The Rs 35 billion plus Indian pharmaceutical industry is emerging as a major player on the world healthcare map and enjoying a status of preferred partner by global giants. The Indian companies have successfully proved their ability in the international market by establishing hi-tech cGMP manufacturing facilities supported by strong own research base. The new patent regime has created ample opportunities on one hand and brought new challenges on the other hand. Considering the future opportunities and challenges, Indian companies have implemented several strategic decisions during the last couple of years. The new plans have already started yielding results and the Indian pharmaceutical segment is set to tap future opportunities in world market.
Over the years, Indian pharmaceutical companies have created sound financial position and are now spreading their activities in other parts of the world. When the major pharmaceutical markets were facing the problem of slower growth rates in business operations, Indian companies have successfully gained momentum. When the highly regulated pharma markets clocked only 7-8 per cent of growth during 2004, Indian sector notched up a much higher growth of above 17 per cent. India contributes around 6-8 per cent to global pharmaceuticals sales volumes and known as fourth largest producer of pharmaceuticals products by volume after the USA, Japan and China. It is forecast that chronic segment is liked to grow faster than theacute segment worldover in the years to come and the Indian companies are now focusing more on chronic segment.
In line with the single digit growth in the worldwide pharmaceutical industry, the Indian pharma segment also marked by lower growth rate in sales and profitability during 2004-05. As per a Pharmabiz study, 50 major listed companies in India achieved net sales of Rs 29,403 crore, Rs 27,380 crore and Rs 22,394 crore respectively for the years 2004-05, 2003-04 and 2002-03. The net sales for major 50 companies increased by 7.8 per cent in 2004-05 and 17 per cent in 2003-04. The stiff competition in the international markets, change in government policy with implementation of VAT and MRP based excise duty, adoption of patent laws, and huge investments in R&D, the net profit growth was restricted to 4.9 per cent in 2004-05 as against almost 17 per cent in the previous year.
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Few important factors like easy availability of funds for expansion, cheaper interest rates, strong back-up of talent pool and low cost labour force, huge investments in R&D and large domestic market size helped Indian companies to overcome problem of stiff pricing competition in international market. Indian pharmaceutical companies have established their strong presence in every area like cardiovascular, diabetolgy, hyperlipidemc, anti-depressants, gynaecology & urology, respiratory, pain management, gastroenterology, anticancer, biologicals, etc. Even a few major companies are developing herbal products which are safe, effective, patentable and science-based phyto-pharmaceuticals complying international quality standards.
Indian companies are set to strengthen their share in the world market during the coming years through investing huge funds in R&D activities. These companies have already shifted their focus from process re-engineering to novel and non-infringing process development during the last couple of years. The R&D spending of top 25 pharma companies increased by 42 per cent to Rs 1,815 crore during 2004-05 from Rs 1,278 crore in the previous year.
The R&D expenditure as per cent of total sales worked out to 8.2 per cent during 2004-05 as against 6.29 per cent in the last year. Ranbaxy Laboratories remained at the top in respect of R&D spending at Rs 400 crore during 2004-05.
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Dr Reddy's Laboratories' R&D expenditure as per cent of total net sales worked out to 19.11. Sun Pharmaceuticals is spending around 12 per cent of its net sales on R&D. Ranbaxy entered R&D collaboration with GSK and Torrent Pharma with AstraZeneca.
With rising R&D spending, Indian companies have filed highest numbers of DMFs in the US during the first quarter of 2005-06, which will boost their top line in the coming years. Ranbaxy has filed 109 DMF in various countries and received cumulative approvals for 151 DMFs. Dr Reddy's Laboratories filed 65 DMFs and 13 ANDAs. Sun Pharmaceuticals filed 13 ANDAs during 2004-05. Similarly, Cadila's filed 28 DMFs and 24 ANDAs upto 2004-05. The Indian pharma companies have developed strong product pipeline through own R&D efforts. The launch of cost-effective products are giving a tough time to the multinational majors. Relatively new listed companies like Matrix Laboratories, Divi's Laboratories, Dishman Pharmaceuticals, Biocon performed well during 2004-05 and started filing DMFs and ANDAs with rich product pipeline.
The Indian pharmaceutical companies are focusing more and more on lucrative regulated market to boost their earnings. The exports earnings of top 25 companies increased by 7.7 per cent during the year 2004-05 despite several odds like stiff competition, stringent approval laws and significant higher market cost. Indian companies are mainly concentrating on US and European markets. The competition in US generic market put pressure on business operations during 2004-05. Export earnings during the 2003-04 went up sharply by over 35 per cent. A few top companies fight legal battles with multinational companies in the patent front in foreign countries with mixed successes. Some of the cases are still going on and the outcome is awaited.
After establishing hi-tech facilities as per world standards cGMP, the Indian companies are looking out for contract manufacturing for global giants. The firms have successfully won several contracts from multinationals on account of strong manufacturing base. To cater to the rising demand, the companies are investing huge funds for expansion programmes. Lower interest rates and easy availability of finance in the country are assisting well in this regard. The Indian companies are also issuing Foreign Currency Convertible Bonds for necessary funds for expansion programme. Sun has issued FCCBs worth $ 350 million.
To save the cost and boost international operations, the companies started establishing their own subsidiaries in several countries. These subsidiaries are taking care of marketing, launch of new products, regulatory approvals, commercialisation of new products, etc. 15 major companies have established 109 subsidiaries with an investment of Rs 1752 crore.
Out of 109 subsidiaries, 84 are established in foreign countries with total investment of Rs 1495 crore. Further, the Indian pharma companies entered into several joint venture agreements and successfully expanded their activities in domestic as well as international area. Cadila Healthcare entered into agreements with Zambon of Italy and Mayne Pharma of Australia.
There are around ten multinational companies viz., Pfizer, GlaxoSmithKline, Merck, Aventis, Abbott, Solvay, AstraZeneca, Novartis, Wyeth and Fulford that have setup their manufacturing facilities in India. Several other companies like Eisai Pharmaceuticals of Japan, Bristol-Myers Squibb Co and Merck & Co both from USA, are also looking at India as a manufacturing base. With the introduction of Patent Laws, many other companies will move to Indian territory by setting up manufacturing plants, R&D centers or marketing arms.
In order to achieve inorganic growth, the Indian companies started hunting for well established small concerns abroad. During the last couple of years, the mergers and acquisition activity increased significantly and total investment in M&A has crossed Rs 2000 crore. The acquisition of RPG Aventis in France by Ranbaxy and acquisition of Trigenesis Therapeutics, Inc., in US by Dr Reddy's Laboratories proved to be successful with significant growth in business as well as provided access to certain products and properietary drug delivery technology platforms. Other companies like Matrix Laboratories, Sun Pharmaceuticals, Nicholas Piramal, Stride Arcolab and Wockhardt also invested huge amounts for acquisitions. The M&A activity is likely to increase in the future and the consolidation will be a key word in the changing business environment.
Indian players have given due importance to its investors by announcing hefty dividend rates. Further, these companies are issuing bonus shares in the regular intervals. With the strong financial position, foreign institutional investors are also increasing their stake in pharma companies. The market prices of several pharma scrips climbed to peak level during second and third quarter of 2005.As against the equity capital of Rs 594 crore of top ten Indian pharma companies, the market capitalization worked out to Rs 65,934 crore. Thus the segment is enjoying the investors' confidence on account of good returns on investments.
The biotechnology segment is getting immensely important during the last couple of years and Indian firms are taking steps to grab the arising opportunities. Biocon, Panacea Biotec and several leading pharmaceutical companies have set up research centres for development of new biotech drugs. Panacea has entered into a 50:50 joint venture agreement with Chiron Corporation of UK, (one of the five global majors in vaccines in the world).
The US$ 550 billion world pharma market is expected to grow around 8 per cent with the US, Europe, and Japan together managing 88 per cent of total size. During the last five years, the US market has increased its share of the world market by 3 per cent, in contrast to Europe, where market share has been static at 29 per cent, and Japan where market share has declined from 15 per cent to 12 per cent. Several countries experienced above average growth during 2004. In Asia, China, Thailand, Egypt, Philippines Taiwan and India achieved better growth.
Indian pharma sector is moving ahead and improved its performance during the first half of 2005-06. The net sales of 50 major pharma companies reached at Rs 12,011 crore for the first half ended September 2005 from Rs 10,016 crore in the corresponding period of last year, registering a rise of almost 20 per cent. Similarly, their net profit also went up sharply by 32.4 per cent to Rs 1735 crore from Rs 1310 crore. Many multinational companies are looking at India for R&D and clinical trials. Thus the Indian pharma industry is set to overcome several odds and move ahead strongly in the international field in the coming years.
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