Growth potential
The domestic Indian pharmaceutical industry is likely to more than triple to $20 billion by 2015 from the current $6 billion to become one of the top 10 pharmaceutical markets in the next decade, says McKinsey report. Significantly, patented drugs are likely to see increased sales in the domestic pharmaceutical market, growing from virtually nothing at present to about $2 billion in seven years.
Consequently, a number of multinationals have entered the Indian pharmaceutical space. Already 15 of the 20 largest pharmaceutical companies in the world have a presence in India. In fact, drugs and pharmaceuticals is the eighth largest FDI-attracting sectors in India.
Positives factors
Cost advantage: Apart from contract manufacturing, contract research is gaining momentum in the pharma industry. Instead of producing in their respective countries, large global pharmaceutical companies are finding it profitable to outsource production. To tap this opportunity, many large companies are becoming US FDA compliant. It is also profitable for global pharmaceutical companies to outsource instead of producing in their own country. At present, India has 75 US FDA approved plants.
Growth opportunities: Various joint ventures have been formed between Indian and MNC pharma players for strengthening their manufacturing capabilities, technology-sharing and leveraging on the partner's experience in product filings, regulatory compliance, etc.
R&D space: Greater investment in R&D has led to a major change in the industry. Contract research also offers significant opportunity to the Indian pharma industry that is becoming a global R&D hot-spot for innovative pharma companies. The global contract research opportunity is expected to reach $24 billion by 2010. Declining R&D productivity, coupled with an increasing number of products going off patent is expected to drive the growth of the contract research segment.
Tax exemption: On the regulatory front, the government is also trying to promote the growth of this industry by providing a tax exemption on all services carried out by the contract research and clinical trials industry. This step is likely to further boost clinical trial outsourcing to India.
Negative factors
Lack of facilities: For global pharma majors, India remains the key outsourcing destination as companies here are cost competitive in manufacturing bulk drugs. This is basically a commodity making skill and is the lower end of the pharma value chain. Indian pharma industry still lacks facilities to conduct clinical tests. To undertake expensive clinical tests, Indian companies have to depend on international peers.
Patent regime: For the small companies, the new patent rule might not be good to survive in the environment. Domestic pharma majors will find it difficult to launch new products and it may slowly reduce. The law favours MNC pharma companies to increase their product launches. As a result, this will pose competition to the domestic players.
Thus the patent regime will be a major drawback for the Indian companies.
Competition: Competition in the generics market has. Consequently, the prices are wearing away. The condition is expected to be worsen further. Companies will have to face stiff competition. In order to compete in the market, companies have to make a right acquisition plan.
Generics
Indian pharmaceutical companies with their reverse-engineering expertise, abundant investment in research facilities and availability of skilled manpower are favorably placed in the global generic market. According to a report by global pharmaceutical market intelligence company, IMS Health, Indian generic manufacturers will grow by 14-15% next year, to more than $70 billion as drugs worth approximately $20 billion in annual sales will face patent expiry in 2008.
Already, Indian drug companies account for over 25% of the total generic drug applications made to the FDA of US, which accounts for over half of the $60 billion market.
Global acquisitions
Many Indian pharma companies have been setting up new plants or acquiring existing plants to increase their scale of operations and their share in the branded generic drug segment.
- Zydus Cadila, the Ahmedabad-based pharma company, has acquired 100% stake in Nippon Universal Pharmaceutical, Tokyo.
- Ranbaxy has 50% stake in Nihon Pharmaceutical Industry (NPI), a joint venture between Ranbaxy Laboratories (RLL) and Nippon Chemiphar of Japan. It has also acquired the rights from Bristol-Myers Squibb (BMS) of US to manufacture and market 13 dermatology brands.
- Sun Pharmaceuticals has bought Israel's Taro Pharmaceutical Industries for $454 million. The company, on the whole, has 13 acquisitions to its credit, which include manufacturing sites, brands and companies. Taro is its 14th buy.
- Jubilant Organosys, a leading domestic player in the pharmaceutical CRAMS segment, has acquired 100% stake in US-based contract injectable maker Hollister-Stier Laboratories LLC (Hollister) for $138.5 million.
- Lupin has acquired 80% stake in Kyowa Pharmaceutical Industry (Kyowa), one of the top ten generic pharmaceutical companies in Japan.
- Intas Biopharmaceuticals Ltd (IBPL), an Ahmedabad-based biopharmaceutical company, has entered into a strategic R&D pact with the US based Virionics Corporation.
- Wockhardt Ltd has acquired Paris-based Negma Laboratories and US-based Morton Grove Pharmaceuticals.
Pharma stocks index
During the year, the pharma index shows volatility. But its overall performance is good. It has ended up than what it was at the beginning.
Forecast
Goldman Sachs predicts that India will be the fifth largest pharmaceutical market in the world by 2020, with sales of $43 billion. India must update its patent laws to international standards, thereby truly encouraging and rewarding innovation. A patent law change is inevitable as the reform will benefit domestic drugmakers, which are increasingly involved in R&D, as well as foreign players. If changes are not undertaken, investment in the country will fall, severely hampering economic development.
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