With per capita sales of pharmaceutical products increasing from nine per cent in 2008 to 33 per cent in 2016-17, the manufacturers of active pharmaceutical ingredients (APIs) in India are experiencing a huge demand for their products. Experts feel that with positive market trends and growing demand for medicinal products, catalysed by the new policy changes to boost the sector, soon India is likely to make big strides in API production on par with its competitors on the global stage.
According to industry experts, the main reasons for the huge demand for APIs is due to the increasing healthcare issues related to communicable, non-communicable, lifestyle and age related disorders among the growing population in the country.
The advancements in technology and availability of highly skilled and low cost human resources, the favourable and conducive socio political and industrial environment during the last two decades have helped the Indian pharmaceutical firms to increase output at lower costs, thereby boosting growth.
However despite all positive factors since 1990s, some of the issues that have been causing concern are pollution and environmental issues. After having faced tough regulations imposed by Supreme Court, the Central Pollution Control Board had issued orders to stop further expansion of pharmaceutical industry in 1996. Since then during the past 17 years until 2013, the bulk drug industry, particularly in Hyderabad faced stagnation.
“No doubt, Telangana and Hyderabad in particular was the leading API manufacturing hub contributing more than 30 of country’s exports. However, with stringent environmental norms, the industry saw a stagnant period for over 17 years. Now with the intervention of state government and constant representations from the bulk drug manufacturing association members appraising the state and central pollution control boards about the new industrial reforms and advancements like installation of zero liquid discharge, in camera CCTV surveillance and regular monitoring of pollution treatment at common effluent treatment plants adopted to contain pollution have all helped the industry to lift the ban on expansion of industrial production. Fortunately the present government in Telangana is also very proactive, helping the industry to re-emerge as not only as a national hub for API manufacturing but very soon Telangana will become the global pharmaceutical hub with its upcoming Pharma City project”, said V.V. Krishna Reddy, President of BDMA.
While these are some of the positive developments for the upswing of APIs in India, the issue of excess dependence on China for sourcing low cost APIs has nudged our policy makers to declare the year 2015 as 'the year of API’ and to bring in drastic policy changes to help push the domestic industry to go in for large -scale manufacture of APIs and compete with international players on same lines as China to emerge as a leader in API exports.
Though at present, the industry is facing lower growth in exports because of unexpected global regulatory environments, increasing competition in the market, threat from exported products and lack of uniformity in the market, it is still expected that the Indian pharmaceutical industry will see positive growth in the coming years. “As we all know that stringent regulations in the international markets and environmental hazards are also posing as threats to the industry. Though the present phase has slowed down the pace of growth, , eventually the industry will overcome all these hindrances and we expect the markets to grow faster with more players entering the market and government taking actions to keep the situation under control and lessen the challenges,” says, Ravi Udaya Bhaskar, Director General of Pharmexcil.
Positive factors for growth
Along with the recent policy changes like Make in India, establishment of pharma clusters and eradication of multiple taxation system, India is considered as low cost production destination in the world. India’s cost of production is nearly 33 per cent lower than that of the US. Labour costs are 50–55 per cent cheaper than in Western countries. The cost of setting up a production plant in India is 40 per cent lower than in Western countries. Cost-efficiency continues to create opportunities for Indian companies in emerging markets and Africa. India has a skilled workforce as well as high managerial and technical competence in comparison to its peers in Asia. India has the second largest number of USFDA-approved manufacturing plants outside the US with about 2,633 FDA-approved drug products.
According to Jayanth Tajore, past president of BDMA, since 1991, Indian industry has grown and has become globally recognized as a reliable and cost-effective supplier of APIs. “The growth of any industry depends on GMP compliance. Manufacturing of medicines is a matter of national security and the government has been proactive in framing policy matters and amending laws to facilitate industry. We are proud of the fact that our industry provides significant direct and indirect employment to skilled and semi-skilled”, said Tajore.
According to reports, the API sector is valued at around US$ 120 billion and is projected to grow at a CAGR of 6.5 per cent to US$ 185.9 billion by 2020. India has over 2,000 API manufacturing units producing nearly 1,500 APIs, which is estimated at US$ nine billion. Out of this, nearly 50 per cent is for export.
As part of the natural growth process, Indian pharma industry tends to refine and upgrade the existing mechanisms. Similarly, the domestic and international accreditation agencies have been coming out with new standards to be adopted too. “Although the adoption of these standards comes at a cost, it is for the long-term benefit for the members to adopt the same. We have been representing to various government agencies, on the problems in the dependence on imports for key starting materials and are hopeful that necessary action would be taken to facilitate domestic production. We have been organizing knowledge sharing sessions, through government and private agencies on issues pertaining to our industry, for the benefit of our members. We acknowledge the support of Pharmexcil for relentlessly pursuing opportunities in new markets, and protect the interests of Indian exporters, and Life Sciences Skill Development Council for initiating skilling activities for our industry,” observed the former BDMA president.
Indian pharma market Size
The Indian pharma industry, which is expected to grow over 15 per cent per annum between 2015 and 2020, will outperform the global pharma industry, which is set to grow at an annual rate of five per cent between the same period.
The market is expected to grow to US$ 55 billion by 2020, thereby emerging as the sixth largest pharmaceutical market globally by absolute size, according to Arun Singh, Indian Ambassador to the US.
Branded generics dominate the pharmaceuticals market, constituting nearly 80 per cent of the market share (in terms of revenues). The sector is expected to generate 58,000 additional job opportunities by the year 2025.
Indian pharma export which was at US$ 16.4 billion in 2016-17 is expected to grow by 30 per cent over the next three years to reach US$ 20 billion by 2020, according to the Pharmaceuticals Export Promotion Council of India.
According to industry analysts, Indian companies have received 55 Abbreviated New Drug Application (ANDA) approvals and 16 tentative approvals from the US Food and Drug Administration (USFDA) in Q1 of 2017. The USFDA approvals are expected to cross 700 ANDA in 2017, thereby recording a year-on-year growth of 17 per cent. The country accounts for around 30 per cent (by volume) and about 10 per cent (value) in the US$ 70-80 billion US generics market.
Indian biotechnology industry comprising bio-pharmaceuticals, bio-services, bio-agriculture, bio-industry and bioinformatics is expected to have an average growth rate of around 30 per cent a year and reach US$ 100 billion by 2025. Biopharma, comprising vaccines, therapeutics and diagnostics, is the largest sub-sector contributing nearly 62 per cent of the total revenues at Rs 12,600 crore (US$ 1.89 billion).
FDI and new investments
With the Union Cabinet giving its nod for Foreign Direct Investment (FDI) up to 100 per cent under the automatic route for manufacturing of medical devices, the pharmaceutical sector attracted cumulative inflows worth US$ 14.71 billion between April 2000 and March 2017.
As per the latest data released by the Department of Industrial Policy and Promotion (DIPP), the exports of Indian pharma industry to the US will get a boost in FY18, as branded drugs worth US$ 50 billion will become off-patented.
Private equity and venture capital (PE-VC) investments in the pharma sector have grown at 38 per cent year-on-year between January-June 2017, due to major deals in this sector. Eric Lifesciences Pvt Ltd, has launched its initial public offering (IPO) worth Rs 2,000 crore (US$ 311 million) in June 2017.
Candila Healthcare, one of the leading Indian pharmaceutical company, is planning to raise Rs 1,000 crore (US$ 155 million) via a qualified institutional placement (QIP) of shares shortly.
Capital International Group, a private equity fund, has acquired a three per cent stake in Intas Pharmaceuticals Ltd from ChrysCapital Llc for a consideration of US$ 107 million, thereby valuing Intas Pharma to approximately US$ 3.5 billion.
Giving a boost to the biosimilars segment in the country, Aurobindo Pharma has acquired four biosimilar products from Swiss firm TL Biopharmaceutical AG, which will require TL Biopharmaceutical to supply all the developmental data for four molecules, which will be developed, commercialised and marketed by Aurobindo Pharma
Piramal, another leading pharma manufacturer in India has acquired a portfolio of spasticity and pain management drugs from UK-based speciality biopharmaceutical company Mallinckrodt Pharmaceuticals, in an all-cash deal for Rs1,160 crore (US$ 171 million). Aurobindo Pharma has bought Portugal based Generis Farmaceutica SA, a generic drug company, for EUR 135 million (US$ 144 million).
Sun Pharmaceutical Industries Ltd, India's largest drug maker, has entered into an agreement with Switzerland-based Novartis AG, to acquire the latter’s branded cancer drug Odomzo for around US$ 175 million.
Kedaara Capital Advisors LLP, a private equity (PE) firm is also planning to invest Rs 430 crore (US$ 64.5 million) to acquire a minority stake in Hyderabad-based diagnostics chain Vijaya Diagnostic Centre Pvt Ltd.
Sun Pharmaceuticals Industries Ltd plans to acquire 85.1 per cent stake in Russian company Biosintez for US$ 24 million for increasing its presence in Russia through local manufacturing capability.
Abbott Laboratories, a global drug maker based in the US, plans to set up an innovation and development centre (I&D) in Mumbai, which will help in developing new drug formulations, new indications, dosing, packaging and other differentiated offerings for Abott's global branded generics business.
Government’s push for pharma growth
Despite a few initial hiccups, the recent tax reform Goods and Services Tax (GST) is expected to be a game-changer for the Indian Pharmaceuticals industry. It will lead to tax-neutral inter-state transactions between two dealers, thereby reducing the dependency on multiple states and increasing the focus on regional hubs.
It is expected to result in an efficient supply chain management, which is expected to reduce its cost considerably. The cost of technology and investment is expected to reduce on account of tax credit which can be availed now on the duties levied on import of costly machinery and equipment.
As a part of government’s initiatives to promote the pharma sector in India, the government in its Union Budget 2017-18 allocated Rs. 2222.11 ($333.31 million) for the Department of Biotechnology (DBT). This is an increase of 22 per cent, to continue implementing the department’s national biotech strategy.
In an attempt to revive the API and bulk drug market in India, the Government of India has proposed peak customs duty on the import of APIs and also plans to set up mega drug parks to give a boost to domestic production.
The Government of India unveiled 'Pharma Vision 2020' aimed at making India a global leader in end-to-end drug manufacture. Approval time for new facilities has been reduced to boost investments.
The government introduced mechanisms such as the Drug Price Control Order and the National Pharmaceutical Pricing Authority to deal with the issue of affordability and availability of medicines.
Ananth Kumar, Union Minister of Chemicals and Petrochemicals, has announced setting up of chemical hubs across the country, early environment clearances in existing clusters, adequate infrastructure, and establishment of a Central Institute of Chemical Engineering and Technology.
The road ahead
According to industry experts, the Indian pharma market size is expected to grow to US$ 100 billion by 2025, driven by increasing consumer spending, rapid urbanisation, and raising healthcare insurance among others.
Going forward, better growth in domestic sales would also depend on the ability of companies to align their product portfolio towards chronic therapies for diseases such as such as cardiovascular, anti-diabetes, anti-depressants and anti-cancers that are on the rise.
The Indian government has taken many steps to reduce costs and bring down healthcare expenses. Speedy introduction of generic drugs into the market has remained in focus and is expected to benefit the Indian companies. In addition, the thrust on rural health programmes, lifesaving drugs and preventive vaccines also augur well for the pharma companies.