The Indian pharma industry has been consistently growing at a CAGR of more than 15 per cent  over the last five years. The healthy growth reflects the inherent strengths of the industry and improving healthcare standards in the country. If this trend continues, the Indian pharma industry is likely to be one of the top 10 global markets by value by 2020.

Growth in the market will be driven by the following factors:
Changing disease profile and favourable demographics In India, socio-economic changes and urbanisation along with sedentary lifestyle are leading to rapid epidemiological transition. As a result, the Indian population is becoming affluent, living longer and increasingly suffering from lifestyle-related ailments such as obesity, heart disease, stroke, cancer and diabetes. The number of Indian people suffering from these diseases is set to double by 2020. This change in patient demographics will fuel the demand for quality and affordable treatment in the domestic market.

Active participation by foreign pharma companies
Over the years, foreign pharma companies have tapped the Indian pharma market through a series of major acquisitions, launches of new products (especially in the branded segment with India-centric pricing) and expansion of field force. Further, MNCs have adopted India centric strategies such as differential pricing strategy to strengthen their presence in India and address the issue of affordability. MNCs are launching patent-protected drugs in India at lower price points than those in developed markets. Drugs such as Diovan (Novartis), Januvia (Merck, Sharp & Dohme), and Galvus (Novartis) are being sold at 20 per cent  of global prices.

Exports to regulated and semi regulated markets
Exports have made significant contribution to Indian pharma industry’s growth story, with the critical market of US generics driving the growth. US$ 148 billion worth of patent expiries are expected between 2012 and 2018. In addition, the healthcare reforms initiated by the US government, aimed at reducing healthcare spending and covering a larger proportion of population under public healthcare, are also likely to provide impetus to growth in the generics market.

Apart from the developed markets, the Indian pharma companies have strengthened considerable presence in some of the other fast-growing semi-regulated markets of Russia, South Africa and some in Latin American countries (Brazil, Mexico, etc.) and South-East Asia. These emerging markets offer strong growth prospects for Indian players given that some of these are branded generics markets, with high out-of-pocket expenditure on healthcare (unlike developed markets). Some markets have relatively easier regulatory pathway.

Growing alliances in emerging markets
Indian companies have also been partnering with MNCs in emerging markets. Such alliances benefit from the R&D (formulation development) and manufacturing capabilities of the Indian partners and the extensive marketing and distribution footprint of the MNCs in those markets. There is also an increasing trend among MNCs for partnering in the domestic market, where marketing and distribution footprint of Indian companies and the product portfolio of MNCs is being leveraged upon.

Hence, going forward, India should leverage its strengths in the supply of low-cost, quality medicines across the world and partner with foreign companies to drive growth and play a larger role in global pharma market.

Sustaining a robust growth till 2020
In order to sustain a robust growth rate of  15 to 20 per cent till 2020, companies will have to rethink the way they do business.

Over the years, pharma companies have grown inorganically through acquisitions, but due to higher valuations seen in the sector over the last two years, they have been exploring newer methods of partnerships such as joint ventures and licensing of innovator products and technologies.

Companies are focusing on improving operational efficiencies and have also used the traditional growth levers to drive growth . These initiatives have yielded results but some have also brought in new set of challenges, which companies will have to address for achieving profitable and sustainable growth.

For instance, companies have traditionally increased the field force to penetrate newer markets. This has helped companies to expand but sometimes below expectations. As increase in field force has not yielded expected productivity, it is becoming difficult for the companies to derive a fair return on investment (ROI) due to reduced profitability and higher cost. For example, from 2008 to 2011, the sales of top pharma companies grew by approximately 16 per cent and the number of sales representatives increased by almost 11 per cent but the productivity per representative grew only by 4.5 per cent.

In another such instance, companies have looked at portfolio expansion for gaining a larger share in the Indian market.

However, this has not only led to a wider portfolio, but also one with a portfolio with a large tail with more than 80 to 90 per cent of brands not even crossing the INR one  crore (US $0.2 million) mark. As a result, companies are now worried about future growth and have started planning strategies that would provide the required growth in this competitive market.

The Indian pharma market is changing, and the need to service this market is changing drastically. To sustain the robust growth for the future, the companies will have to adapt to new business models to serve their customers better. The companies that will adapt to the newer dynamics of the market are more likely to be successful. The companies that will reach patients faster and develop innovative ideas to cater to the changing needs of patient will succeed in the near future.

To register robust growth in the future companies need to think through the following:

Higher volumes through lower prices
As we have seen that chronic diseases are setting in early, a large majority of the population will be still working, and this is going to increase the burden on the patients. Pharma companies will have to work around a pricing strategy that will try and reduce the prices appropriately, so that they can rely more on volumes, with larger population suffering from chronic diseases. The chances of ‘penetration strategy’ working successfully would be determined by ‘higher volumes through lower prices. Some MNCS have looked at differential pricing while launching their global drugs in India.

Collaboration with new stakeholders in the super-speciality and speciality segments

Companies will have to work closely with key stakeholders like the payers and providers to improve patient compliance especially in speciality and super-speciality segments. In a country like India, the diagnosis rate is low and a compliance rate is lower in the treatment of almost all chronic diseases. Creating awareness about the disease and its implications will improve the diagnosis rate and improved efforts from companies through key stakeholders will improve compliance drastically. Improved compliance will dramatically increase sales of some drugs and, in turn, will drive growth for the companies.

Customising for Indian market
Indian market is different from the developed markets in terms of epidemiology, awareness, treatment protocols, and compliance and, above all, pricing. The innovator companies when launching new products will have to customise their strategies for the Indian market in order to make the product accessible and affordable to the masses.

Shifting towards prevention
The market will change from treatment to prevention, like other evolved markets. Indian companies will have to look into the healthcare management, work with various stakeholders, and use advanced technology to reach out to more patients. These include use of information and communication technologies such as mobile phones.

Launching patient programmes
In India the awareness and literacy rates are on the rise. The patient is more informed, aware and well read than before. As a result, the treatment modality is changing from doctors to self care. So when the treatment is shifting from hospital to primary care or from doctor to self care, there is a tremendous need to connect directly with the patient and pass more information to them. Patients will require new services such as home delivery etc. Companies will have to come up with innovative ideas to service these patients which, in turn, will increase the patient base and boost sales and growth.

Realigning field force strategy
In order to improve sales force productivity, companies will have to revisit the field force strategy, make changes if required and build in new skill-sets. For instance, they will need to provide employees skill sets such as serving patients as customers, look for penetration into newer geographies by piggy-riding on the experience of other industries like FMCG, etc. Thus, in this changing market scenario, the companies will have to change their strategies, adopt newer business models, modify or re-visit the old models and look for incremental growth from areas, wherever possible.

Recent trends
Industry is witnessing newer trends such as health insurance, mobile technology and growth of medical devices industry, which is further giving the impetus to the growth of pharma industry.

Health insurance
Health expenditure in India is largely funded out of the pocket, and this is reflected in the poor per-capita expenditure on health in India. Health insurance is thus critical to the growth of the healthcare market in India, in general, and to the growth of the pharma market in India, in particular.

The government of India initiated reforms in the insurance sector in 2000. Private insurance companies were allowed to operate in India and permission was granted for foreign direct investment to the extent of 26 per cent in the insurance sector. But recently, government has been considering a proposal to increase the limit to 49 per cent.

Health insurance is a significant part of the total portfolio of insurance companies. Gross premiums collected for health insurance products has increased steadily from INR 3,209 crore (US$ 642 million) in 2006-07 to INR 11,480 crore (US$ 2.29 billion) in 2010-11.

The government introduced the National Rural Health Mission in 2005 to improve healthcare delivery in 18 high-focus states. Many state governments have also introduced health insurance programs from 2007. The government also launched the Rashtriya Swasthya Bima Yojana in 2010 to provide healthcare to families living below the poverty line. These initiatives have resulted in a steady fall in the share of out-of-pocket expenditure in the total healthcare expenditure from 78 per cent  in 2004 to 60 per cent  in 2009.

Regional differences exist within the states and even between urban and rural areas. The total out-of-pocket expenditure is about 77 per cent in urban areas and 69 per cent  in rural areas. Further reforms are required in the insurance sector to include coverage of outpatient expenses, including drug-related expenditure.

Medical technology
The medical technology sector, which plays a vital role in the delivery of healthcare services in India was valued at US$ 2.75 billion  in 2008 (NIPER Ahmedabad) and is expected to reach 14 billion US$ in 2020 at a compounded annual growth rate of approximately 15 per cent  (Industry analysis and PwC estimates). The medical equipment segment forms the largest share of the medical technology sector with over 55 per cent  of the total size of the market. This segment includes the following:

• Imaging equipment like SPECT, MRI, CT
• In-vitro diagnostic equipment
• Equipment used for therapy like linear accelerators, gamma knife and cath labs

The medical implants segment constitutes the next biggest segment with over 25 per cent  of the market. This segment includes the following:

• Cardiac implants such as stents, pacemakers, heart valves
• Orthopaedic implants for knee, hip, spine etc.
• Eye implants such as intra-ocular lenses
• Ear implants such as cochlear implants
• Dental implants

Medical disposables and furniture constitute around 20% of the market and comprise items such as the following:

• Medical disposables:
• Catheters
• IV cannula, infusion sets
• Medical drapes
• Surgical masks
• Sutures
• Syringes
• Medical furniture:
• Patient beds and examination couches
• Patient trolleys
• Operating tables
• Wheel chairs
• Many Indian and overseas medical technology companies are launching innovative products for the Indian market. Innovation in the medical technology is crucial for the Indian healthcare system to improve access, enhance quality and reduce costs.
• Innovation in medical technology requires a vibrant and participative ecosystem comprising patients, medical centres, universities, the industry, health insurance companies and the government.

mHealth
There are 913 million mobile subscribers in India as per the estimates of Telecom Regulatory Authority of India (TRAI) for August 2012. The ubiquitous mobile phone offers opportunities for pharma companies in a variety of ways:

• Improving awareness
• Enhancing compliance
• Performing authentication

Improving awareness
Pharma companies can use mobile devices to deliver information about their products to physicians. The mean time for interactions between the medical representatives and the physicians is falling steadily and the mobile phone provides an alternate channel to deliver product information to physicians in a format and at a schedule that can be customised to individual preferences
The increasing penetration of mobile phones allows pharma companies to use this device as an effective marketing tool for OTC products.

Ensuring compliance
Reminders for taking medicines delivered through SMS enhance patient compliance to the medication regimen. Specialised devices are also being developed to help patients improve their adherence to medication schedules.

Performing authentication
Counterfeit drugs are a major source of worry for pharma companies. In response, pharma companies have started fitting special codes on medicine packages to tackle this menace. When a customer buys a bottle or strip of medicine, he/she sends the code as a text message or a scanned image to a specified phone number. A return message verifies whether the medicine purchased is counterfeit or not. Service providers like Sproxil and PharmaSecure have partnered with telecom operators to offer this service in emerging markets where the threat of counterfeit drugs is high.

Policy & regulatory landscape
Over the past year, there have been interventions at the regulatory level such as compulsory licensing, FDI policy, pricing policy, marketing code and regulatory approvals, which will require careful considerations as companies think through commercial strategies for future growth.

Pricing policy
The National Pharmaceutical Pricing Authority (NPPA), monitors and controls pricing in the Indian market for essential medicines, through the Drug Price Control Order (DPCO).

There are changes being discussed in the revised proposal, called the Draft National Pharmaceutical Pricing Policy (NPPP) 2011, which seeks to increase price control from 18 per cent  to 35 per cent by expanding the span of control from 74 to 348 drugs in the National List of Essential Medicines (NLEM) including 654 formulations26 of specified strength, while excluding combinations. The revised proposal is to shift from cost-based pricing to market based pricing by using the weighted average price of all brands in a segment with more than one per cent  of market share by volume.

Compulsory licensing
India’s first compulsory license has been granted by the Controller General of Patents, Designs and Trade Marks to Natco for Bayer’s kidney-cancer drug Nexavar in March 2012. This allowed Natco to sell a low-cost version at three per cent of the original medicine’s price on the grounds that the INR 2.8 lakh (US $ 5,600 ) charged by Bayer for a month’s dosage was too high for patients in India.

Enforcement of marketing code in the pharma industry
In an attempt to streamline marketing efforts, the Department of Pharmaceuticals (DoP) has released a code of marketing practices for the industry in 2011. The DoP code lays down strict guidelines on the most common and well-known areas of violation, like exaggerated claims; audiovisual promotions; activities of medical representatives (MRs); and provision of samples, gifts, hospitality and sponsorships by pharma companies. The code was voluntary, but in a recent meeting convened between the key industry stakeholders, the industry agreed  in principle to enforce a code that will restrict them from offering gifts or other sops to doctors in order to prescribe their medicines.

Delay in approvals for clinical trials
Although India has 15 per cent of the world’s population and 20 per cent  of the global disease burden, less than two per cent of global clinical trials take place in India. This is because of the regulatory uncertainty with regard to the conduct of clinical trials in the country (especially the bioavailability and bioequivalence (BA/BE) studies), which is affecting the growth of the clinical research organisation (CRO) industry and also bears a major ramification for the future of research and development (R&D) in India.

According to data from the Drug Controller General of India (DCGI), new drug approvals dropped by 56.25 per cent  during 2011 to 98 from 224 in 2010. Since last year, the DCGI has withdrawn from its role of approving drug trials in the country and has handed over the responsibility to a 10-member new Drug Advisory Committee (NDAC). This year, the NDAC has approved only nine drugs for clinical trials.

Even while India is a cheaper destination  to conduct clinical trials as compared to many countries, frequent regulatory delays raise the costs to levels comparable with US or EU levels. As a result, some CROs are looking to increase focus on other geographies like Malaysia and east European countries like Poland. Given the tremendous opportunity in the sector, the industry can benefit from speedy approvals and stronger ethical infrastructure for conducting trials in India.

FDI in pharma
The government recently decided to take stock of the decade-old FDI policy for the pharma sector. This decision was in response to the potential threat of dominance from foreign players and a general rise in overall drug prices in the country, arising from a spate of acquisitions of Indian companies by MNCs starting in 2006. The most notable ones are the acquisition of Matrix Labs by Mylan, followed by Daichii Sankyo’s acquisition of Ranbaxy, Sanofi Aventis’s acquisition of Shanta Biotech and Abbott Labs’ acquisition of Piramal Healthcare.

As a direct reaction to the takeovers, the government through the Ministry of Commerce and Industry (Department of Industrial Policy and Promotion) amended the FDI policy in November 2011 by permitting FDI up to 100 per cent  for investments in existing companies in the pharma sector through the Foreign Investment Promotion Board (FIPB) approval route. At the same time, FDI up to 100 per cent under the automatic route was continued for greenfield investments in the pharma sector.

The FIPB has laid out conditions for approving future proposals. MNC firm looking at buying a stake higher than 49 per cent  in an Indian pharma company will have to maintain the same level of investment in research activities and production of NLEM drugs for next five years. However, it is still at the proposal stage and the final decision is expected soon from the Prime Minister’s office. However, the broad consensus amongst the stakeholders in the pharma sector remains that FDI reforms in this sector should not curtail investments.

Conclusion
The Indian market provides significant growth opportunities for the pharma industry. However, for the industry to sustain a robust growth rate of 15–20 per cent  till 2020, companies will have to rethink the way they have been doing business. Pharma companies will continue to grow inorganically through alliances and partnerships. They will continue to focus on improving operational efficiency and productivity. However, to meet the requirements of changing business environment, they will have to adopt new business models and think of innovative ideas to service their evolving customers faster and better. Developments in the health insurance sector, medical technology sector and mobile telephony can help the growth of the pharma industry by removing financial and physical barriers to healthcare access in India.

Overall, the various regulatory interventions require careful consideration by the pharma industry. How companies adjust to the regulatory environment as they seek to capitalise on the opportunities provided by the Indian market will be an interesting space to watch in the coming months. As emerging markets become increasingly important and as India’s role among these markets becomes progressively significant, both domestic and pharma MNCs will need to adapt their business models, organisations and processes and create customised strategies.