The Indian pharmaceutical industry ranks among the top five globally by production volume and today accounts for over 10% of global drug production. The industry’s turnover has grown from a mere $300 million in 1980 to more than $22 billion today. According to the Department of Pharmaceuticals, the Indian pharmaceutical industry employs about 340,000 people. However, the industry is fragmented, with more than 20,000 companies – of whom about 77% produce finished formulations, while the remaining 23% manufacture bulk drugs.

Recent reports suggest that India’s domestic pharmaceutical sector is expected to grow to $55 billion by 2020 and, as a significant exporter of high-quality generic drugs, the value of India’s drug exports is expected to double to $25 billion by the end of 2014, according to the country’s Minister of Health. Against this background, Cambridge Consultants engaged in a workshop-style dialogue with a cross-section of senior personnel from a variety of functions within Indian and multinational companies, to consider if India would be driving world pharmaceuticals by 2030.This report is based on the workshop hosted by Cambridge Consultants.

The future direction of the Indian pharmaceutical business will be subject to a number of market influences between now and 2030. Our discussions reviewed a number of factors which will affect companies.

Corporate change
Most local companies have grown from smaller family-run businesses established to exploit India’s former patent stance which, until 2005, did not recognise specific product patents, only process patents. Companies expanded rapidly by developing specific expertise in process chemistry and formulation as a means to work around the process patents of multinational companies’ (MNCs’) leading drugs.

Culturally, the family bond in Indian companies is still considered to be strong today even though many have, in part, passed into public ownership. Significant corporate strength has been derived through loyalty to the leadership and thus the source of company ownership, be it family or corporate, is believed to be immaterial in the short term.

Indeed, there are some perceived advantages in the family corporation model such as close-knit teams and streamlined decision making. However, for the longer-term development of business, these structures may present challenges. These could arise as families may split with different personal visions for growth or with the need for growth driven by investment rather than profit, with the traditional desire to avoid debt driving a transition to yet broader ownership to enable future debt financing.

The system of family control has ensured that local competition remains fierce and it was noted that there are few intra-domestic collaborations. Predominantly companies seek more collaborations with non-Indian partners as this also enables them to gain leverage in international markets. Such co-development and risk sharing (partnerships, venture funding and equity investments) were seen as necessary to further enable international growth in the future.

As a mechanism of corporate growth, the delegates did not expect to see large domestic Indian companies merge, as there are few opportunities to derive economies of scale with a relatively homogenous product mix between companies. Where merger and acquisition (M&A) does happen, this is expected to occur from the bottom up. There are over 20,000 pharmaceutical companies in India but these are primarily micro companies, with only around 250 ‘organised’ companies.

For MNCs without a significant presence in India (many chose not to invest in a significant local presence in India until after the 2005 Patents Act reforms), the acquisition route may provide an attractive way to gain a local operation and those domestic companies without substantial ex-India business may be targets.

Where will sales growth come from?
The Indian domestic market is expected to remain important for all companies, both for local companies and for MNCs. However, as is the present case, the domestic market will still not offer the highest profits to companies as there is much small-scale competition in the niche generics sectors driving down costs. Companies must avoid continually offering simple, lower-cost generic alternatives and thus propagating the downward cost spiral and potentially compromising quality.

“India has broken the myth that drugs have to be expensive. But driving cost to pennies sacrifices quality”

Generics (as opposed to novel drugs) can still provide growth in the future, but presently drug developers appear to offer only modest levels of innovation – eg new combinations or minor formulation improvements. Whilst India may have revolutionised the generics market by driving down cost, there is a strong perception that this has stifled its pursuit of more innovative development. The five leading companies in this sector spend approximately 5-10% of their earnings in research and development related activities. However, in global circles this percentage is near 15-20%.

In order to drive faster growth, companies must now aim to create true added-value offerings (super-generics) which can deliver  additional benefit to patients. In that way, continued downward price pressure and the ‘commodity’ label may be avoided as companies begin to differentiate their products through the application of technology.

The continuing wealth growth and industrialisation of populations is shifting demand from acute to chronic diseases such as diabetes, hypertension and psychiatric disorders. Marketing into chronic disease segments allows companies to build brand loyalty amongst prescribers and patients: MNCs have successfully built substantive franchises on that basis. For Indian companies predominantly engaged in generics, such franchises will be increasingly difficult to access as there is currently no basis for a relationship with the stakeholders. Portfolio diversification is needed to stay competitive in this arena and companies may need to consider specialising in a therapeutic spectrum, not just molecular segments. This will need to be supported by the addition of technology differentiators and potentially by co-development and risk sharing (partnerships, venture funding or equity investments).

India remains one of the largest nations without basic health insurance coverage and the need to pay ‘out of pocket’ may constrain prices/profits and hence domestic market growth. Delegates felt that for real growth to occur, and to out-pace simple, organic population growth, there would need to be improvements to essential national infrastructure. India is substantially under-invested in healthcare, with 17% of the world’s population but only 6% of the hospital beds. This provides a limiting effect on the use of drugs and other healthcare products. Although private companies are building units to tap into the burgeoning Indian middle-class health market, the necessary expansion for the bulk of the population will have to be met by government or public-private enterprise.

On the international stage, Indian companies have become synonymous with provision of good-value generics. US and EU export markets deliver greater profit on volume and the levels of major Western market penetration can be exemplified by noting that over a third of all drug master files (DMFs) filed with the US Food and Drug Administration (FDA) are held by Indian companies. However, with China now already holding around 11% of DMFs, delegates noted that Indian companies would need to continue to expand into new markets – with Latin America and Russia/CIS seen as notably important. Looking further east, China itself was regarded as being a difficult market unless added-value products were developed by Indian companies, as there are already too many basic generics from competition in China. Within Japan, whilst there is considerable government effort to drive towards generics, there were concerns that longer-term consumers may resist the government push on generics as ‘brand is king’ in Japan and consumers are expected to remain wary of non-innovator products.

Regulatory and clinical environment
Whilst regulations are viewed as good and necessary by industry representatives, the group felt that in the future India will need improved regulatory approval processes. India needs either greater bandwidth for the approval process or should consider restrictions on the number of generics which can be reviewed to allow drugs to be approved faster. Other countries restrict the number of filings for a specific generic, so that there are not dozens of similar generics that clog the national regulators’ approvals processes. Furthermore, there were concerns that continuing to allow unrestricted regulatory access with low hurdles may be detrimental to long-term quality. There is a critical relationship between product quality, accessibility and affordability that needs to be balanced.

There is both a real and a perceived difference in regulatory and quality frameworks for international and domestic markets, with delegates noting that Indian quality of production for domestic use is often different from international markets, with different plants used for the domestic and international product.

India is trying to globalise its regulations to match and compromise with other countries but, since the reviewers generally come from government rather than industry, there was concern expressed that rate of progress would suffer as reviewers add bureaucracy rather than understanding and knowledge of the products.

“The regulators can’t make allowances if they don’t understand the products”

However, it was felt that these changing regulations (mimicking US and Western laws and policies) will benefit the larger domestic companies and MNCs which have rigorous quality standards in place and will ultimately restrict growth for the thousands of micro pharmaceutical companies in India focused on generics, forcing rationalisation or M&A activity.

One aspect which is seen to confer a distinct advantage on companies operating in India is the opportunity to treat the country as a vast test market. The lower regulatory burden allows companies the luxury of having the domestic market as an incubator for new concepts.

This is seen as hugely important as Indian companies shift their emphasis to adoption of technologies as mechanisms of differentiation. The local, less regulated market allows technology to be real-world validated prior to entry into either the US or EU markets, where the greater clinical trial burden would add significant pre-launch cost and risk. Although the data generated has no validity for the purposes of regulatory submission (eg to the FDA or the European Medicines Agency), the experience is invaluable.

Internationally, there is not expected to be a significant shift towards a global regulatory environment. The International Conference on Harmonisation has harmonised standards in some countries, but in general the opinion was that countries will persist in using drug regulation as a less obvious mechanism of protectionism than overt trade barriers. In addition to primary regulatory thresholds, the increasing use of secondary, economic approvals was seen to be unlikely to become present in India itself, but expected to be increasingly more prevalent in health services worldwide.

The need to show longer-term outcome/economic benefit in products was agreed to be strongly indicative of the need for Indian companies to press further forward with their adoption of differentiating and value-adding technologies.

Technology influences: key drivers towards 2030
In order to capitalise on the growth opportunities, the participants discussed how technology might be adopted by Indian companies to achieve the kinds of growth expected. It was noted that whilst consumer goods have very short lifecycles, medical products have longer cycles, principally because of the high safety and efficacy burdens on drugs. However, as new generic opportunities slow (due to the fall in MNCs’ new chemical entity output), what technology might be used in drug delivery to extend lifecycles, add value and, importantly, allow product differentiation in a crowded market space? Will Indian companies invest in technology to develop beyond simple generics in the international markets?

Oral delivery expected to remain predominant
Oral delivery will continue to be the gold standard for primary treatment in most countries unless user needs, clinical requirements or drug type constrain this delivery method.

“It’s hard to foresee a future without pills”
The choice of the oral dose form has a number of principal drivers: cost and time to launch can be minimised by the oral route and patient compliance concerns more readily addressed than with complex delivery systems.  For Indian companies competing in the crowded generics space, speed-to-market and first-to-file advantages in the US have been, and are expected to remain, important whilst existing legislation remains. A predominant strength for Indian companies has classically been in chemistry and formulation and so, by staying within their knowledge and comfort zone of oral formulation, companies have minimised their development costs and risk by not adopting innovative or higher-priced technologies.

However, whilst modest lifecycle management opportunities via formulation changes or improvements may deliver modest profitability gain and can move companies ahead of commodity generics, more substantial success will be driven by combining drugs with devices and delivery systems, and not by drugs alone.

As already noted above, addition of such technology differentiators will require Indian pharmaceutical companies to increase investment and/or consider co-development and risk-sharing partnerships. India needs to invest significantly in R&D, perhaps following the example of the Japanese model. The Japanese industry invested heavily 30 years ago and has subsequently emerged as a strong, innovation-driven business competing directly with US and EU companies. By contrast, India has a relatively recent history in the pharmaceutical market, primarily in generics.

New therapies and new devices
A growing number of Indian companies are moving into biologics (including biosimilars and biobetters) where injectable therapy necessarily predominates due to the inherent unsuitability of protein molecules for oral administration. The groups considered if injectable therapies could ever become mass-market solutions for drug delivery and concluded that limitations will still persist.

The switch to use of injections as a principal delivery mechanism in the mass market was agreed not to be a device problem.

“Most objections can be solved technically but it’s a human factors issue – convincing people that it’s OK to inject themselves”

Injection needs to be both easy and painless to administer to become mass market and also needs to be safe and sterile regardless of the local environment. Where adopted, technology must be used to remove the fear of delivery, inconsistencies in use and local injection site reactions: the products must focus on user needs.

For the growth in biologics to occur, there is need for greater product support to gain adoption by consumers. Adding additional technology which overcomes such issues will ultimately be cost saving, therefore is an area where technology investment is most likely to be made.

The use of India as a test market has already been noted and this was felt to be a likely scenario in future for biologics therapy. India is a large enough market where focusing drug and device development might aid MNCs in global growth as well as local companies. An example was cited whereby a company had developed an injection pen for German and US markets but at relatively high cost. The company redesigned from scratch for India for 25% of the cost, and now the lower-cost device is being launched in Europe and the US to enable lower-income patients to afford the therapy.

Drug delivery technology beyond oral and injectable
Given the great formulation skills within the Indian pharmaceutical sector, we considered whether reformulation of drugs matched to appropriate delivery technology could provide Indian companies with a mechanism to both differentiate and innovate. A variety of other drug delivery systems was then considered.

The wider adoption of transdermal technology (including micro-needles) was quickly ruled out as the local Indian environment offers too many user limitations, including dust, heat and high humidity. Without the value of the local market as a driver, it is seen as unlikely that Indian companies will progress this technology purely for export markets.

Inhaled products are already commonplace in the Indian market through major local and MNCs’ products, targeting respiratory disease markets such as asthma and COPD. It was felt that, as the dust has now settled on Exubera, Indian companies with pre-existing specialist knowledge would be well placed to develop value-added products using the pulmonary route to deliver systemic drugs. Redevelopment of products targeting conditions such as breakthrough pain, migraine and panic attack were all mentioned. Added value would derive from the improved speed of onset of relief (vs oral) or improved user benefits (vs injection).

It was not expected that Indian pharmaceutical companies would significantly invest in becoming device companies but would continue to use experienced device design and development consultants to support their formulation/ chemistry expertise. There was broad agreement that Indian companies will need to change manufacturing and production methods to support the further adoption of drug delivery device technologies within a product differentiation strategy.

Connected health? Indian pharma business and the data revolution
Against the background of rising healthcare costs, we discussed how companies might use technology to harvest and beneficially use data to bring benefits to healthcare providers and consumers alike.

Currently, a generic device has to be an ‘acts-like, uses-like, feels-like’ system and so embracing connected health technology would have to be as part of a strategy to adopt added-value technologies, moving into super-generics. In keeping with India’s reputation of serving mass markets, the concerns of the group were around the tipping point at which technologies would become inexpensive enough for widespread adoption, with parallels being drawn to the cellphone and internet adoption pathways.

Devices that enable improved compliance are needed, provided they can be low cost. These could remind patients about dosage, inform physicians about patient progress through a course of treatment, and provide ongoing non-invasive monitoring of a variety of conditions. However, we remained unsure that the Indian pharmaceutical industry would drive that business forward. It was felt more likely that the impetus may come from software companies coupled with healthcare players in Western markets. Equally, given India’s dominance in IT and software in places like Bangalore, it isn’t beyond belief that a connection could be made between one industry and the other, placing India in a strong position to become a global player in connected health markets.