The demand for pharmaceutical products in India is significant and is driven by low drug penetration, rising middle-class & disposable income, increased government & private spending on healthcare infrastructure, increasing medical insurance penetration etc. The Indian pharmaceutical industry is growing at about 8 to 9 percent annually according to “A Brief Report Pharmaceutical Industry in India,” published in January 2011. The Pharmaceutical industry in India meets around 70% of the country's demand for
Indian Pharma Industry – Overview
Indian Pharmaceutical Industries Updates
The demand for pharmaceutical products in India is significant and is driven by low drug penetration, rising middle-class & disposable income, increased government & private spending on healthcare infrastructure, increasing medical insurance penetration etc.
The Indian pharmaceutical industry is growing at about 8 to 9 percent annually according to “A Brief Report Pharmaceutical Industry in India,” published in January 2011. The Pharmaceutical industry in India meets around 70% of the country's demand for bulk drugs, drug intermediates, pharmaceutical formulations, chemicals, tablets, capsules, orals and injectables. There are approximately 250 large units and about 8000 Small Scale Units, which form the core of the pharmaceutical industry in India (including 5 Central Public Sector Units).
I. Current Scenario:
India's pharmaceutical market grew at 15.7 per cent during December 2011. Globally, Indiaranks third in terms of manufacturing pharma products by volume. According to McKinsey, the Pharmaceutical Market is ranked 14th in the world. By 2015 it is expected to reach top 10 in the world beating Brazil, Mexico, South Korea and Turkey. More importantly, the incremental market growth of US$ 14billion over the next decade is likely to be the third largest among all markets. The US and China are expected to add US$ 200bn and US$ 23bn respectively.
McKinsey & Company’s report, “India Pharma 2020: Propelling access and acceptance, realizing true potential,” predicted that the Indian pharmaceuticals market will grow to US$55 billion in 2020; and if aggressive growth strategies are implemented, it has further potential to reach US$70 billion by 2020. While, Market Research firm Cygnus’ report forecasts that the Indian bulk drug industry will expand at an annual growth rate of 21 percent to reach $16.91 billion by 2014. The report also noted that India ranks third in terms of volume among the top 15 drug manufacturing countries.
Further, McKinsey reports Healthcare grew from 4 per cent of average household income in 1995 to 7 per cent in 2005 and is expected to grow to 13 per cent by 2025.
Diagnostics Outsourcing / Clinical Trials: According to the estimates, the Indian diagnostics and labs test services, in view of its growth potential, is expected to reach Rs159.89 billion by FY2013. The Indian market for both therapeutic and diagnostic antibodies is expected to grow exponentially in the coming years. Further, more than 60% of the total antibodies market is currently dominated by diagnostic antibodies.
Some of the major Indian pharmaceutical firms, including Sun Pharma, Cadilla Healthcare and Piramal Life Sciences, had applied for conducting clinical trials on at least 12 new drugs in 2010, indicating a growing interest in new drug discovery research.
Generics: India tops the world in exporting generic medicines worth US$ 11 billion. The Indian generic drug market is to grow at a CAGR of around 17 per cent between 2010-11 and 2012-13.
Over the next few years, it is expected that the patent laws will provide impetus to the launch of patent-protected products. Such products have the potential to capture upto a 10% share of the market by 2015, implying the market size of US $2bn.
R&D: According to Battelle R&D magazine, gross expenditure on R&D (GERD) by India for 2012 was projected to be US$ 41 billion in purchasing power parity terms, which works out to 0.8 per cent of GDP. This is low both in absolute terms and as a proportion of GDP compared to other countries. This is partly because the size of the R&D base and absorption capacity is not commensurate with requirements.
As per estimates in 2010-11, largest R&D expenditures attracted from pharmaceutical sector. R&D intensity for the pharmaceuticals sector was much higher than that for other sectors. Although there have been substantial increases in growth rates of patents filed in India during the last decade, the share of patents filed for work in India through indigenous research is less than 20 per cent of the total. A White Paper on R&D prepared by consultancy firm Deloitte in July 2011 estimates that more than 300 MNCs have set up R&D centres in India.
Demand: The demand for pharmaceutical products in India is significant and is driven by many factors like low drug penetration, rising middle-class & disposable income, increased government & private spending on healthcare infrastructure, increasing medical insurance penetration, changing demographic pattern and rise in chronic lifestyle-related diseases; adoption of product patents, and aggressive market penetration driven by the relatively smaller companies.
According to CARE research demand triggers for the growth are:
- Between 2010 and 2015 patent drugs worth US$171 bn are estimated to go off-patent leading to a huge surge in generic products.
- High margin pharma export business is expected to grow at a higher rate than domestic market given increased in outsourcing activities.
- Increased M&A activities is set to consolidate the market which widens geographic reach, strengthens distribution network and venture into new therapeutic segments.
- Indian companies files the highest number of ANDA’s with USFDA leading to greater chances of approvals and thereby increasing export to regulated markets especially the US.
- There are currently approximately 175 USFDA and nearly 90 UK-MHRA approved pharma manufacturing plants in India which can supply high quality pharma products globally.
- Growth from rural markets will outstrip overall pharma market growth, albeit at lower margins, given lower penetration of 18-19% coupled with rising income level and awareness.
- Biopharmaceuticals is another potential high growth segment for Indian pharma growing at double digit driven by the vaccines market.
II. Major Pharmaceutical Companies
India based pharmaceutical companies are not only catering to the domestic market and fulfilling the country’s demands, they are also exporting to around 220 countries. They are exporting high quality, low cost drugs to countries such as the US, Kenya, Malaysia, Nigeria, Russia, Singapore, South Africa, Ukraine, Vietnam, and more. Currently, the US is the biggest customer and accounts for 22 percent of the sector’s exports, while Africa accounts for 16 percent and the Commonwealth of Independent States (CIS) places around eight percent of orders, as per Research and Market report.
For most of the pharma companies, domestic business contributes in the range of 20-50% of the overall revenue. US business contribution stands at 20-30% and remaining comes from the RoW markets.
Leading Indian Players by Sales
| Company | Sales in US $Mn | Year End |
| Cipla | 6,368.06 | March 2011 |
| Ranbaxy Lab | 5,687.33 | December 2010 |
| Dr Reddy's Labs | 5,285.80 | March 2011 |
| Sun Pharma | 1,985.78 | March 2011 |
| LupinLtd | 4,527.12 | March 2011 |
| Aurobindo Pharma | 4,229.99 | March 2011 |
| Piramal Health | 1,619.74 | March 2011 |
| Cadila Health | 2,213.70 | March 2011 |
| Matrix Labs | 1,894.30 | March 2010 |
| Wockhardt | 651.72 | December 2011 |
Trends:
- All companies, including MNCs, have increased their field force in the last one year.
- Indian companies are entering into strategic tie-ups with MNCs to strengthen their product portfolio.
- Companies are expanding their presence in rural markets.
- Acquisitions by MNCs to gain quick foothold in the fastest growing Indian pharma market.
Most of the Pharma companies have shown considerable decline in growth in the first half of 2011. The slowdown is widely visible in the Chronic and Acute categories. Anti-invective, pain and gastro together contribute 1/3rd of the total pharma market. The pharma companies have started facing challenges in domestic market due to increase in competition from unlisted MNCs in this segment. They are rapidly expanding their field force to extend their geographical reach. Companies like Cipla, Torrent and IPCA which are mainly focused on Indian market are already feeling the heat. Growth rates of companies such as Cadila, Dr. Reddy and Ranbaxy have already come down. On the other hand Lupin and Sun are showing growth due to the shift of focus towards specialty therapies, where competition is relatively low.
Basing on the changing macro factors and economic growth Emkay Research has expected the growth estimates of the pharma companies to decrease. It cut down the domestic growth estimates for Cadila, Cipla, Dr. Reddy, IPCA, Torrent and Unichem for FY12 and FY 13 by 2% to 5% and retained the growth estimates for Lupin, Ranbaxy, Sun, GSK and Pfitzer.
Indian Pharma – Domestic Growth Expectations
| Company | FY12 Domestic Growth | Earlier growth estimates |
| Cadila | 12% | 15% |
| Cipla | 10% | 15% |
| Dr. Reddy’s | 10% | 15% |
| Glenmark | 16% | 16% |
| IPCA | 10% | 17% |
| Lupin | 19% | 19% |
| Ranbaxy | 12% | 12% |
| Sun Pharma | 15% | 18% |
| Torrent | 12% | 12% |
| Unichem | 5% | 9% |
| GSK | 13% | 13% |
| Pfizer | 14% | 14% |
Source: Emkay Research
Major recent M&As:
- Sun-Merck JV: Sun and Merck have formed JV to develop, manufacture and commercialize new combinations and formulations of innovative, branded generics in the Emerging Markets. Under the JV, Sitagliptin and Sitagliptin+Metformin have already been commercialized in the Indian markets.
- Lupin-Lilly JV: They entered into collaboration to promote and distribute Lilly’s Huminsulin range of products in India and Nepal.
- Cadlia_Bayer JV: The venture will sell brands from both companies in Indian markets.
- Biocon-Pfizer JV: This collaboration will give Pfizer exclusive rights to commercialize Biocon products globally including co-exclusive rights with Biocon in Gernmany, India and Malaysia.
- Universal Medicines – Aventis: Aventis has acquired Universal Medicines for over US$ 100mn.
III. Government Initiatives:
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.
- 100 per cent FDI is permitted for health and medical services under the automatic route.
- The National Rural Health Mission (NHRM) had allocated US$ 10.15 billion for the upgradation and capacity enhancement of healthcare facilities.
- Moreover, in order to meet revised cost of construction, in March 2010 the Government allocated an additional US$ 1.23 billion for six upcoming AIIMS-like institutes and upgradation of 13 existing Government Medical Colleges.
As a result, FDI inflow in hospital and diagnostic centres was US$ 1.1 billion during April 2000 and November 2011, according to st Department of Industrial Policy & Promotion (DIPP) data. FDI inflow in medical and surgical appliances stood at US$ 472.6 million during the same period. And the drugs and pharmaceuticals sector has attracted FDI worth US$ 5.0 billion between April 2000 and November 2011
Budget 2012: Union Budget 2012-13, as expected, is positive for the pharmaceutical sector. The government has again increased budgetary allocation for healthcare spending, which would be an overall positive for the sector. Indian pharmaceutical companies have been investing on the R&D front to tap opportunities in the domestic and global markets. To encourage the same, the weighted deduction on R&D expenditure to 200% (in-house research) was extended for a further period of five years. R&D sops would continue to be positive for the sector as a whole.
| Budget Proposal | Impact |
| Proposal to extend weighted deduction of 200% for R&D expenditure in an in-house facility for a further period of five years beyond March 31, 2012. | Positive for all Indian pharmaceutical companies. |
| Allocation for NRHM proposed to be increased from Rs 18,115cr in FY2011-12 to Rs 20,822cr in FY2012-13. | Positive for all pharmaceutical companies. |
| Proposal to continue to allow repatriation of dividends from foreign subsidiaries of Indian companies at a lower tax rate of 15% up to March 2013. | Positive for all pharmaceutical companies, mainly Indian companies, as they generate the highest revenue from export markets. |
| Introduced MAT on partnership firm. | Would negatively impact Cadila Healthcare and Sun Pharmaceuticals. Since we have already factored in higher tax provision for FY2013, we are not changing our FY2013 estimates for both the companies.
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Indian Pharma Updates
Indian pharmaceutical market accounts for 1-2% of the global pharmaceutical market in value terms and 8% in volume terms. In 2007 it has grown by 12.9% to reach USD8.16 billion. Market growth during 2007 was driven by a number of new product launches by both Indian and foreign companies. The pharmaceutical market has grown at a compounded annual growth rate (CAGR) of 13% during the last five years. The market size comprises of domestic consumption of bulk drugs and formulations and does not include exports of the same.
Major Therapeutic Segments
The growth of the domestic pharma industry is largely dependent on its therapeutic presence. In terms of end-use, the pharmaceutical industry is sub-divided into several therapeutic segments. These segments are broadly defined on the basis of therapeutic application. Some of these segments are low-volume, high-margin segments, while the others are high-volume with relatively low margins.
The new lifestyle category likes cardiovascular and anti-infectives are at double-digit growth rates. The key therapeutic segments include anti-infectives, cardiovascular and central nervous system drugs respiratory and pain/ analgesics. The upcoming segment is anti diabetic, which contributes 4.9%. Among the acute therapies, anti-infective is the major contributing segment accounting for 17.7% of the total pharma sales market in India. The anti-infectives segment, being the largest, consists of five sub-segments: antibiotics, anti-protozoals, anti-helmintics, anti-malarials, and anti-tuberculosis. The anti-infectives segment has been driven by new introductions in the year 2006-07.
Gastrointestinal drugs are the next major therapeutic segment contributing 11.1% of the total sales. The major sub-segments under this category include anti-hypertensives, statins and anticoagulants. Cardiovascular, respiratory and pain/analgesics were the next leading therapeutic sub-segments accounting for 11%, 9.0% and 8.9% in 2006-07.
USFDA Plants
India has the highest number of USFDA approved manufacturing facility outside the US. Therefore it is in a good position to manufacture bulk drugs and export to regulated markets in the coming years. There are over 80 USFDA-approved manufacturing facilities in India (2007) and the number is estimated to grow at the rate of 30% by the end of 2008. This would make India the only country having the largest number of such plants outside the US. As per 2006 figures, even China, supposedly the biggest threat to Indian business in CRAMS, had 27 FDA-approved manufacturing sites. India has almost three times the number of FDA-approved plants than China has. This is one of the most vital factors for outsourcing manufacturing services to India by the multinationals and global pharmaceutical companies.
Indian bulk drugs exports revenue were USD2.65 billion in 2006-07, with a robust growth of 25% over the previous year but the pace of growth was slower as compared to the pharmaceuticals, which grew at 28% during the same period. The reasons attributable to the higher growth in formulations exports as compared to bulk drugs are increased demand for generics coupled with better acceptability of Indian generics in the global market from perspectives of both quality and price.
Regulations
- DCGI to curb export of fake drugs: To address the problem of counterfeit drugs in pharma exports, the Drug Controller General of India (DCGI) will introduce a new scheme of sample testing over the next six months. Under this scheme, at least 50,000 samples of drugs, which go out of the country, will be tested in DCGI labs to establish their authenticity.
- Pharma body may fix price for 10 drugs: The National Pharma Price Authority is likely to fix the prices of an additional ten formulations, outside the list of essential medicines price-controlled by the government. The rates of these drugs, belonging to some of the leading pharmaceuticals in the country, have seen an increase of more than the 20% limit allowed during a 12-month period. The price monitoring body was returned its powers under Para 10 (B) of the Drug (Price Control) Order 1995 earlier this year by the government to fix prices of any non-scheduled drug in public interest.
The export growth is driven by the increasing number of patented drugs going off patent in the coming years. India has the highest number of USFDA-approved manufacturing facilities outside USA; placed in good condition for export to regulated markets. India currently has the highest number of USFDA approved plants at 75, followed by Italy with 55, and China at 27.
Outlook
India has had a strong domestic pharmaceutical industry and a rapidly expanding market with a population of over a billion and a rapidly expanding economy. Prevalence values of many diseases are likely to increase with expansion of population, urbanisation and with higher identification rates in the coming decade. As per the Cygnus estimates the Indian (in the figure) pharmaceutical industry is likely to double its value to USD14.70billion in 2011. The investment in R&D, filling of higher number of ANDAs and DMFs in highly regulated market, mergers & acquisitions, in-licensing, skilled labour force, high standard scientific base and revenues from CRAMS will give necessary edge to Indian companies in the coming years. India has over 80 FDA-approved manufacturing facilities in 2007, which is estimated to grow at the rate of 30% by the end of 2008.
