Pharmaceutical Industry 10 Years Future Outlook---Opportunity!

Indian Pharmaceutical Industry Outlook

Shuchi.P.Nahar
The pharmaceutical sector is at a crossroads. In a heavily disrupted marketplace, characterized by shifting payer attitudes and patient empowerment, neither incremental adjustments nor steady evolution are likely to halt the decline of the traditional pharmaceutical business model. This paper looks ahead to a 2030 scenario to examine the trends revolutionizing the sector trends that we expect to have dramatic impacts. 

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 % of global demand for many vaccines (including ARVs), 40 % 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 % 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.

We believe revenues will fall well short of forecasts as current projections, as well as business and operating models, do not reflect the turbulence in the marketplace. The continued upheaval will give rise to three distinct pharmaceutical archetypes. Executive teams need to carefully consider what type of company they want to be and plot the optimal path towards this status. By preparing for this future now, organizations not only reduce the risk of decreasing income, but can also open up new opportunities for growth. Over the coming months, we shall produce a series of thought-provoking articles that will examine more deeply specific topics outlined in this paper, which sets the scene for volatile times ahead.

The Indian pharmaceutical industry is poised for growth. Even at current rates of seven to eight percent CAGR, the industry’s annual revenues can grow to about USD 80 to 90 billion by 2030. However, it could also set bold aspirations of eleven to twelve percent CAGR, and grow to annual revenues of about ~USD 65 billion by 2024 and about ~USD 120 to 130 billion by 2030. This would require multiple growth cylinders to fire simultaneously, as depicted in Exhibit below:

Indian pharma industry can embark on a vision of establishing India’s global leadership in life sciences, while driving deeper domestic access and affordability. Industry can work towards four primary goals as part of this vision for 2030.

Accelerate the goal of universal health care across India and the world by providing access to high-quality affordable drugs: Keeping in line with the Government of India’s vision of providing universal healthcare for India, the industry can support this goal by providing access to quality medicines at affordable prices. In India, as more and more patients come under treatment, this could help reduce the disease burden substantially. The aspiration could be to make the DALY (Disability Adjusted Life Years) in India and other emerging markets comparable to the developed economies such as the US and UK by 2030 (currently India’s DALY is 72 percent higher than China’s). 

Emerge as an innovation leader to build a globally recognized position for India: We believe the industry can aspire to build a strong innovation pipeline (with three to five new molecular entities launched or in late clinical trial phases and 10–12 incremental innovation launches per year by 2030) and enhance Indian pharma's significance beyond generics, to biologics, new drug development and incremental innovations. 

Become the world’s largest and most reliable drug supplier and reach USD ~120-130 billion by 2030: The Indian pharmaceutical industry can aspire to become the world’s largest supplier of drugs by volume. This can be achieved by establishing a leadership position in the US generics space, focusing on building one to two ‘home’ markets outside India, and developing a strong presence in all large markets such as Japan and China. 

Contribute significantly to the growth of the Indian economy: The Indian pharmaceutical industry can contribute substantially to the growth of the Indian economy. The industry can aspire to push the net foreign exchange earnings to around USD 30 billion to 40 billion annually by 2030 from current levels of ~USD 11 billion. The industry can also create one to two million additional jobs for the country in the same period, boosting consumption in the local economy. 

Many of the developments in the pharmaceutical industry mirror those in the automotive sector. Like pharmaceuticals, the industry is relatively mature and made up of a few major players. And automakers also face intense pressure from regulators – in their case to cut emissions, accelerating the move toward electric and other non-polluting vehicles. The growing dependence upon technology, primarily software, is attracting the interest of new entrants such as Google, Uber and Tesla who are focusing on mobility, rather than on the automotive industry itself.

Shift 1: Downward pressure on pricing

With rising demand for healthcare and falling budgets, governments and payers are exerting pressure to drive down prices. One bold example involves the Netherlands. Not content with striking volume deals with the major pharmaceutical players, it is looking to utilize the power of the EU to create even greater economies of scale. At the moment, several member states are pooling together into a single procurement machine with much greater bargaining power.This initiative, in its early stages, is also being looked at by other states seeking to cut their drug expenditure.

Additionally governments, insurers and patients are requiring greater transparency around drug pricing. The time-honored healthcare principle of fee-for-service is also under attack. Payers, insurers and hospitals are no longer willing to pay simply for a product push approach; they want fees to be dependent upon the success of the products and procedures through measurable outcomes. One of the challenges facing drug manufacturers is to build closer relationships with patients. This has many benefits – including better understanding of patient experience and improved adherence. However, the industry has some way to go to become a trusted part of the healthcare ecosystem. Although value-based pricing (VBP) comes with its fair share of risks and challenges, as evidenced by Novartis’ Entresto drug, there is large potential to create a win-win situation for multiple healthcare stakeholders if structured and implemented correctly.

Shift 2: From treatment to prevention ... and beyond

 By 2030, we should not simply expect more targeted therapies, practitioners will also be able to predict the likelihood of a patient being diagnosed with a disease or health condition, and shift from treatment of symptoms to prevention measures and complete cures, rather than providing temporary respite. In this new world, some conditions may well become a thing of the past. For example, it is now possible to cure hepatitis C, which was previously regarded as incurable and afflicts 180 million people worldwide. This has created a paradigm shift that has taken healthcare professionals, patients and payers by surprise.

This shift is driven by three underlying developments: – groundbreaking new therapies 
– advances in technology
 – the consumerization of health through increased access to data by patients. 

The latter enables patients to better understand and get more involved in managing their conditions, which in turn will raise expectations. The effects of these changes, and the speed with which some historical treatment methods are replaced, will inevitably differ by therapeutic area.

Genetics 
Genetics has moved forward with real pace in recent years, with gene editing fueling a new wave of potential applications to aid both prevention (via early detection) and real cures. The leading genomics firms are essentially biotech players, acting either independently or through collaboration. In the coming decades, gene editing could revolutionize the treatment of different diseases such as neurological disorders or cancers. This approach enables healthcare providers to alter/replace the problematic gene, to produce a new therapeutic protein or ‘silence’ mutant cells. A number of neurological disorders are benefiting from these advances, like Alzheimer’s, Parkinson’s  Huntington’s, Amyotrophic Lateral Sclerosis and strokes.

Immunotherapy 

Technology is also boosting another, more established field of play: immunotherapy. Many companies are focusing on developing immunotherapies, either independently or in collaboration with big pharma players, to treat and, ultimately, to prevent diseases. Immunotherapy based drugs are increasingly being used for treatment of various cancers, but companies are also exploring their use in the treatment and prevention of other chronic conditions like diabetes, cardiovascular diseases, Parkinson’s and Multiple Sclerosis. For example, Cardiovax, a US based biotech company, is developing immunotherapies to treat and prevent cardiovascular diseases such as atherosclerosis. These therapies may potentially be used to predict the risk of cardiac attacks.

Shifts in the business model, and a refocus on new fields of play, can help pharmaceutical firms to adapt to disruption. But even these changes are unlikely to generate the kinds of growth and revenue that shareholders demand. Only through a complete organizational transformation can today’s leading companies maintain influence and earnings. This means rethinking how to play, which throws up three types of ‘archetype’ that we believe will prevail in the future industry.

The active portfolio company is an active portfolio company typically active in several therapeutic areas within its portfolio. For example, those operating in pharma tech, genetics and immunotherapy are constantly looking for new forms of therapy, while simultaneously reappraising their product mix to match unmet needs. Active product lifecycle management in pharmaceuticals is becoming ever more critical, as the number of blockbuster drugs protected by patents continues to decrease. 

Recent asset swaps – like those involving GlaxoSmithKline and Novartis on vaccines, oncology and consumer health interests– are just one example of active portfolio management; a trend that is likely to accelerate and will therefore require new, internal capabilities. The ultimate manifestation of a portfolio player is a modular organization, with an enterprise layer equipped to acquire and divest parts of its portfolio in a ‘plug-and-play’ fashion. For these companies, it’s all about being flexible and agile, to move quickly to take advantage of opportunities. Our analysis of the life sciences deal landscape confirms the increasing trend towards specialization, which manifests in the acquisition of a complementary portfolio to the existing business. 

Global Dynamics

Global market dynamics & implications for India pharma 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 generic 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 across the network and drive cost excellence initiatives across the spend base. Some successful pharmaceutical companies have pruned their cost structures by approximately 10 percent 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 shortterm 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 (using partnership, analytics, technology, etc.), strengthening development and launch processes (efficiency in trial design,setup and execution) and building new innovator like functional strengths (pricing, launch, market access, regulatory, etc.). 

Embracing Digital and advanced analytics for accelerated growth: The recent technological shift has prompted the rapid rise of Advanced Analytics (AA), which is enabling companies to surface insights even with complex and unstructured data sets. Globally, in the pharma industry we have seen use cases of AA driving growth and productivity across the pharmaceuticals value chain including R&D (over 10 percent increase in clinical trial productivity), Manufacturing (more than 30 percent improvement in yields and throughput), Quality (over 15 percent reduced deviations), Supply Chain (over 20 percent increase in customer service levels), Sales (around 30 percent improvement in sales force conversion rate), etc. 

Long Journey to go....

For pharmaceutical CEOs, it is not enough to simply recognize the emerging changes facing the industry. Their biggest challenge is to translate the impact of these changes on business and operating models in a holistic way, to adapt swiftly and decisively to disruption. The lesson from other disrupted industries is loud and clear. Pharmaceutical companies cannot just partially adjust existing business and operating models, when the fundamental rules of engagement are changing so dramatically. 

One way CEOs can prepare for the future is to set up fully independent, integrated Pharma 2030 experimental laboratories that report directly to them. These labs can: – test new archetypes that align with the company’s financial ambition, to generate more realistic forecasts that take account of the sector’s disruption – evaluate how different archetypes could impact the way the business is organized, and, equally importantly, determine which new organizational capabilities are needed – develop a balanced transition map that addresses the multiple and significant risks facing the business. 
Those pharmaceutical companies that manage to embrace the most appropriate archetypes, and master disruption, have the greatest chance to deliver real value to patients, which should in turn drive their success. 

Expand and upskill the talent pool As the industry’s product portfolio shifts towards more complex products, the demand for operations and highly skilled personnel for the manufacture of these products will also increase. There is a limited supply of experienced talent for such operations. The government can intervene by helping set up and operationalize industry-wide ‘at scale’ capability building programs to create a skilled talent pool that can be readily absorbed into the workforce. For example, the Government of Goa has collaborated with Cipla to launch the Cipla Technical Academy. Students with a background in science (undergraduates or graduates holding B.Sc., M.Sc. and B. Pharm degrees or diplomas) undergo a six-month training at the academy, followed by an onsite training. On completion, Cipla may assess to absorb the candidates into their workforce, else The Labour & Employment Department would assist participants to get suitable placements in other organisations. 

Expand and consolidate global footprint and collaborate with international regulatory bodies Growing and expanding in newer geographies beyond US, such as, China, Japan will be critical for Indian pharmaceutical industry to achieve its vision 2030. Government has a critical role to play in helping the pharmaceutical companies in making this move. This will require deeper relationship with respective Governments to create a favourable policy and regulatory environment. The regulatory authorities in India will have to foster deeper relationships with their international peers.

Strengthen the exchange of regulatory best-practices with global peers by becoming an observer at the Pharmaceutical Inspection Convention (PIC), participate in ICH and closely collaborate with regulatory agencies of countries with large markets (e.g., cooperating with the Japanese Pharmaceuticals and Medical Devices Agency (PMDA) to set up its office in India). This could improve the quality perception of Indian drugs and help expedite approvals. 

Work closely with the US FDA and other international regulatory bodies along with the IPA to help communicate key issues faced by Indian pharma companies and drive the required regulatory changes. The government could work with pharmaceutical bodies to understand the latest happenings across the globe for patient benefit. This is with the intention of modernizing the regulatory ecosystem – e.g., Pathways for comb packs, FDCs etc. 

Communicate the contributions of Indian generics to the global healthcare industry and regulators. The  Indian government and the IPA can jointly work with local medical thought leaders to publicize and promote the contributions made by the Indian pharma industry on shaping public health outcomes. They could also communicate the quality advantages and regulatory adherence of Indian drugs compared to generics from other countries. 

The Indian pharmaceutical industry has established a strong presence in the global generics market by delivering high-quality drugs at scale. The industry has made innovations in processes and formulations and developed itself as a reliable, high quality and cost-effective global drug supplier. By making essential drugs affordable and accessible, the industry has captured a leading share in developed economies such as the United States (1 of every 3 pills) and the United Kingdom (25 percent of medicines consumed.).

So here is the compilation of various articles that I read on pharmaceutical industry , I have tried to extract all the important points that help us to understand the growth of pharma industry.

Sources: KPMG Report
               ipa Research Report
               ibef.org 
               outlook buisness research report 
                  
                    SHUCHI P NAHAR