Further easing of export regulations and support from the government is essential to penetrate more into the Commonwealth of Independent States (CIS), which is a high potential market for the Indian pharmaceutical exports, opine industry experts.
To capture a greater share of the CIS region, Indian companies need to have more flexibility by adapting a business model and product portfolio tailored to meet the local market needs, they point out.
CIS region comprising about 12 countries was founded in 1991 after the dissolution of the Soviet Union. At present the CIS includes Azerbaijan, Armenia, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Uzbekistan and Ukraine. Relations between India and countries of the CIS Region have remained close and cordial since the Soviet era. However, bilateral trade and commercial relations of India have not grown commensurately with these newly formed countries. Owing to factors like distance, language barrier, inadequate transport facility, inadequate information about business opportunities, CIS only constitutes 1.2 per cent share in India's total exports.
According to S.V. Krishna Prasad, M.D and CEO of Cito Healthcare, CIS countries have huge potential for Indian pharma exporters, but of late conservative regulatory approach of some countries in the region is a cause for concern for the Indian exporters. “CIS is a big region for India having huge export potential. Particularly Russia, Ukraine, Kazakhstan, Uzbekistan, Kyrgyzstan, and Belarus are India's major trading partners, constituting more than 90 per cent of India's total bilateral trade with the CIS countries. If these countries adopt a proactive and further ease export regulations, India can hold a major stake in the region,” says Krishna Prasad.
However with India emerging as the largest manufacturer of quality generics in the world, most of the CIS countries are building long-term trade relations with Indian manufacturers. According to industry experts during the past four years, generics exports are growing at 24 per cent per year and are poised for an explosive growth.
As per the statistics available from the Pharmaceutical Export Promotion Council of India (Pharmexcil), exports for 2012-13 stood at $14.7 billion of which 55 per cent exports are to highly regulated markets like USA and EU. The government has set an exports target of $25 billion by 2016. In view of this, the Indian government is promoting the industry in a big way with initiatives like tax breaks and a weighted tax deduction of 150 per cent for R&D expenditure. The central government had also introduced 19 dedicated Special Economic Zones (SEZ) to help stimulate investment in the pharmaceutical sector across the country and set aside $478.4 million to establish 10 new National Institutes of Pharmaceutical Education and Research (NIPER) in the country.
This apart the central government had also brought in new export policy to enhance exports to CIS, Africa and other Latam region. Particularly the government’s initiatives to enhance exports to CIS and Russia have yielded good results. Main products exported to CIS countries include antibiotics, antibacterial, antiprotozoal, anti-fungal, cephalosporin, anthelmintics, antiamoebics, medicaments and medicants of Ayurvedic etc.
In view of the huge export potential in the CIS region, the Pharmexcil, with the support from central government, has organized many promotional and exhibition activities in the year 2006 and 2010 and have achieved tremendous success in attracting CIS nations toward India.
In order to penetrate new markets such as CIS and increase the export of drugs, the government is offering several benefits on exports to emerging economies of late. The government is particularly focusing on CIS, African and LatAm countries with valuable inputs and recommendation from Pharmexcil and Commerce ministry, according to Dr Raghunandan H V, Associate Professor and Coordinator at JSS University, Mysore.
India is emerging as one of the largest manufacturers of the pharmaceutical dosage forms. Small and medium scale entrepreneurs play a vital role in the manufacture of the drug products. In fact, SMEs account for around 87 per cent in production by volume and 40 per cent by value in the pharma industry. With its tremendous progress in terms of infrastructure development, technology and the wide range of products manufactured , India can not only provide cost - effective and high quality drugs to the domestic markets but can also export them to the emerging markets of CIS and other regions in the world.
As Indian players have proved their ability to produce cost-effective drugs with their state-of-the-art manufacturing facilities, they can also facilitate build similar mechanism in the CIS and emerging markets.
According to a study by Pharmexcil, the export of pharmaceutical, drugs and fine chemicals grew by 27 per cent reaching Rs 60,000 crore. The Gujarat-based manufacturers are targeting export markets, particularly to growing economies in the CIS, Africa and Latin American region. Government of India is also planning to promote country’s generic export under the ‘Pharma India’ brand campaign over the next three years period.
Interestingly the export-oriented SMEs in Gujarat state have performed extremely well. These SMEs have already posted pharma products export of Rs 400- 500 crore during 2011-12. Emerging markets such as CIS, Africa and Latam have account for 50-60 per cent of overall pharma SMEs export from Gujarat, which continue to grow at an annual rate of 30-35 per cent, according to IDMA data.
Dr. Appaji, Director General of Pharmexcil, opined that during the last three years, exports of pharmaceuticals have been increasing at a compound annual growth rate (CAGR) of 17 cent and this is expected to rise to a CAGR of around 20 per cent over the next five years.
The new Exim policy also revolves around expansion of country’s export in emerging economies such as Latam, CIS and African nations. With an ambitious plan to increase the overall export, the Government of India had floated two measures in the policy including the Duty Entitlement Passbook and Export Promotion Capital Goods Scheme in addition to launching stimulus packages.
Growth in CIS
Growth in CIS region has been phenomenal for Indian industry in the recent years. India is chalking out a slew of initiatives in order to further tap the vast potential in this region.
The main reasons for this growth include rise in income levels of middle class, rise in health consciousness and growing burden of disease among the aged groups. All these factors have increased the demand for health care needs in Russia and CIS regions.
The Pharmexcil is carrying out various activities to improve exports to the CIS region. In the year 2012, as part of its promotional activities, the council had organized buyer-seller meets and even led a delegation to the CIS countries of Russia, Belarus, Moldova and Turkmenistan. This event had also coincided with Apteka Exhibition which was held in Moscow during December last year. “CIS is one region where India has huge potential for growth. At present we are taking part in various forums in CIS countries and conducting exhibitions, networking and touring trade delegations to explore the business opportunities and thereby improving our pharmaceutical and herbal exports to these countries”, said Dr. P.V. Appaji.
It is estimated that pharmaceutical sector in Russia and other CIS nations will have a double digit growth of around 10 to 11 per cent during the year 2012-2016. At present there is no national drug provision insurance system in Russia and CIS countries. Large, locally-owned pharmacy chains account for most of the market, but there are still a substantial number of small, independent pharmacies, particularly in the small and medium-sized cities. A national insurance scheme is under development. The hospital drug provision system, meanwhile, is more advanced and will continue to develop in the future.
A key factor for pharmaceutical companies to succeed in CIS region would be to balance their portfolio of branded generics, branded ethical products and over-the-counter (OTC) drugs that can be sold primarily at the retail level. A solid pipeline of innovative products aimed at the developing reimbursement and insurance schemes is also critical.
Moving in this direction, the world’s leading drug maker Takeda is aiming to capture the CIS markets by enriching their product portfolio with ground-breaking drugs that can compete for state money in the national and regional level hospital tenders.
The future growth within this market depends not only on innovation, but also on an increasing emphasis on localization. Having understood this, Takeda is opening a green field production plant at Yaroslavl in Russia, which will start manufacturing in the year 2014.
In order to achieve future growth within these markets, India needs to explore its opportunities not only the low cost quality generics portfolio but also move in with innovative drugs.
The growth in health care demands has been reflected due to growing sales of pharmaceutical and medical products in the country. For instance the sales by legacy Nycomed in CIS region for the six months ended March 2012 were ¥30.9 billion—a year-on-year increase of 10.9 per cent. This was driven by strong sales growth in Russia, which accounts for around 70 per cent of the overall regional market. In 2011 Nycomed was the fastest growing foreign company in Ukraine and ranked among top three companies in the industry in Kazakhstan.
Among the emerging markets in CIS region, Georgia is playing a vital role in the production of pharmaceuticals. Already, exports from Georgia have grown at an average 47 per cent over the past six years, and Georgia’s own demand for pharmaceuticals has experienced rapid growth, averaging 16 per cent.
The Indian focus
Till recently India’s focus in the CIS markets was limited, but today many Indian pharmaceutical companies have developed trade relations and are exporting herbals, formulations and APIs to the CIS markets. Many of the top companies such as Cipla, Orchid, Dr. Reddy’s, Ranbaxy, Wockhardt, Panacea Biotech, Lupin, Aurobindoa, Piramal Healthcare, Ankur Drugs and Pharma, Glenmark, Nectar lifesciences, Emcure, Claris Life Sciences, Divi’s, Hetero, Arch Pharmalabs and Matrix have gained substantially by their exports to CIS nations.
If India’s drugs, pharmaceuticals and fine chemicals exports are analysed region- wise for the year 2010-2011, North America holds the major chunk of 25 per cent with Rs. 11717 crores of exports while Europe and African markets hold the next position with 19 and 17 per cent respectively. The share of Middle East countries is of Rs. 3693 cores and LAC countries is Rs. 3183 crores which accounts to eight and seven per cent share respectively.
The CIS countries accounted for export revenue of Rs. 3017 crores during 2010-2011 which is about six per cent share when compared to the other regions. On the whole, total exports for the year 2010-2011 constituted 58 per cent of formulations, 41 per cent bulk drugs and one per cent herbals. Since most of the CIS nations lack the right kind of technical infrastructure and expertise required to set up and develop quality pharmaceutical products, they rely on India to manufacture a large bulk of products needed by healthcare or pharmaceutical companies.
Among all the CIS countries, Russia with a value of Rs.1301.64 core is the leading importer of pharmaceutical drugs and fine chemicals from India. Following this, Ukraine is the largest importer of pharmaceuticals from India with more than Rs 550 crores while Kazakhstan and Uzbekistan stand as third and fourth leading importers with Rs. 227 crores and Rs 142 cores worth imports from India during the fiscal 2009-10.
“We are witnessing a robust growth in Russia and have considerable presence in the country. We are also in the process of tapping the markets in other CIS countries. We are slowly planning to acquire small to mid-sized brands to boost our business there. We are also looking aggressively at in-licensing products from multinationals and other companies. There is good opportunity in the Russian market and we are doing our best to address the opportunity,” said Satish Reddy, MD Dr. Reddy’s, while sharing his view on their business plans in Russia and CIS region.
Increasing trade activities
In order to give a push to the pharmaceutical trade between Indian and Russia, during the year 2010, the two countries had agreed to exchange of technical know-how for production of pharma products including bulk drugs, serums, biosimilars, vaccines etc and have agreed to participate in setting up of enterprises for scientific and production capacity.
According to official sources, the visiting Russian delegation led by Russian Minister for Industry and Trade, Victor B Khristenko and the senior officials of the Department of Pharmaceuticals led by secretary, Mukul Joshi have also agreed on a draft MoU to encourage collaborations in the areas of trade, industry, joint ventures and R&D in the pharma and bio-pharma sectors. They have also agreed to exchange of information on the issues of regulation in the export/import of pharmaceuticals products including Active Pharmaceuticals Ingredients etc.
In 2010, an agreement on Russia-India Biotech Network (RIBN) was also signed in Andhra Pradesh in the presence of Chief Minister K Rosaria. RIBN is a dedicated on-line platform to effectively facilitate collaboration between the Russian and Indian biotech communities.
The challenges
Though the Indian pharmaceutical industry is catering to the demands of the CIS nations by understanding their requirements and accordingly developing drugs under contractual manufacturing, in the recent times the Indian firms are increasingly facing many challenges and hurdles at the CIS countries. It is high time for the Indian firms and the government to change policies accordingly and adapt to the international standards and explore all possibilities to tap the highly potential CIS markets.
Enumerating the challenges for expanding trade to CIS nations, Dr. P.V. Appaji, said, “Though the pharmaceutical trade with CIS nations looks quite bright at present, there have been some hurdles that are hindering our exports to the region. Recently the Russian government had brought in a new drug policy which intends to bar all the pharma and biotechnological imports from India. They want to reach the target of at least 70 per cent of self sustainability by the end of 2016.”
He said that the recent changes in the Russian policy are discouraging the Indian exports to that country. They are also seeking high standards and imposing huge fees for registration of products.
In Azerbaijan, due to political reasons, the government has stopped giving permission for approvals to the Indian companies. Kazakhstan is also becoming rigid and it is expecting USFDA level documentations for approvals. Countries like Ukraine have so far depended on Indian companies but it is also slowly moving towards regulated markets.
With the growing salience of India in the field of pharmaceuticals and biotechnology on the global stage, the CIS nations are keen on exploring opportunities for building trade relations with India. At the same time the Indian government is also equally interested in building a long-term relation with the CIS nations.
Growth in CIS region is still at a nascent stage. The Indian pharma industry can capture the upcoming business opportunities in these countries by forming partnerships and collaborations with the local players to build a long-term relationship.