The policies of the Government aimed at making quality healthcare affordable to all, increasing access to healthcare in rural and urban areas and increasing penetration of healthcare insurance is expected to complement growth in the Indian pharmaceutical market, according to a pharmaceuticals sector 2015 outlook study by Dun & Bradstreet.
Factors favouring the industry include low rural penetration, rising healthcare spending, rapid urbanisation, lifestyle-related diseases, growth in aging population, technological advancements and wide range of products manufactured. Increase in government spending on National Rural Health Management and National Health Insurance Programme augur well for the sector.
Government- led initiatives such as the Jan Aushadhi, Pharma Vision 2020 and making India the Drug Discovery and Global Pharma Innovation Hub by 2020, will positively impact the sector.
Drug sales in rural markets are growing at a higher rate than in urban markets. Pharma companies are focusing on rural markets to counter the effects of price controls. Companies are hiring more personnel to tap the rural markets as price cuts have made medicines more affordable to the rural consumers., the study adds.
In the domestic market, generics are expected to fuel growth in this fiscal supported by the 'Jan Aushadhi' campaign. As part of the campaign, the Government will make available low cost generic drugs from July 1, 2015. The medicines would be procured in bulk from public and private drug manufacturers and rebranded as 'Jan Aushadhi'. In the initial stage, the government will sell 504 essential drugs including antibiotics, painkillers, vitamins and medicines used in the treatment of cardiovascular, respiratory, diabetes and gastroenterology diseases. In the second phase, medical devices will be included and list of medicines will be expanded.
The OTC market is also expected to record substantial growth with pharma companies and chemists increasing their presence in rural markets. Patented drugs constitute a very small portion of the market pie owing to high costs. Increase in disposable income is likely to accelerate demand for patented drugs going forward.
The sector is expected to witness a spur in investment activity during FY16. Nearly 54 projects valued at an estimated $ 50 billion are expected to come on stream in this fiscal.
Foreign direct investment (FDI) inflows during the April '14 - Jan '15 period totalled US$1,259 million, which is five per cent of the total FDI inflows in the country during the same period.
In February 2015, 100 per cent FDI through the automatic route for the medical devices segment was allowed. The new FDI policy encompasses all kinds of medical instruments, diagnostic tools and products, any technology and products including clinical implants. The move is expected to boost the manufacturing of medical devices in the country. It is also expected to drive M&As and collaborations to develop new technologies.
India has the potential to emerge as a cost-effective hub for R&D activities. The availability of cheap yet skilled manpower is a distinct advantage. An increase in R&D investment also calls for a robust Intellectual Property Rights (IPR) regime to ensure process and product protection. The government's vision of making India the Drug Discovery and Global Pharma Innovation Hub by 2020 will work in its favour. Some of the objectives of this vision include the target of achieving every 5th drug to be discovered/dev eloped in India and capturing 15-20 per cent of worldwide R&D investments.
The Indian pharmaceutical industry is characterized by low production and R&D costs along with cheap manpower. The ability of the industry to capitalize on these strengths has made it the third largest in the world in terms of production volume. India exports pharmaceuticals to several countries worldwide such as the US, Germany, France, Russia and the UK. The industry is currently grappling with the price cap extended on 450 drugs, which resulted in lower revenues in the domestic market in FY15.
In a recent move, the government extended the price cap on 52 more drugs taking the total number to 450. The drugs added to the list include those used in treatment of cancer and skin disorders in addition to antibiotics and painkillers. Post price cap, the price of drugs has fallen by nearly 40 per cent, significantly impacting revenues. In another development, the government's decision to exempt certain medicines and medical products from education cess is expected to lower the prices of such drugs and medical devices where excise duty is applicable. The move will lower the prices of drugs and medical devices where excise duty is applicable.
The changing landscape in the overseas markets also impacted sales in the current fiscal. Export targets are not likely to be met in FY15 due to delayed regulatory approvals in the US and currency depreciation in several countries such as Russia, Ukraine and Venezuela. Consolidation in the US market has increased competition in the market and narrowed down the price margins of manufacturers. Developments in the US market directly impact Indian manufacturers as India exports over US$4 billion worth of products to the US, out of total annual exports worth nearly US$15 billion. Exports to the US are likely to recover in FY16.
Although the sluggish pace of approvals in the US is expected to continue in the near-term, exports are expected to benefit from drugs worth an estimated US$300 million going off patent in the US between 2010-15. India stands to gain as it supplies nearly 25-30 per cent of generics sold in the US.
Increased R&D activity in the sector requires a stable and effective IPR regime that would protect innovation. A stable regulatory environment for clinical trials would help in bringing new drugs earlier into the country. The slow rate of launching new drugs is partly due to prolonged clinical trials and partly because foreign innovators fear their loss of monopoly rights owing to India's patent policies.
Pharma manufacturers also have to deal with the issue of compulsory licensing (CL), which means that the government allows another manufacturer to produce the patented product/process without the consent of the patent owner. CLs are granted when public health is at stake due to exclusivity granted to a product. CLs cause substantial revenue loss to companies.
Lastly, price control has been the bone of contention between the pharma producers and the regulator. In the government-controlled pharma industry, price controls will continue to stay.
The clinical trials market in India offers high growth potential given the availability of a huge population base, bio-diversity and low costs involved in conducting the trials. However, guidelines issued by the government have not been encouraging to the segment. The slow pace is expected to continue through FY16 unless the guidelines are reversed.
The government is chalking out strategies to reduce India's dependence on China for import of bulk drugs. The revival of HAL and IDPL is on the cards. Favourable policies and initiatives are the need of the hour to boost the segment.
The Department of Pharmaceutical has assigned 2015 as the 'Year of Active Pharmaceutical Ingredients' to emphasize the importance of the sector.