In changing business dynamics, traditional pharma business models are not dependable for sustainable profits. Indian pharma companies will have to respond to the emerging opportunities by navigating a 'vision'. Although Indian pharmaceutical industry has succeeded in capturing generic market, it is yet to strategically explore its capabilities.
As global scenario is changing every day, Indian pharmaceutical industry is also evolving in its shape, size and contribution. Basically, Indian pharma sector is very quick to respond to the opportunities. During the last four decades, there has been a convulsion in Indian pharma industry through price control mechanisms. It all started in 1971 with first drugs price control order (DPCO). The recurrence of DPCO took place almost every eighth year coincidently, with a lag of administrative delays. It is remarkable that every time Indian pharma industry responded with resilience.
Historically, Indian pharma industry was known for generics. Almost up to 2005, patent regime did not affect the industry. Hence, the growth of Indian pharma industry, with its entrepreneurial and opportunistic behaviour, has been significant with manufacturing as a focus. Indian pharma industry has taken forward and backward integration to grow. In forward integration, Indian pharma industry has taken steps towards contract research organisations (CROs) novel drug delivery systems (NDDS) and other platforms along with biosimilars. In backward integration, Indian pharma industry excelled in active pharmaceutical ingredients (APIs) and reduced the burden of its import. Risk taking ability of Indian entrepreneurs also helped the pharma companies to grow in international market, retaining their lead in domestic markets.
Along with manufacturing, Indian pharma companies also acquired trading and selling expertise. However, investment that Indian pharma companies made in research and development (R&D) is not comparable to the world. As Indian pharma companies have to generate funds for R&D from generics business, it is indeed challenging to provide investment in R&D. However, this is essential to create competitive edge in global business.
Now that Asia has become the centre stage, and as a result, almost all big global pharma companies are eyeing India and China for growth prospects. Chances of leading Indian pharma companies maintaining an edge over big global pharma will be tested. The success depends on what kind of branding and marketing strategies and skills Indian pharma companies can adopt in comparison to global pharma companies. Since global companies are battling with new issues, Indian companies with their inherent capabilities can compete successfully.
R&D - Time-tested growth driver
Globally, the presence of blockbuster model and its success have attracted the pharma companies to make huge investments in R&D. Today, even the blockbuster model for value migration of global pharma company is not yielding results. The blockbuster model itself is at dying stage.
The aging blockbuster model and other economic forces have given birth to generics of equal quality in each country. Biotech has opened a new chapter and it is also quickly getting skewed into biosimilars. Today, 24 per cent of the world market has already been captured by generics. As patents expire in large numbers, global pharma companies will also try to establish their presence in global generic market.
Generics
India enjoys 14 per cent market share of global generic market, which was estimated at $57 billion in 2007. Indian generic market has grown at a compound annual growth rate of 7.5 per cent in the past few years. If the same growth rate continues, India's generic market will be around $9.91 billion by 2010. It is expected that the CAGR will increase to 12.5 per cent after 2010. At this growth rate the Indian generic market will be around $32 billion by 2020.
Global pharma industry is facing a host of problems. Decreasing returns on increasing R&D spend, escalating sales and marketing expenditure and the impending loss of patent protection are adding to the financial burden of multinational pharma companies.
Over a period of time, the dependence on blockbusters would diminish and the skills which global pharma have in R&D would create limitations for themselves. Market needs and dynamics of every country are changing. Response time of big pharma is getting delayed. Policies of flexible product mix and pricing with all their advantages and disadvantages are becoming a major challenge for many big global pharma companies to capture market share and consumers.
New era of Indian pharma
As the product patent protection regime has set in, Indian pharma Companies took proactive steps for investing in R&D through different models.
Intellectual property rights (IPR)
Today patent holders have an apprehension to approach Indian market. Parameters of approval of patents with incremental improvements have not been appreciated by the Indian policy makers. Differential pricing will be equally important while considering new molecules to be introduced by new entrants in Indian market. Cases of compulsory licensing for patented molecules will also have to be looked into.
India, known for its talent, capabilities in information technology and availability of R&D scientists, has a big window of opportunity for clinical research. Many co-development agreements by Indian companies with big global MNCs are in progress. This time tested growth driver will propel Indian pharma industry on its growth track.
Potential markets
Due to demographic, economic and regulatory issues, markets are shifting from US and Europe to Asia Pacific region and BRIC countries, including India and China. Now that the scenario is changing from patented blockbusters to non-patented generic, hence strategies for creating and sustaining the market share are critical. These potential markets will create new challenges for both Indian and global pharma companies.
In order to anticipate and visualise India 2020, it is important to face four major challenges. These challenges are:
Indian market structure:
Indian market from structural point of view has 3 distinct components. By 2012 India's population may come closer to 1200 million. Since the government expenditure on health care is so minimal, majority of Indians have to maintain their health and pay for their sickness from their own pockets. Though there is an increase in the number of health insurance companies, penetration of health insurance in Indian population is just at the peripheral level.
Considering this context and looking at the demographic dividend coupled with a fast growing middle class, out of 1200 million people, 300 million people will be able to afford advanced healthcare facilities, including diagnostics as also newer and better medicines, even high priced ones.
The bottom of pyramid consists of other 300 million people, who will not be able to afford any high cost medications, hospitalisation and/or other health care facilities. One can expect a policy thrust for highly subsidised healthcare, including rural healthcare schemes by government. It will improve value of Indian market in the world of modern medicines. Remaining 600 million people will be able to use the medicines as well as medical facilities not only from allopathy, but also from all systems of medicines due to their cost effectiveness.
Meeting the medical needs of the large population and fragmentation of population is the first challenge for the growth of the pharma industry in all dimensions.
Indian market dynamics:
Indian market dynamics is a battle field of tactics, where instead of killing each other you think of making competition redundant either by leveraging customer relations or manipulating the prescribers. In order to get a competitive advantage, many companies have created an imbalance in their sales and marketing costs, which in turn have affected their productivity adversely. Besides, as the competition becomes intense, there will be one-upmanship, which will definitely increase the cost of sales and marketing efforts without commensurate increase in productivity.
This poses quite a challenge for developing new brands in Indian market. This is all the more difficult for specialty products, as specialists have a different way to look at the promotional efforts of pharma industry.
Gap between potential & realisation:
The third confronting issue is to identify the gap between the potential and its realisation, apart from innovating new processes and systems for demand generation to realise the potential.
Policy framework: The pharmaceutical industry has to balance three major aspects - government, society and healthcare providers. The pharma industry automatically gets challenged from all these three major stakeholders.
Form government point of view, they need to provide a policy, which will not only help the industry to grow, but also to provide affordable medicines to people of India. On the other hand, regulatory bodies should monitor efficacy and safety of drugs to provide quality of heath to the society. Similarly society looks at medicines with a view that the prices should be affordable.
Besides, negligible presence of health insurance directly puts disease burden on patients. Hence, disposable income should be made available for drugs and pharmaceuticals. In short, the pharmaceutical industry has to balance three major aspects relating to availability, access and affordability of medicines.
Silver Lining
Considering these mutually exclusive but collectively exhaustive four challenges, a blessing can be seen in the growing economy and change in spending patterns of powerful and emerging middle class population. The middle class has disposable incomes, and health consciousness for managing lifestyles.
Once these four challenges converge for a workable strategy, India is and will continue to be a more attractive target all over the world by 2020.
To provide this contribution Indian pharmaceutical industry needs to keep on interating with the three major forces - fragmentation of markets, government policies and regulatory bodies and healthcare providers, inclusive of pharma industry.
Indian scenario - 2020
Indian pharma industry has become a force to reckon with from viewpoint of quality of products and relatively cheaper prices. Given that the country has huge capacity of manufacturing and the largest number of approvals from US Food and Drug Administration (FDA), it has a formidable strength in capturing a substantial share of global market as also outsourced contract manufacturing and research.
This scenario emerges without considering growth of outsourced business in research and development, contract manufacturing in traditional Indian proprietary medicines and OTC market. Adding these segments, the pharma industry is likely to touch around US $26-27 billion by 2020.
(Dr R B Smarta is the founder and managing director of Interlink Business Consulting Firm in pharmaceutical & healthcare industry)