Good Fortune for Pharma Sector
Pharma Sector uptrend 2020
Shuchi. P. Nahar
Road to 2020 As the industry embarks on its road to 2020, it has taken a giant leap in understanding the newer technologies of genomics, proteonomics, etc., which have led to the production of new medicines, diagnostic tools and lines of research.
However, there is still a lot to learn about the human body and even better things lie ahead. Companies will have to re-evaluate their product portfolio, pipeline and development strategy.
They will need to revise their budgeting and forecasting processes, billing and payment systems, and almost everything about the way they have been going to the market.
We believe there are a number of things companies can do to equip themselves for the journey to 2020 and increase their chances of reaching the end of the road in a good shape.The Indian pharmaceutical industry has contributed immensely not just to Indian but to global healthcare outcomes. India continues to play a material role in manufacturing various critical, high‐
quality and low‐cost medicines for Indian and global markets.
It supplies 50 to 60 percent of global
demand for many vaccines (including ARVs), 40 percent of generics consumed in the US and 25
percent of all the medicines dispensed in the UK.
Over the last 5 years, 35 to 38 percent of total
ANDAs approved (including 25 to 30 percent of total injectable ANDAs) have been filed from Indian sites.
Affordable anti‐retroviral (ARV) drugs from India were a major factor in AIDS patients getting greater access to treatment. India supplies 60 percent of global ARV drugs and 30 percent of the annual UNICEF requirement.
Even though companies anticipated a fair set of challenges in last few quarters, the sheer speed and
impact of these has been overwhelming.
Many leading generics players in India and globally shed up to 40 percent of their market capital in mere months due to a range of reasons from regulatory
sanctions to litigation, impairment charges to generics market dynamics in the US, and raw material
price volatility in China to evolving regulatory landscape in India, etc.
Various dynamics in international markets are eroding value from the generic value pools.These are:
■ Further consolidation among distributors and pharmacy chains: This has continued to cause a
steep fall in generic drug prices in the US—the largest healthcare market in the world.
■ Increased product approvals, and resultant competition in the generics space: The number of
filings and drug approvals is rising sharply, with an increasing number of Indian companies (e.g.,
accounting for around 40 percent of the ANDA approvals in 2017) vying for a share of the same
pie. This will keep up the competition (and consequently, price erosion) in the coming years.
■ Drop in new launch sales: The average new launch sales per year has dropped due to lower value
of drugs going off patent. This trend is also likely to sustain for the next couple of years.
■ Increasing price control and protectionism in various global markets: Protectionism could
significantly impact the value of exports, which contribute around half of India pharmaceutical
industry’s value.
Despite the likely severe impact of these factors in the short term, the industry could eventually be
buoyed up by a sustainable cost advantage, a robust new product pipeline, completion of pricing
corrections, the launch of next‐gen assets and scaling up of the rest‐of‐world business. Technology and emerging business model innovations, too, could prompt a transformation.
In the coming year, we expect to see Indian pharmaceutical companies possibly adopting many of the following five priorities to capture the full potential of these opportunities:
■ Driving Profitability and cost leadership through operational excellence: Indian pharma manufacturers have been ceding ground on cost due to increasing complexity, remediation costs,additional controls, global supply market disruptions (particularly in China owing to environmental regulations), etc. To cope up with these margin pressures, the industry needs to improve manufacturing efficiencies acrossthe network and drive cost excellence initiatives acrossthe spend base. Some successful pharmaceutical companies have pruned their cost structures by
approximately 10 % in a relatively short span of time.
■ Focussing on strategic M&A for value buys: The current operating environment could lead to
several attractive opportunities through distressed divestitures and fewer strategic buyers with
available cash at scale. Strategically pursuing and shaping deals could allow companies to make
additions to the portfolio (products, business lines) that might support short‐term top line
buoyancy and create platforms for future strategic expansion.
■ Advancing the specialty / differentiated drugs business model: While pharmaceutical companies
could optimize the core generic portfolio across dosage forms, most have begun to embrace the “next‐gen” specialty/differentiated assets portfolio. This will require purposefully reinventing the
operating model for generics companies, pursuing a systematic portfolio and investment strategy.
Opportunities for India as a global supply
destination.
India’s strong position as a pharma supplier rests on its ability to provide high quality medicines backed
by strong innovation capabilities and a structural cost advantage.
The cost of manufacturing formulations in India remains 30‐40 percent lower than other comparative
manufacturing hubs such as China and Eastern Europe, notwithstanding low productivity levels. This is driven by lower labour costs vis‐Ã ‐vis other geographies.
Despite inflationary trends, India’s labour cost advantage will sustain in the medium to long term, especially if Indian companies can improve
productivity through operational excellence and digital initiatives.
The supply of local talent into the pharma industry (e.g., B.Pharm, M.Pharm, B.Sc.) is stronger than in
countries such as China. Indian pharma companies are foraying into complex products (e.g.,microspheres, liposomes, emulsions), building capabilities in R&D and the manufacturing of these products while still ensuring the required quality.
However, the industry is also facing several challenges in supplying to export markets, which must be
addressed going forward.
■ The increasing pricing pressure in the regulated market is squeezing margins and profitability. Key
drivers include customer consolidation, greater competition in commoditized, easy‐to‐manufacture products with increased ANDA approvals, and a slowdown in new launches.
■ Another key challenge stems from compliance issues affecting the reliability of supply. While many
Indian companies have fared well in regulatory audits over the last year and seem to be emerging out of remediation, others continue to face challenges.
■ India continues to rely on imports of key starting materials, intermediates and API’s for, China with
the share of dependence increasing over time. This potentially exposes us to raw material supply
disruptions and pricing volatility.
There is an opportunity for India Pharma to drive growth by building on the cost advantage, and
improving reliability of supply—major buying criteria for customers.
Three priority areas thus emerge for Indian pharmaceutical companies:
■ Build stronger quality systems and achieve full compliance
■ Re‐focus efforts on operational excellence
■ Alternate sourcing and self‐sufficiency in APIs / intermediates.
These imperatives are inter‐related—operational excellence is a strong enabler of quality and supply
reliability.
This year’s show recently closed its doors to over 45,000 visitors and 1,600+ exhibitors from 44 countries, making it the largest pharmaceutical trade show in South Asia.
One key trend to emerge was the continued goal of aligning India to Western regulatory standards, which experts suggest will help the country sustain significant increases in exports if harmonisation of regulations continues.
Innovation was another major talking point, with the widespread view that the current lack of innovation could potentially be one drag factor for India in the near future.
Pharma experts discussed a number of proposed ideas for boosting innovation, including government investments in research initiatives and talent to form an ‘Innovation Hub’, as well as shifting manufacturing towards biologics development.
In fact, raising regulatory standards and enhancing innovation are two crucial milestones the country must reach if the market is to achieve its ‘Vision 2030’ aspiration, which could result in a market valued at $130bn by the end of the next decade.
There was also a huge interest in the latest machinery driven by the expanding production base in India, as well as continued efforts to lower production costs and adapt equipment to the evolving drugs pipeline. Investing in the right technologies has become an integral part of industry efforts to prepare for the next wave of growth.
In its fourth consecutive year, India Pharma Week hosted a plethora of initiatives spanning over five days, giving executives the chance to engage in thought-provoking discussions about how to propel the country’s pharmaceutical market forward. Notably, the CEO roundtable saw pharma leaders explore the benefits of Indian companies tapping into the Chinese and Russian markets.
Sources: EPM Magazine
FICCI
USFDA Website
pWc report
CII Research Reports
Shuchi. P. Nahar
Shuchi. P. Nahar
Road to 2020 As the industry embarks on its road to 2020, it has taken a giant leap in understanding the newer technologies of genomics, proteonomics, etc., which have led to the production of new medicines, diagnostic tools and lines of research.
However, there is still a lot to learn about the human body and even better things lie ahead. Companies will have to re-evaluate their product portfolio, pipeline and development strategy.
They will need to revise their budgeting and forecasting processes, billing and payment systems, and almost everything about the way they have been going to the market.
We believe there are a number of things companies can do to equip themselves for the journey to 2020 and increase their chances of reaching the end of the road in a good shape.The Indian pharmaceutical industry has contributed immensely not just to Indian but to global healthcare outcomes. India continues to play a material role in manufacturing various critical, high‐
quality and low‐cost medicines for Indian and global markets.
It supplies 50 to 60 percent of global
demand for many vaccines (including ARVs), 40 percent of generics consumed in the US and 25
percent of all the medicines dispensed in the UK.
Over the last 5 years, 35 to 38 percent of total
ANDAs approved (including 25 to 30 percent of total injectable ANDAs) have been filed from Indian sites.
Affordable anti‐retroviral (ARV) drugs from India were a major factor in AIDS patients getting greater access to treatment. India supplies 60 percent of global ARV drugs and 30 percent of the annual UNICEF requirement.
- Increasing demand in global markets: Generic penetration in high value healthcare markets (e.g.,US) has grown significantly, with India supplying 20+ percent of the generics demand in majorgeo graphies.
- Stable growth in domestic market consumption: India’s pharmaceutical market has grown rapidly over the last decade. Despite recent headwinds, a stable growth of 5‐7% was observed last year.
- India is likely to become one of the Top 3 pharma markets by 2030.
- Low cost and at scale manufacturing capability in India: India has the second highest number of US FDA approved facilities and labour costs in Indian have been lower than other manufacturing hubs by up to 40 percent.
Even though companies anticipated a fair set of challenges in last few quarters, the sheer speed and
impact of these has been overwhelming.
Many leading generics players in India and globally shed up to 40 percent of their market capital in mere months due to a range of reasons from regulatory
sanctions to litigation, impairment charges to generics market dynamics in the US, and raw material
price volatility in China to evolving regulatory landscape in India, etc.
Various dynamics in international markets are eroding value from the generic value pools.These are:
■ Further consolidation among distributors and pharmacy chains: This has continued to cause a
steep fall in generic drug prices in the US—the largest healthcare market in the world.
■ Increased product approvals, and resultant competition in the generics space: The number of
filings and drug approvals is rising sharply, with an increasing number of Indian companies (e.g.,
accounting for around 40 percent of the ANDA approvals in 2017) vying for a share of the same
pie. This will keep up the competition (and consequently, price erosion) in the coming years.
■ Drop in new launch sales: The average new launch sales per year has dropped due to lower value
of drugs going off patent. This trend is also likely to sustain for the next couple of years.
■ Increasing price control and protectionism in various global markets: Protectionism could
significantly impact the value of exports, which contribute around half of India pharmaceutical
industry’s value.
Despite the likely severe impact of these factors in the short term, the industry could eventually be
buoyed up by a sustainable cost advantage, a robust new product pipeline, completion of pricing
corrections, the launch of next‐gen assets and scaling up of the rest‐of‐world business. Technology and emerging business model innovations, too, could prompt a transformation.
In the coming year, we expect to see Indian pharmaceutical companies possibly adopting many of the following five priorities to capture the full potential of these opportunities:
■ Driving Profitability and cost leadership through operational excellence: Indian pharma manufacturers have been ceding ground on cost due to increasing complexity, remediation costs,additional controls, global supply market disruptions (particularly in China owing to environmental regulations), etc. To cope up with these margin pressures, the industry needs to improve manufacturing efficiencies acrossthe network and drive cost excellence initiatives acrossthe spend base. Some successful pharmaceutical companies have pruned their cost structures by
approximately 10 % in a relatively short span of time.
■ Focussing on strategic M&A for value buys: The current operating environment could lead to
several attractive opportunities through distressed divestitures and fewer strategic buyers with
available cash at scale. Strategically pursuing and shaping deals could allow companies to make
additions to the portfolio (products, business lines) that might support short‐term top line
buoyancy and create platforms for future strategic expansion.
■ Advancing the specialty / differentiated drugs business model: While pharmaceutical companies
could optimize the core generic portfolio across dosage forms, most have begun to embrace the “next‐gen” specialty/differentiated assets portfolio. This will require purposefully reinventing the
operating model for generics companies, pursuing a systematic portfolio and investment strategy.
Opportunities for India as a global supply
destination.
India’s strong position as a pharma supplier rests on its ability to provide high quality medicines backed
by strong innovation capabilities and a structural cost advantage.
The cost of manufacturing formulations in India remains 30‐40 percent lower than other comparative
manufacturing hubs such as China and Eastern Europe, notwithstanding low productivity levels. This is driven by lower labour costs vis‐Ã ‐vis other geographies.
Despite inflationary trends, India’s labour cost advantage will sustain in the medium to long term, especially if Indian companies can improve
productivity through operational excellence and digital initiatives.
The supply of local talent into the pharma industry (e.g., B.Pharm, M.Pharm, B.Sc.) is stronger than in
countries such as China. Indian pharma companies are foraying into complex products (e.g.,microspheres, liposomes, emulsions), building capabilities in R&D and the manufacturing of these products while still ensuring the required quality.
However, the industry is also facing several challenges in supplying to export markets, which must be
addressed going forward.
■ The increasing pricing pressure in the regulated market is squeezing margins and profitability. Key
drivers include customer consolidation, greater competition in commoditized, easy‐to‐manufacture products with increased ANDA approvals, and a slowdown in new launches.
■ Another key challenge stems from compliance issues affecting the reliability of supply. While many
Indian companies have fared well in regulatory audits over the last year and seem to be emerging out of remediation, others continue to face challenges.
■ India continues to rely on imports of key starting materials, intermediates and API’s for, China with
the share of dependence increasing over time. This potentially exposes us to raw material supply
disruptions and pricing volatility.
There is an opportunity for India Pharma to drive growth by building on the cost advantage, and
improving reliability of supply—major buying criteria for customers.
Three priority areas thus emerge for Indian pharmaceutical companies:
■ Build stronger quality systems and achieve full compliance
■ Re‐focus efforts on operational excellence
■ Alternate sourcing and self‐sufficiency in APIs / intermediates.
These imperatives are inter‐related—operational excellence is a strong enabler of quality and supply
reliability.
This year’s show recently closed its doors to over 45,000 visitors and 1,600+ exhibitors from 44 countries, making it the largest pharmaceutical trade show in South Asia.
One key trend to emerge was the continued goal of aligning India to Western regulatory standards, which experts suggest will help the country sustain significant increases in exports if harmonisation of regulations continues.
Innovation was another major talking point, with the widespread view that the current lack of innovation could potentially be one drag factor for India in the near future.
Pharma experts discussed a number of proposed ideas for boosting innovation, including government investments in research initiatives and talent to form an ‘Innovation Hub’, as well as shifting manufacturing towards biologics development.
In fact, raising regulatory standards and enhancing innovation are two crucial milestones the country must reach if the market is to achieve its ‘Vision 2030’ aspiration, which could result in a market valued at $130bn by the end of the next decade.
There was also a huge interest in the latest machinery driven by the expanding production base in India, as well as continued efforts to lower production costs and adapt equipment to the evolving drugs pipeline. Investing in the right technologies has become an integral part of industry efforts to prepare for the next wave of growth.
In its fourth consecutive year, India Pharma Week hosted a plethora of initiatives spanning over five days, giving executives the chance to engage in thought-provoking discussions about how to propel the country’s pharmaceutical market forward. Notably, the CEO roundtable saw pharma leaders explore the benefits of Indian companies tapping into the Chinese and Russian markets.
Sources: EPM Magazine
FICCI
USFDA Website
pWc report
CII Research Reports
Shuchi. P. Nahar
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