Though India’s pharmaceutical exports during the bygone year 2016-17 have had a rough weather due to so many factors that lead to it slow down and at some point of time it also touched a negative growth, industry experts are confident that it was only a temporary phenomena and they expect that the current financial year will end this trend and exports will slowly pick up and show a remarkable positive growth.
“Definitely, we can say the year 2016-17 was a tough year for India’s pharma exports as the global markets went through an intense course correction that had an adverse impact on Indian pharma exports. Many nations have made drastic regulatory changes to limit imports and increase self production, while a few others had gone for alternative sources for procuring pharma products giving intense competition and pricing pressure from the international markets. Adding to this, the pricing pressure witnessed in US markets and domestic DPCO order and GST all have had drastic impact on exports. However, we feel it’s only temporary course correction phenomena and hopeful the industry will bounce back in 2017-18 as already we have been witnessing positive growth of 19 per cent during the last 3 months ending September 2017,” observed Uday Bhaskar, Director General of Pharmaceuticals Export Promotion Council of India (Pharmexcil).
USA evergreen destination
As USA is a major export market for India, despite pricing pressure and stiff competition, the Indian pharma exporters are expecting positive growth from this market. As per Care Ratings, it is expected that Indian pharma exports to the USA may go up in 2017-18 as $50 billion worth of drugs are expected to become off-patented during the current year giving hope to boost export market.
However, the Care Rating report also stated that the Indian pharmaceutical industry is likely to face competition from other countries to get Abbreviated New Drug Application (ANDA) approval. Apart from this, the Indian pharma companies will continue to witness pricing pressure in the US generics market due to consolidation of distribution channels and increase in competition. "The pharma export volumes from India to US however are expected to rise. This will be backed by about $55 billion expected sales gain to generics drugs on account of branded drugs going off patent during 2017-19 which will create an opportunity for CRAMS segment,” stated the Care Report.
According to the report it is also expected that the growth rate for Contract Research and Manufacturing Services (CRAMS) to be higher compared to average growth rate of the industry.
According to industry analysts, the Indian pharmaceuticals industry (IPI) earns around 70 per cent of its revenues from sale of generic drugs and generates around 50 per cent of its revenues from exports. IPI registered revenue of around $33 billion in 2016. Exports form a major part of the industry's turnover and over 50 per cent of the sales comes from exports.
Of the total pharmaceutical exports of $16.8 billion during the year 2016-17, American continent accounted to a major chunk of over 40 per cent exports followed by 19.7 per cent to Europe, 19.1 per cent to Africa and 18.8 per cent within Asia. The major reasons that attributed to weak exports were price erosion in the generic market in the USA due to consolidation among customers i.e. the distribution channels, increase in competition, and absence of blockbuster drugs going off patent and regulatory issues faced by Indian pharma companies, say experts.
According to Pharmexcil, exports to USA surged by 27.8 per cent accounting to $5.5 billion in the year 2015-16. However, due to various factors, the export scenario to USA weakened in the subsequent year and the Indian pharmaceutical exports could only gain a marginal of 1.3 per cent to $5.6 billion in 2016-17.
The main reason for this slow down is because the industry faced a slew of issues with increased scrutiny of regulatory authorities, increase in competition in generics market of one of its primary export destination, USA. This, in turn, resulted in marginal growth in exports to that country.
Export avenues in Africa and CIS markets
Apart from concentrating on the USA market, the Indian pharma industry is also looking at avenues of unexplored markets of Africa and CIS regions. Very recently the Pharmexcil has focused its concentration to explore export opportunities in African markets. To this effect it has also scheduled a business tour with the Industry leaders to explore export opportunities in the region of DCR Congo, Nigeria and Cote d'Ivoire.
At present Ethiopia, Tanzania and Zambia are important export destinations for the Indian pharmaceutical firms, who have already captured major chunk of market share in these regions. However, there are also other areas which are still unexplored. In view of this, Pharmexcil wants the prospective Indian firms to explore the exporting opportunities and build a long lasting business network in this part of the region. “As we are already aware that India is a significant exporter of high quality affordable generic drugs to the African continent. However, there are regions which are still unexplored and out of reach of Indian firms. In view of this we are proposing a business delegation to Africa from 18-28th February 2018,” informed the Pharmexcil Director General.
Particularly, the West African region has huge potential for the Indian exporters. Currently India exports generics worth of $84 million to DCR Congo during the year 2016-17. However, according to an estimate by the industry experts this country has a potential of consuming $275 million worth of generic medicines.
Similarly, Nigeria, which is already one of the leading importers of Indian high quality generics, has consumed $344 million worth of medicines for the year 2016-17 supplied from India and an estimate $600 million worth of market is yet to be explored. Another country Cote d'Ivoire is also emerging as a major consumer of Indian generics. During the year 2016-17, India has exported $31 million worth of medicines, however the country has a potential of consuming $300 million worth of generic medicines in the coming days.
Exploring CIS markets
Right from the beginning the Commonwealth of Independent States (CIS) has been a very important export destination for the Indian pharmaceutical companies. However, the recent policy changes initiated by some of the leading CIS nations like Russia, Uzbekistan, Tazakitan, Georgia, Belarus etc to reduce imports and to promote domestic manufacturing, have created headwinds for Indian exports. But despite this, India has exhibited a positive growth of 28 per cent in exports for the year 2017.
Unlike African markets which had exhibited negative growth due to political instability and weakened local currencies, CIS has always been a positive territory for Indian exports. The CIS market is still largely remain untapped and could be explored further, opine experts.
According Ravi Udaya Bhaskar, despite the fact the CIS nations are now giving preference to their home grown companies, India could succeed in achieving 19.83 per cent growth during the year 2015-16 to 2016-17.
“Most of the CIS countries want to become self reliant and is giving preference in procuring medicines from the firms and units established in their own countries instead of importing. In fact most of the CIS nations are forming MoUs and tie-ups with Indian and some of the western countries to set up manufacturing units in their country. Though it had initially created fear among the Indian exporters, we could maintain a positive growth of 28 per cent during the past three quarters this year,” explains the Director General.
According to Pharmexcil, exports to CIS region which stood at $615 million in 2015-16, have jumped to $633 million in 2016-17, exhibiting considerable growth. Except for Belarus, Tajikistan and Turkmenistan, other CIS countries like Russia, Uzbekistan, Kazakhstan, Kyrgyzstan, Moldova, Ukraine, Azerbaijan and Armenia have shown good potentials for the growth of Indian pharmaceutical exports.
Seeking Indian’s support for setting up domestic pharmaceutical units in Uzbekistan, the Uzbekistan government had invited Indian firms to explore the investment opportunities in its growing pharma sector extend a helping hand in developing its domestic pharma markets. “We are informed that Uzbekistan is offering unique investment climate and is willing to offer a slew of incentives for Indian pharmaceutical companies who are interested in getting into its market. We hope this is a great opportunity for the Indian firms to take advantage and enhance their global market share,” said Bhaskar, Director General of Pharmexcil. Uzbekistan has been a leading importer of pharmaceutical products from India. According to Pharmexcil, the country has steadily increased its value of pharma exports from Rs. 156 crore in the year 2011-12 to Rs. 192 crore in the year 2012-13 and again this has jumped to Rs. 290 crore in 2013-14. This shows Uzbekistan is a major consumer of Indian pharmaceutical and healthcare products.
However, of late the country has brought in new policy initiatives to give priority for the firms manufacturing in their own country, which is aimed at making their country self reliant in pharmaceuticals. As a part of this, the country has decided to give a big boost to the domestic pharma sector and launched seven new free economic zones for pharma and has invited national and international players to invest in the country.
According to Avaz Khodjiev, Counsellor (Trade & Economic), at Embassy of Uzbekistan in India, the main objective of establishing seven new free economic zones for pharma sector is to encourage industrial development in the country. Particularly for the pharma industry the Uzbekistan government has rolled out tax and customs duty exemptions for joint venture firms for a certain period. In the initial stages, Uzbekistan Government is encouraging Indian companies to set up packaging facilities there.
The maximum demanded level of localization is 36 per cent, which could be reached in next 3-4 years. Rest of the semi-ready products could be further imported from their factories in India on duty-free basis, informed Avaz Khodjiev.
The Indian investors can also avail the opportunity of exploring other markets in the CIS region, as Uzbekistan has already made Free Trade Agreements (FTAs) with CIS countries like Georgia and Ukraine, which helps the Indian firms in reaching the growing market of Central Asia, Afghanistan and other CIS countries.
Among all the CIS nations Russia is a major importer of Indian pharmaceutical products. It constitutes about 59 per cent of total Indian pharmaceutical exports. “After USA, Russia is the second largest consumer of Indian pharmaceutical products. Though slow in growth, we are expecting a steady growth in spite of policy hiccups and regulatory hurdles,” said the DG.
Overall, Indian pharmaceutical industry is expecting good days ahead for pharma exports and is expecting to sustain double digit growth for the year 2018-19.