Indian pharma: Emerging as global power in R&D

D K Aggarwal

The Indian pharmaceutical market is highly fragmented with 300 large and 18,000 mid-sized and small companies. It is a successful, high-technology-based industry that has witnessed consistent growth over the past three decades. The Indian pharma industry (IPM) accounts for about 1.4 per cent of the world’s pharma industry in value terms and 10 per cent in volume terms. The pharma industry across the world is likely to get boost owing to increased urbanisation and change in lifestyle patterns. According to rating agency Fitch, the Indian healthcare sector is expected to reach $100 billion by 2015 from the current $ 65 billion, growing at around 20 per cent a year.

The sector, which was opened to 100 per cent FDI in 2001, encountered a series of takeovers between 2006 and 2010, Ranbaxy by Dai-ichi, Shanta Biotech’s by Sanofi Aventis, and more recently Piramal Healthcare by Abbott Laboratories. In future also, India will see the largest number of mergers and acquisitions (M&As) in the pharma and healthcare sector and the foreign acquisitions of Indian companies will enable the domestic companies to gain a foothold in the western regulated markets, to diversify their portfolios, acquire recognised brands, and gain R&D capabilities, which is indispensable for the Indian pharma companies. The multi-national pharma companies are now becoming aggressive in the Indian market to focus on emerging markets. Apart from acquisitions, they have also been targeting growth opportunities through in-licensing deals with domestic generic players both for domestic as well other emerging markets.

Pricing of drugs continues to be one of the most important issues in the pharma world, as affordable healthcare remains a priority for governments worldwide. The pharma sector is one such where the products are seldom purchased by choice, therefore market forces do not impact prices except for generic drugs. The rising cost of R&D for new molecules, as well as spiralling healthcare budgets and mounting governmental pressure to reduce drug prices have inspired companies to ramp up their generic business. India tops the world in exporting generic medicines worth $11 billion. Currently, the Indian pharma industry is one of the world’s largest and most developed industries. Pharma companies across the world have got 36 Abbreviated New Drug Application (ANDA) approvals and 11 tentative approvals from US Food and Drug Administration (US FDA) in October 2012. Out of 36 ANDA, India received 11 approvals and six tentative approvals from US FDA out of 11.

Government initiatives in the public health sector have recorded some noteworthy successes over time with focus on investments related to better medical infrastructure, rural health facilities etc. Industry leaders in pharma are of the opinion that the recent pricing policy introduce by government is negative for the sector as 40 per cent of the pharma market will come under the price control. Also 21 per cent of the Indian pharma industry will be covered under drug pricing from current 4.5 per cent and the government’s suggestion of market-based pricing control based on 1 per cent market share formula is expected to be negative for most of the pharma companies. According to the Indian Pharmaceutical Alliance (IPA) and Organisation of the Pharmaceutical Producers of India (OPPI), “the new drug policy would also adversely impact profitability of Indian pharmaceutical companies.”

For most of the Indian pharma companies, the domestic business contributes 20-50 per cent of the overall revenue. While US business contribution stands at 20-30 per cent and remaining comes from the RoW markets.

Research and development is the key to the future of pharma industry. The tough increasing competition has emphasised India’s Pharma companies to invest in Research and Development (R&D); India ranks globally eighth position, spending $30 billion. If compared, the US, the largest R&D spender nation, spends $427.2 billion and India too has moved up in the pecking order which includes leading innovators like China, Japan, Germany and South Korea. The average R&D expenditure by Indian pharma companies is close to 6 per cent. Further, investments in biotechnology, clinical trials and contract research activities will play key role in future growth.  Money spent by Indian pharma companies on R&D, basically goes for generic product development and ANDA filings.

Investment in R&D made by some key Indian pharmaceutical players in 2011-2012. (Rs in Crore)

The R&D expenditure of 30 companies, with R&D spending above Rs 20 crore, has increased by 19.6 per cent to Rs 4,678 crore during the year ended March 2012 from Rs 3,911 crore in the previous year March 2011. This spending worked out to 7 per cent of their net sales. India has got more and more filings and approvals from various regulatory authorities on the back of higher investment and increasing standard in R&D. The Indian companies also have set up subsidiaries in the US, Europe and Japan to focus on approvals.

Inaugurating the 64th Indian Pharmaceutical Congress (IPC) at SRM University at Kattankulathur in Tamil Nadu, the former President appreciated the recent introduction of the anti-malarial drug ‘Synriam’ by Ranbaxy in collaboration with Department of Science & Technology. He also opined that all the industrial pharmacists and researchers must follow the step taken by Ranbaxy as a model and concentrate on inventing new drugs.

Indian pharma market is predominantly a branded generic market

Generics to dominate with share of patented products rising to a sizeable 10 per cent by 2015. Factors such as growing middle class population, rapid urbanisation, increase in lifestyle-related diseases and acceptance of health insurance are likely to boost growth of Indian pharma. In near-term factors like, currency appreciation and approval-based FDI in brownfield pharma projects may be the negative triggers but in long term the impact will not be significant enough to hamper the prospects of the sector. We expect an impressive growth in the Indian pharma industry because of the strong growth in chronic segment in the domestic market, patent expires in US driving generic imports to the country and increasing footprints of domestic companies in other emerging markets.

India ranks top in the world in exporting generic medicines worth $11 billion and the same market is expected to grow at a CAGR of around 17 per cent between 2010-11 and 2012-13. However, over the next few years patent law will provide impetus to the launch of patent-protected products which have the potential to capture up to a 10 per cent share of the market by 2015, implying the market size of $2 billion. Riding on back of the generic opportunity, Indian companies have capitalised on the growth prospects to emerge as formidable players in the US generics markets as blockbuster drugs worth $100 billion are set to go off patent over next five years in US and this will drive the growth for the overall Contract Research and Manufacturing Services (CRAMS) segment which is foreseeing the future generic market buoyancy.

The on-going critical market situations in Europe and pricing pressures have slowed the enthusiasm of the Indian pharma companies. However, the European markets remain an important part of Indian companies’ long-term growth strategy; most of the India pharma companies have been ramping up their presence across markets by steadily enhancing product portfolio, investing in developing marketing and distribution strengths. Moreover, the Japanese market also offers potential to drive significant growth in the medium term for the Indian pharma companies. Apart from the developed markets, the Indian pharma companies have also been eyeing growth opportunities in some of the other fast-growing emerging markets such Russia, South Africa and some of the countries in Latin America (Brazil, Mexico) and South-East Asia. The true fact is that the continuous, liberal, and collaboration by the Government and pharma industry hold the key to achieving India’s full potential.