Pharmaceutical Industry Growth Ahead 2020

Weekend BLOG 4                                                                                                     

Shuchi.P.Nahar

Disclaimer:
So in this blog I have tried to summarize my learning from various research reports justifying the road map for pharma companies in India. All credits to content writers and various reports that are worth reading to have an extra-ordinary idea about pharma sector growth and expansion ahead.

Pharma Sector Growth Ahead-2020

The Indian pharmaceuticals market has characteristics that make it unique. 
First, branded generics dominate, making up for 70 to 80 per cent of the retail market. 
Second, local players have enjoyed a dominant position driven by formulation development capabilities and early investments. 
Third, price levels are low, driven by intense competition. 

While India ranks 10th globally in terms of value, it is ranked 3rd in volumes. These characteristics present their own opportunities and challenges.
An expanding pharmaceuticals market India’s pharmaceuticals industry looks set for a solid long-term growth. It already ranks 14th in the global league table, with sales of almost US$19 billion in March 2019-20.

However, it is estimated that it will rise to approximately US$50 billion by 2020 – a 163% in the space of eleven years.

 Indeed, Pharma 2020: The vision, we anticipate that India will be one of the industry’s top 10 markets by 2020. 
This growth will be driven by the expanding economy and increasing per capita GDP.
In 2008, India’s middle class constituted 13% of the population, according to the National Council of Applied Economic Research.
While this remains a fairly small proportion of the total population, it represents a substantial increase from a mere 3% in 1995.

If the economy continues to grow faster than those of the developed world and the literacy rate keeps rising, around a third of the population (34%) is expected to join the middle class in the near future.While these consumers still earn substantially less than their US or European counterparts, they are rapidly acquiring the buying power necessary to afford modern healthcare, particularly if purchasing power parity is considered. One source estimates that at least 60 million Indians – a market as big as the UK – can already afford to buy Western medicines. Aggressive pricing strategies will be necessary, however, to make in-roads into India’s price sensitive market.

It’s also likely that India will require different types of drugs in the future. Like almost every other emerging economy, India is experiencing epidemiological changes. Thanks to greater affluence and better hygiene, the population is ageing; by 2028, an estimated 199 million Indians will be 60 or older, up from about 91 million in 2008.

Besides that, it has the largest pool of diabetic patients, for example, with more than 41 million people suffering from the disease (see sidebar on India’s insulin dependence).  The pattern of demand for medicines is shifting accordingly. In 2001, anti-infective and gastrointestinal drugs and vitamins accounted for 50% of the domestic market.
These factors help to explain why India is expected to be among the top markets for many pharmaceutical India’s insulin dependence The number of Indians with diabetes is projected to reach 73.5 million in 2025. The direct and indirect costs of treating such patients are currently about US$420 per person per year. If these costs remained the same as they are now, India’s total bill for diabetes would be about US$30 billion by 2025. But as its economic wealth grows and standards of care improve, treatment costs are likely to rise.

The US spends an average US$10,844 per year on each patient with diabetes. If India’s per capita expenditure rose to just one-tenth of this level, the total cost of treating all patients with diabetes would be US$79.7 billion by 2025. The value of prophylaxis in India alone would thus be substantial; preventing 10% of the population from developing diabetes would save nearly US$8 billion a year.

Pharma 2020: The vision companies. It currently represents about 8% of the global drugs market by volume and only around 1% by value,but the Indian consumer’s rapidly increasing purchasing power and the country’s changing epidemiological profile could jointly improve its price/ volume mix.

Mass Theories will play crucial role

India had projected that specialty and super-specialty therapies will grow faster than the market even though mass therapies will continue to be the largest segment. The past few years have affirmed this trend. We also observe that the therapies have segmented further, unfolding diverse opportunities. Mass therapies have evolved to comprise two differing opportunity areas. 
The first, which makes up the majority of the opportunity, is acute indications within therapeutic areas such as respiratory and gastro-intestinal that have been traditionally treated by general practioners (GPs) and consulting physicians (CPs). This segment is increasingly being driven towards the OTC or OTX route, caused by greater patient awareness and a propensity to self-medicate. The proton-pump inhibitor (PPI) category is a case in point. The second segment comprises older therapies in chronic indications such as diabetes, hypertension and epilepsy. 
For example, calcium channel blockers, despite being a hypertension therapy, fall into the mass segment. Growth in this segment is being driven by percolation down  the physician pyramid, and older established molecules have been adopted in earnest by GPs and CPs. We expect mass therapies to grow at a few percentage points below the market and account for half the market by 2020.

 Specialty therapies have grown at rates well above the market, and now account for more than one-third of the market. While this segment includes drugs for several chronic conditions, it also comprises drugs for several niche acute conditions. We see this market evolving in three ways. 
First, therapies will undergo upgradation, often driven by the launch of patented products. The dramatic rise of the DPP IV category in diabetes is a case in point. Second, there will be increased awareness and treatment of nuanced medical indications, such as in the case of metabolic disorders. 
Third, treatment protocols will get firmed up, particularly for critical and life saving procedures and associated treatment. We expect specialty therapies to increase their share and reach a scale comparable to that of the mass therapies by 2020.

The fast-changing and accelerating trends in the therapies throw up two major implications for players as they look to capture the opportunities. If players want to maintain market leadership, they can not limit their focus only to increasing share in existing markets. Instead, they would need to constantly anticipate and shape the evolution of the market. For instance, in mass therapies, players will need to consciously move down the physician pyramid to drive growth in the chronic segments. These decisions are non trivial and will involve trade-offs between a much greater scale and near-term dips in profitability. In addition, they would also need to develop new capabilities. For instance, players will need to collaborate with payors and providers to reduce the total cost of treatment in super-specialty therapies.

Metro and Tier-I will be the expanding markets

Metro and Tier-I markets each account for about 30 per cent of the Indian pharmaceuticals market. Mass therapies constitute a majority of this market. During the last 5 years, metro and Tier-I markets have grown at an estimated rate of 14 to 15 per cent, in line with the overall market. We expect the current momentum to continue, and this segment to become a USD 33 billion market by 2020. Growth in metro and Tier-I markets will be driven by three factors. First, rapid urbanisation will lead to 250 million people moving from rural areas to urban centres during the next two decades, with a majority of them moving to the top 70 cities. 

Second, medical infrastructure will expand in terms of scale and scope. Corporate hospital chains will extend their hospital network in the top 70 cities; innovative formats will plug gaps in healthcare delivery in Tier-I markets; and hub and spoke delivery models providing access to higher secondary care procedures will rise within the top 200 to 250 towns. 

Third, compliance has the potential to rise sharply driven by organised initiatives. While diagnosis and treatment levels in metros and Tier-I markets are 30 to 40 per cent higher than in rural areas, compliance levels remain similar. Driven by income growth and greater penetration, rural markets have grown a few percentage points above the overall market . Going forward, the share of rural markets will move up to 25 per cent by 2020, up from the estimated 20 per cent currently. Tier-II markets, in contrast, will get marginally squeezed out. However, given their important role in providing rural access, they will stay relevant. 

Increased focus on R&D to improve product mix.

Companies are also likely to benefit from increased investments on research and development (R&D) over the past few years. Alongside developing capabilities via the inorganic route, domestic companies have been focusing on strengthening their in-house product pipeline via R&D owing to increasing pricing pressure on conventional generics and lower patent expiry opportunity. Companies are also shifting focus from conventional generics to complex generics and biosimilars as competition within the conventional generics space is intensifying. The move also ensures healthy growth prospects. This, though, requires considerably higher R&D investment. For example, the cost of developing a biosimilar is ~$150 million compared with $1-5 million for developing a generic drug. While the cost of developing niche complex drugs and biosimilars is substantially high, the potential market opportunity and profitability are commensurate.

The higher investment in niche and complex drugs over the past few years is expected to start bearing fruit from fiscal 2019. The number of high value drugs likely to be launched during the year is three times that of fiscal 2018. Even the market potential of drugs to be launched is significantly higher than in the previous year. 

Public health will offer meaningful opportunities. 

The public health segment in pharmaceuticals as direct government purchases from pharmaceutical companies. This market is currently estimated at nearly USD 1 billion but has the potential to grow to USD 4.5 billion by 2020, and to USD 6 billion in an aggressive growth scenario. The public health market is made up of different segments, with some that are more attractive and strategic. The largest segment, state hospitals, account for around 45 per cent of government purchases. 

However, this segment is relatively inaccessible for established players due to low price levels and the fragmented nature of procurement. At the other extreme, central government hospitals that account for around USD 30 million spend, are concentrated, accessible and more strategic in nature. Standards of care are high, comparable to those in the largest corporate hospitals. This segment’s importance lies not in its size, but in its ability to provide access to key opinion leaders (KOLs) through sponsored research and efforts at designing treatment protocols India’s pharmaceuticals market has grown in confidence and firmly moved on to an accelerated growth path. The central question now rests around the true nature and the full extent of this market’s potential. 

Backed by solid fundamentals, the market is giving rise to a variety of business opportunities. We feel confident that strong player intent, investments and actions will underpin future growth and enable the Indian pharmaceuticals market to break into the global top tier.

Role of government will give a boost. 

The government needs to play a direct role in driving access to healthcare through long range initiatives. Moreover, it needs to ensure that the industry maintains its confidence and is not affected by extraneous shocks. In particular, we believe that the government needs to fulfil five roles:

1)Raise healthcare spending to stated 3 per cent of GDP
2)Invest in healthcare infrastructure, particularly in       Tier-II and rural markets
3)Adopt a broader set of measures to contain   healthcare costs
4)Reduce the shortage of physicians
5)Execute RSBY(Rashtriya Swasthya Bima Yojana) according to plan. 

The government’s actions are foundation and will play a central role in determining the pace and quality of market growth. 
India’s pharmaceuticals market has grown in confidence and firmly moved on to an accelerated growth path. 
The central question now rests around the true nature and the full extent of this market’s potential. Backed by solid fundamentals, the market is giving rise to a variety of business opportunities.





Sources: Mckinsey & Company (Pharma Report)
                 Crisil Research Report
                 PwC Report
                 Ibef publications
                 Indian Pharmaceutical Industry 

(Must reading reports for detailed understanding)
                               


                                     Shuchi.P.Nahar