The Indian pharmaceutical sector is currently undergoing unprecedented changes. This can be attributed largely to the country's introduction of product patents on January 1st, 2005. Under the new patent regime, many multinationals are making a comeback on the Indian centre stage; the attractions being India's traditional strengths in contract manufacturing and as an outsourcing location for R&D, particularly for clinical trials and other services.
Today the sector has increasing direct investment from MNCs and is placing more emphasis on the biotech segment and brand development. For the future, R&D and acquiring skills from one another/consolidation of the fragmented Indian pharmaceutical sector will become imperative.
Global pharmaceutical outsourcing is also gaining popularity and Indian companies are well poised to exploit this opportunity with its technical skills, regulatory skills, cost advantage and global relationships. India is fast becoming a leading destination for CRAMS with advantages like cGMP and PDA compliant facilities, manufacturing capabilities, R&D base, superior information technology capability, cost efficiency and pool of skilled personnel.
Key Trends
.Indian Pharma industry is on a global acquisition drive and is becoming a significant player of the global pharmaceutical market in the generics space.
.Global pharma value chain is being redefined by Indian players through building collaborative networks and becoming outsourcing partners of the MNC pharma majors.
.The draft New Drug Policy, which intends to bring additional 354 drugs under price control, has been opposed by the pharmaceutical industry. The matter is now referred to a Committee, which is expected to give its report by end of September 2006.
.Many Indian pharma companies are now unlocking the value of their NCEs, which are currently under development, through out-licensing them to a pharma MNC or de-merging them into a separate company. Private equity funding is also being considered as alternate funding mechanism.
.There is an increasing visibility in the Contract Research and Manufacturing (CRAMS) space, which is being considered as the next emerging and scalable opportunity for the Indian pharma industry.
.In the generics space the pricing pressure continues, however, Indian companies have been able to win rights on blockbuster drugs.
.With the advent of product patent regime and increasing affordability, MNC pharma companies are planning to accelerate launch of their patented products in India.
.The R&D spends of Indian pharma companies are increasing, albeit at a lower rate of growth. There are now around 10-12 companies conducting research on new molecules as opposed to 3-4 companies few years ago.
Snapshot of the year
Indian pharma industry leveraged many global as well as domestic opportunities and emerged as global player in the international arena. While the key exclusivity wins in the generic space further boosted Indian pharma industries already-leading role in global generics production, global acquisitions made helped them in making their mark in the international markets. Through these global acquisitions, Indian pharma players consolidated their positions in the existing markets, shored up their product portfolios and entered into new geographies. The CRAMS space also saw Indian pharma companies striking significant deals.
In the NCE / NDDS space Indian pharma companies unlocked significant value through de-mergers / private equity funding and out-licensing. Indian domestic pharma market too performed well with 9 per cent growth in value terms and 7 per cent in volume terms. There is a marked difference in strategies adopted by Indian pharma companies and MNC pharma companies operating in India. While Indian companies focused on global acquisitions and exploring in-licensing & marketing alliances, MNC players are planning to gradually bring their blockbuster drugs to India with the advent of product patent regime.
Key Industry Considerations
Pricing pressure - Generics, one of the largest segments of the Indian pharma industry, has been facing intense pricing pressure on the back of slowdown in the patent expiries, advent of authorized generics and increased competition among new and existing players. With the entry of small and medium sized firms, the price erosion to the tune of 85-90 per cent has become an industry norm.
Low R&D spends - Introduction of Patent Act in 2005 restricts the use of reverse engineering, which was the main driver of growth of the Indian pharma industry. For Indian manufacturers to fulfill their ambitions to become significant players on the world stage, significant investment in R&D is required; at 2 - 4 percent of sales, these are currently far below the global spend levels of 10 to 20 percent.
Price Controls - the draft New Drug Policy intends to bring an additional 354 drugs under price control. This would lead to increasing the DPCOs span of control over 50-60 percent of the market as compared to the current 25 per cent. Drug prices in India are amongst the lowest in the world, further price controls will adversely impact profitability the industry. After prolonged discussions, the Government has agreed to refer the matter to a Committee, which is expected to give its report on the matter by end September 2006. As an interim measure, to bring down prices, industry has agreed to restrict both wholesalers' and distributors' margins
Opportunities Leveraged
Generics: In the generics space, after long time, Indian companies won exclusivity rights on blockbuster drugs. Ranbaxy received 180-day exclusivity (80 gm.) on Zocor (Simvastatin) and Dr.Reddy's became the authorized generic for Merck for Zocor. Dr. Reddy's also launched Allegra with two other players in the market. Sun Pharma also enjoyed semi exclusivity on Ultracet. Indian pharma industry continued with its dominant position, with 35% share of the global DMF filings, and participated in every possible generic (patent expiry) opportunity.
CRAMS: One of the important trends observed is, long term relationships being built between Indian pharma companies and Pharma MNCs, leading to a preferred vendor status for the Indian companies This is a key success factor in the exploitation of this opportunity. Significant deals were entered into across the CRAMS segment including custom synthesis, Intermediates, APIs and Formulations. Nicholas Piramal, who pioneered this concept, has entered into an agreement with a Fortune 500 company for the supply of formulations. Dishman Pharma has built a long-term sustainable business model by having collaboration agreements with various Global Pharma majors.
Special Economic Zones (SEZs):
The new SEZ Act is expec-ted to take India's manufacturing competitiveness to the next level. Indian pharma industry which is becoming a global player in the international arena through its exports focused approach was also in the lead among various industries for capturing this emerging opportunity. As many as 15 Pharma SEZs received an in - principle nod from the SEZ Board, including 11 pharma SEZs and 4 Biotech SEZs.
Global Acquisitions:
Indian pharma companies have been among the most aggressive investors for foreign pharma assets. A Few large acquisitions have catapulted Indian companies into the global league, competing against Generic giants. For e.g., with Betapharm's acquisition Dr. Reddy's has become the 4th largest generic company in Germany while Terapia's acquisition has made Ranbaxy the third largest generic player in Romania. Indian pharma companies focused more on EU region for acquisitions where, they believed, a wider range of companies were available at reasonable valuations. A buoyant Indian stock market facilitated the Indian Pharma majors accessing acquisition currency in the form of Foreign Currency Convertible Bonds (FCCBs) and increasing private equity funding also chipped in with renewed faith in Indian entrepreneurial capabilities.
(Courtesy: KPMG- CII study, September 2006)