The Indian Pharmaceutical industry is highly fragmented with about 24,000 players (around 330 in the organised sector). The top ten companies make up for more than a third of the market. The Indian pharma industry (IPM) grew by 16% YoY in 2012 to ` 629 bn. It accounts for about 1.4% of the world's pharma industry in value terms and 10% in volume terms.
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. In connotation, with pricing policy of 354 drugs, NLEM (National list of essential medicines) was released, which covered the list of the drugs which the authority intends to put under price control. The policy has been stiffly opposed by the pharmaceutical industry.
Introduction of GDUFA (Generic drug user fee Act) in US. 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 reduce current and pending applications and speed up the approval process. (Note: This act was passed in 2011, which was signed into Law in July 2012)
The R&D spends of the top five companies is about 5% to 10% of revenues. This ratio is still way below the global average of 15% to 20% of sales. Indian companies have adopted various strategies for their R&D efforts. Some have entered into collaboration and partnership agreements with innovator companies; others have out-licensed their molecules for milestone payments. Hiving off R&D units into separate companies has also become a preferred option for many Indian pharma players. That said, given that the research pipelines of Big Pharma are drying up, they have now begun to dabble in generics. In this regard, these innovator companies are either buying out Indian firms or are forging alliances with them.
Higher for traditional therapeutic segments, which 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 also protected by the DPCO).
High. Very fragmented industry with the top 300 (of 24,000 manufacturing units) players accounting for 85% of sales value. Consolidation is likely to intensify.
FY12/CY11 was a challenging on domestic front. The companies witnessed a sluggish growth in the 1HFY12, on the back of severe competition in the acute segment. Increasing competition from MNCs and unlisted companies impaired the growth of local players. Though the Indian Pharma Industry grew by 16% vs 18% in FY11, large part of the growth was contributed by the chronic segment.
MNC pharma companies continued to excel during FY12/CY11. Of the 25 top selling brands, 13 were from the MNCs. On the margin front, performance was not good. Most of the companies saw increase in raw material and employee costs. Companies continued to increase their MR strength and expand their reach to rural areas.
In the US, generic companies witnessed robust growth, as billion dollar products like, Lipitor, Zyprexa, Plavix came off patent. On the other hand Europe continued to face pressure.
Rupee depreciation was one important aspect which helped the industry. Many companies benefited due to rupee depreciation, especially the companies who had not hedged their receivables.
Many companies had received warning letters from the USFDA in the past. The year saw some green signals from US regulator. While Aurobindo, Cadila and Claris got USFDA clearances, Ranbaxy entered into a consent decree with USFDA in order to gets its two manufacturing facilities re-approved by the US authorities.
The product patents regime heralds an era of innovation and research resulting in the launch of new patented product launches. In the longer run, domestic companies would face fresh competition from MNCs, as they would make aggressive new launches. However, the latter would most likely be subject to price negotiation.
Drugs having estimated sales of over US$ 80 bn are expected to go off patent between CY12 and CY15. With the governments in the developed markets looking to cut down healthcare costs by facilitating a speedy introduction of generic drugs into the market, domestic pharma companies will stand to benefit. However, despite this huge promise, intense competition and consequent price erosion would continue to remain a cause for concern.
The developing markets viz; Brazil, Turkey, Mexico, Russia etc are expected to witness growth of around 25% during 2014-15. Like India, emerging markets are also “Branded” by nature, thus Indian companies are well poised to capitalise on the opportunities in these markets as well.
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. High growth in domestic sales in the future will depend on the ability of companies to align their product portfolio towards the chronic segment as the lifestyle diseases like hypertension, congestive heart failure, depression, asthma, and diabetes are on the rise.
Contract manufacturing and research (CRAMS) is expected to gain momentum going forward. India’s competitive strengths in research services include English-language competency, availability of low cost skilled doctors and scientists, large patient population with diverse disease characteristics and adherence to international quality standards. As for contract manufacturing, both global innovators and generic majors are finding it profitable to outsource production. Although the scenario has yet not improved for this space after the financial crisis, it is expected to improve going forward as the pressure to prune costs increases.
As per the McKinsey report, Indian pharmaceuticals market is expected to grow to US$ 55 bn in 2020 and has a potential to reach US$ 70 bn by 2020.