ValuGen Pharma [P] Ltd, with competencies in devising strategies, marketing, product selection, and project management now views South Asia and Africa markets as destinations of promising prospects for pharmaceutical companies. In an interaction, Sriram V Iyer, CEO, ValuGen Pharma provides a snap shot of opportunities and challenges in the region to Nandita Vijay. Excerpts:
How would you portray the significance of South Asia and Africa for pharmaceuticals research, manufacture and marketing?
South Asia and Africa have been a part of the tier II countries in the emerging markets in the last decade. These regions have witnessed a visible change in terms of sustainable growth.
The governments in the countries of South Asia and Africa have started rolling out investment friendly policies, reduced tax barriers, ensured marginal cut in corporate levies and encourages public private partnerships (PPPs).
The ensuing economic stability has led to the creation of market that opens up the prospects not just for pure pharma play but for integrated end-to-end healthcare offerings from diagnostic labs to hospitals, rehabilitation centres and drug manufacture.
Indian healthcare providers including Fortis, Manipal Group and Dr. Agarwal Eye Hospitals have already got into execution mode. Among the pharmaceutical companies Ranbaxy, Cipla, Zydus, Sun Pharma , Micro Labs, Lupin, Emcure, Dr Reddy’s, Biocon, Torrent, Macleods have also been in full throttle to tap opportunities. Many Indian companies are now looking to set up clinical research organizations (CROs) for clinical and galenic research here. However, given the sops being doled out by the local governments and availability of skilled manpower of chemists and pharmacists for entry level positions, countries like Bangladesh, Uganda, Kenya, Ethiopia, Nigeria look like great options to establish research and development in medical, clinical and galenic areas.
Several Indian companies have manufacturing facilities, currently restricted to produce drugs for local markets. For the long term, this is a prudent move going by the expected double digit growth. In the medium term, many new Indian manufacturing facilities are likely to be set up here.
What according to you are the reasons for the sudden emergence of these countries as the markets for the future?
In my view it is not a sudden emergence, but rather a slightly myopic view of Indian media not to report anything but big ticket merger and acquisition deals of core sector Indian companies in this region.
If I recall, one of the first pharmaceutical formulations exports from India was by Ranbaxy in the 70s to Africa. Since then, Indian pharma has maintained a steady growth and built a sizeable business over the last three decades. There is an immense equity for the ‘Made in India’ label.
Going by the macro-economic indicators, Africa’s collective GDP is more the $ one trillion. In terms of purchasing power parity of the local currency , the market spend in South Asia is at similar levels of western India. The growth rate of pharmaceuticals in these regions is around nine per cent which is far in excess of the developed markets.
Given the nascent development of the local pharmaceutical and healthcare sector in South Asia and Africa, there is a huge scope of Indian companies to consolidate and build business here. This is because the regional formulators are heavily dependent on Indian and European companies. Almost 50 per cent of the Active Pharmaceutical Ingredients (APIs) imported are from India.
Global multinationals ( MNCs) and large generic companies, that are losing out revenues from patent expiry products coupled with the pressures from decreasing reimbursement pricing and an stagnant market, are now forced to take a more pragmatic view of this region. This is because South Asia and Africa have the potential to leverage their product basket to increase their volume share. Interestingly MNCs too are now looking to establish cost and volume leadership besides build critical mass to their proprietary products.
Could you identify some of the visible trends in the region?
This region is in the midst of an economic boom driven by the propensity to spend which is music to the ears of any marketer. However for new entrants it is not going to be a cake walk. To this effect , regulatory requirements are stringent, similar to the implementation of the A-CTD in the ASEAN region. Preferential considerations are extended to local value-addition especially supplies to channelized purchases by government agencies. Although entry into these markets is possible, the offerings need to be differentiated.
Increase in purchasing power is opening up a hitherto unknown over-the counter (OTC) segment for food supplements, vitamins, protein and wellness products. A recent research paper from a reputed market research company estimates the OTC market growth at 13 per cent which is matched only by the Far East.
Quality and good manufacturing practices (GMP) of local companies is world class. There are over three companies in Bangladesh, two from Pakistan, five in Africa armed with international regulatory approvals from EMEA, USFDA, and other PICS member states. Several large US and European companies are looking at contract manufacturing from South Asia and Africa. In the short-medium term, my guess would be that several large MNCs and generic companies would consider setting up manufacturing here because it is more cost-effective than India and with less bureaucratic hurdles.
Local companies are Square Pharma, Beximco in Bangalesh. Aspen and Adcock in Africa were acquired recently by CFR from Chile and Getz from Pakistan are already exporting and consolidating market. However, there is still a long way for these domestic players to grow to Indian pharmaceutical levels in terms of collective throughput.
From a regulatory perspective, what are your observations of these two regions ?
The Governments in South Asia and Africa have identified and prioritized the need to bridge the gap between their current and global standards. Agencies like NDA Uganda, MOH Tanzania, Kenya, Nafdac Nigeria, have established bilateral relationships with MHRA UK, FDA USA to train personnel. An open widow exists between the Drugs Controller General of India (DCGI) and most regulatory agencies in this region to fast track and counter check quality standards of products and streamlines registration process.
Countries in East Africa like Tanzania, Uganda and Kenya are in dialogue to mutually recognize product registrations. South Africa’s MCC is helping to upgrade the regulatory requirements in Botswana, Namibia, Zimbabwe. North Africa covering Algeria, Tunisia and Morocco have adhered to EMA standards, which simplifies marketing to Europe.
In South Asia, Nepal and Bhutan accept Indian companies more readily, provided they have a pedigree of good operations. Sri Lanka’s regulatory agency is working closely with India to facilitate faster product registration. In the case of Bangladesh and Pakistan , grey imports are permitted but formulation exports are still blocked. However Bangladesh and Pakistan regulators are considering drug master files (DMFs) of APIs approved in EU and the US.
Given that India was a founder member of SAARC, our government could have played a more elaborate role to build a common platform for product registration in South Asia which could have provided huge opportunities for pharmaceutical exports. Within six years, most African countries will group itself under a common regulatory policy framework to ensure simplified business process.
In the case of Intellectual Property, many countries in South Asia and Africa are still not a signatory to TRIPS. Developed countries are not keen on TRIPS because trade margins for infectious disease drugs are higher than lifestyle disorder medicines.
What are the kinds of drugs that are vital for these regions and what could be India’s prospects to tap for opportunities here?
India is already the largest player in this region be it APIs, intermediates, excipients or FDFs (Finished Drug Form) on a volume basis.
Majority of population in South Asia and Africa are bogged down by poverty, suffer from infectious diseases and infant mortality. Therefore therapeutics in these two segments with differentiated products provide a huge opportunity.
Drugs to control infectious diseases are reported to generate high volumes and only companies with high operational efficiency can cater to this market while remaining profitable. This is because, large amount of international aids like Global Drug Fund, Gates Foundation among others make medicines available at almost no cost. Compulsory licensing along with government–private partnerships encourage local production of anti retroviral products. In fact, companies like Aspen Pharmacare generate around 20-30 per cent revenue from this segment.
Lifestyle disorders like diabetes and cardiovascular diseases too are no longer just a blink on the market radar screen. The demand for drugs in this segment is registering a growth although a notch below the overall market growth rate. Orthopaedics, women’s health, gastro intestinal also need to still grow to attain critical mass.
Could you give us a snap shot of the current scene and challenges of the South Asian markets like Afghanistan, Bhutan Maldives, Pakistan, Nepal, Bangladesh and Sri Lanka ?
Nepal, Bhutan, Maldives and Sri Lanka are excellent markets for branded generics. However this involves phenomenal commitment, persistence and staying power. For instance Sun Pharma and Micro Labs which have a long presence in the market have challenged multiple problems and now their products are a household name. These markets are growing and any company willing to sweat it out should be able to do well in the long term. The demographics, consumer behaviour, disease profile, evolution of the distribution and supply chain are analogical to Indian conditions.
As regards Bangladesh, given the trade barriers for formulation, a strategic perspective for any Indian company would be to leverage their R&D, manufacturing strengths with a local company through a joint venture or marketing alliance. It would not only provide access to local markets, but low cost manufacturing advantage over India, for their export business to Asian and African markets. In fact, Valugen, has been retained by one of its client’s to advise on a joint venture in Bangladesh..
In Afghanistan and Pakistan, there is a trickle of FDF and APIs, but given the security situation, it would be difficult to set up a base in these markets.
What is the future of the region ?
The future is optimistic in South Asia and Africa. Companies looking to expand beyond India for the first time should initially look at these markets especially the small and medium enterprises.
Could you give us an overview of ValuGen ?
ValuGen was incorporated in 2010. It has three promoters: Jayakumar R, former vice president, Global Business Development, Mylan Inc, the third largest global generic company, Manish Mutha, former Vice President, South & Central America, Micro Labs Ltd and myself. We come with extensive management experience having initiated Greenfield pharmaceutical business in over 60 countries.
Given the established network, ValuGen remains as a virtual company focusing on core competencies in strategy, marketing, product selection, development and project management. It acquired two small distribution businesses in Mexico and Central America with a product basket of over 30 products. It added 21 products to the pipeline and expects the region to jump-start the revenue. In addition, ValuGen is developing niche products for EU and North American markets. It filed its first EU-CTD last quarter. It intends to set up shop in select countries of Africa, Asia and have a joint venture in Australia. To fund its organic growth, it has a rapidly growing advisory practice for pharma companies to build their global business. In addition it is also an exclusive marketing partner for some large Indian companies for their business in Europe, North America and Asia-Pacific.
How is the company faring in the subdued global and Indian economic environment?
The formative initial years are often the toughest ones primarily because of a restricted resource base. However, ValuGen has a detailed five-year business plan evolved around building a huge enterprise value through creation of IP, dossiers and a great team. We expect to generate revenues of US$ 50 million by 2018.
What are the future initiatives of ValuGen to ensure sustained and profitable growth margins?
The crux lies in having a comprehensive grip of the market, regulatory frame work, reimbursement policy, consumer preference and product identification. This needs to be coupled with operational skills to keep costs low.