High, a fragmented industry has ensured that there is widespread competition in almost all product segments. Currently, the domestic market is also protected by the DPCO.
High. Very fragmented industry with the top 300 (of 24,000 manufacturing units) players accounting for large chunk of sales. Top 20 companies account for 60% of the IPM sales.
FY13/CY12 was challenging on the domestic front. The companies witnessed sluggish growth on the back of severe competition in the acute segment, increasing competition from unlisted players and so on. Though the Indian Pharma Industry grew by 14% (Dec 2012) vs. 15% in Dec 2011, large part of the growth was contributed by the chronic segment.
MNC pharma companies continued to witness subdued growth during FY13/CY12. These companies were impacted by the increasing competition, drug launches by other companies before patent expiry, through compulsory licensing and patent infringements. Only couple of companies exhibited better growth. The margins of these companies remained subdued due to increasing expenses and slower top line growth.
In the US, generic companies witnessed mixed growth. While some of the companies benefited from the low competition launches, others got impacted due to delay in approvals. Though there were not many blockbuster launches during FY12 as compared to FY11, various companies did manage to display better growth. On the other hand, several regions of Europe continued to face pressure on increasing efforts by governments to reduce their healthcare burden.
Rupee depreciation was one important aspect which helped the industry especially those companies who had not hedged their receivables.
The industry continued to face challenges on the regulatory front. During the year, there were quite a few Indian companies that faced issues from the USFDA, as they lacked good manufacturing practices (GMP). Because of this, there were instances of import alerts being issued, drug recalls, warning letters and so on. The regulators have become more stringent now and have also been conducting surprise checks.
Indian companies, in order to fuel their top line, have also made various acquisitions. Further, launches of branded drugs in the US market have also increased. Drugs like Absorica, Topicort, Dymista are few classic examples of branded launches made by these companies in the US market.
As per IMS, India's pharmaceutical market size is expected to rise from about US$ 14 bn in 2011 to US$ 24-34 bn by 2016. The growth in Indian domestic market will be boosted by increasing consumer spending, rapid urbanization, increasing healthcare insurance and so on. However, the introduction of the pricing policy will have negative impact on pharma companies. MNC pharma companies, in particular, will bear a bigger brunt of the pricing policy since they are entirely focused on the domestic market.
The life style segments such as cardiovascular, anti-diabetes, anti-depressants and anti-cancers will continue to be lucrative and fast growing owing to increased urbanisation and change in lifestyle patterns. Going forward, better growth in domestic sales will depend on the ability of companies to align their product portfolio towards these chronic therapies as these diseases are on the rise
In various global markets, the government has been taking several cost effective measures in order to bring down healthcare expenses. Thus, governments are focusing on speedy introduction of generic drugs into the market. This too will benefit Indian pharma companies. However, despite this huge promise, intense competition and consequent price erosion would continue to remain a cause for concern. Over and above this, following GMP will be an important criteria for companies in order to grow in the global markets.
For the US market, Indian companies are developing niche portfolios in various segments. High margin injectables, dermatology, respiratory, biogenerics, complex generics etc. have become an area of interest. Most of the Indian pharma companies have been working on these niche drugs in order to optimize growth and margins. Thus, post patent cliff, the companies which have developed their product basket in the niche category will be ahead in the curve. Moreover, generic penetration in the US is expected to peak out at 86-87% over the next couple of years from 83% currently.