Understanding Pharma Growth from various important corners

“Practitioners’ Insights: Understanding Pharma”

Shuchi.P.Nahar

India is the largest provider of generic drugs globally. Indian pharmaceutical sector industry supplies over 50% of global demand for various vaccines, 
40% of generic demand in the US and 25 % of all medicine in UK.

India enjoys an important position in the global pharmaceuticals sector. The country also has a large pool of scientists and engineers who have the potential to steer the industry ahead to an even higher level. Presently over 80 % of the antiretroviral drugs used globally to combat AIDS (Acquired Immune Deficiency Syndrome) are by Indian pharmaceutical firms.

The global pharmaceutical market is expected to exceed $1.5 trillion by 2023 growing at a 3−6% compound annual growth rate over the next five years. The key drivers of growth will continue to be the United States and emerging markets with 4−7% and 5–8% compound annual growth, respectively.

The global outlook for medicine use and spending affects the prospects of life sciences companies, insurers and the health of populations around the world.

Patent/ Innovators : A patent is a type of intellectual property right that provides protection over any novel invention and also, gives the exclusive right to sell, use, create and/or manufacture the patented product.

As new and improved drugs are being introduced every year in the market, drug or pharmaceutical patents have become particularly important as these drugs helps to generate a significant amount of revenue for their commercial benefits. The pharmaceutical sector is an area in which innovation impacts the bottom line of the drug manufacturers who focus on research and development of a new drug and incur huge costs in doing so, where there is neither a guarantee nor an assurance that their research product shall survive various testing stages and will commercially thrive if released in the market.

Branded Drugs : Branded medicines may be the original medicine developed by a company or several companies may make the same generic medicine, to which each company gives its own brand name.

Generics : A generic drug is a pharmaceutical drug that contains the same chemical substance as a drug that was originally protected by chemical patents. Generic drugs are allowed for sale after the patents on the original drugs expire. Because the active chemical substance is the same, the medical profile of generics is believed to be equivalent in performance. A generic drug has the same active pharmaceutical ingredient (API) as the original, but it may differ in some characteristics such as the manufacturing process, formulation, excipients, color, taste, and packaging.

OTC : Over-the-counter (OTC) drugs are medicines sold directly to a consumer without a requirement for a prescription from a healthcare professional,as opposed to prescription drugs, which may be supplied only to consumers possessing a valid prescription. In many countries, OTC drugs are selected by a regulatory agency to ensure that they contain ingredients that are safe and effective when used without a physician's care. OTC drugs are usually regulated according to their active pharmaceutical ingredient (API) rather than final products.

Biosimilars : A biosimilar is a biologic medical product (also known as biologic) highly similar to another already approved biological medicine (the 'reference medicine'). Biosimilars are approved according to the same standards of pharmaceutical quality, safety and efficacy that apply to all biological medicines.

Biosimilars are officially approved versions of original "innovator" products and can be manufactured when the original product's patent expires.Reference to the innovator product is an integral component of the approval.

Biologics : Biologics are a particular genre of drugs whose active ingredients are sourced from living organisms that have been specifically modified to produce the desired molecules. Unlike small molecules, which are usually produced by chemical synthesis, biologic drugs are giant molecules, typically proteins, which are hundreds of times the size of a conventional drug molecule. 

Such large proteins cannot be manufactured through chemical synthesis, but are produced inside animal cells or micro-organisms such as bacteria and viruses cultivated in large fermenters, or sometimes even in specially modified (or ‘genetically engineered’) plants or animals (and extracted from the leaves of the plant or milk of the animal).

Overview of the sector

The global pharmaceutical market will exceed $1.5 trillion by 2023 growing at a 3−6% compound annual growth rate over the next five years. The key drivers of growth will continue to be the United States and pharmerging markets with 4−7% and 5–8% compound annual growth, respectively. In the United States, overall spending growth is driven by a range of factors including new product uptake and brand pricing, while it is offset by patent expiries and generics. 

Medicine spending in Japan totaled $86 billion in 2018, however spending on medicines is expected to decline by -3 to 0% through 2023, largely because of exchange rates and the continued uptake of generics. In Europe, cost-containment measures and less growth from new products contribute to slower growth of 1−4%, compared to the 4.7% compound annual growth seen over the past five years. 

Pharmaceutical spending in China reached $137 billion in 2018 and is expected to reach $140−170 billion by 2023, but its growth is likely to slow to 3−6%. 

New products and losses of exclusivity will continue to drive similar dynamics across developed markets, while product mix will continue to shift to specialty and orphan products. An average of 54 new active substance (NAS) launches per year are expected over the next five years and two-thirds of launches will be specialty products, lifting specialty share of spending to near 50% by 2023 in most developed markets. 

At the same time, the impact of losses of exclusivity in developed markets is expected to be $121 billion between 2019 and 2023, with 80% of this impact, or $95 billion, in the United States. 

By 2023, biosimilar competition in the biologics market will be nearly three-times larger than it is today. This will result in approximately $160 billion in lower spending over the next five years than it would have if biosimilars did not enter the market.

Changing Landscapes

Consolidation in the sector can be observed in the coming years based on the valuations , companies in coming years will be focusing on therapies and specialty segment. As healthcare cost will be on increasing trend based on need of maintenance of high quality of drugs , facilities will be improving as government will be shifting their focus on faster approval of generic / biosimilars. 

As per government's future plan to focus on local brands , local manufacturing players will be given more boost in coming years which will lead to reduction of cost , local manufacturing will help in generating employment in the country. 

PM Narendra Modi in his latest speech mentioned about be "vocal for local " that clearly signifies the importance of using the local brands and giving initaitaives to local manufacturers.

Technology transfer (acquisition or JV route) to have presence in the countries. Many countries consider secondary packing, sourcing material locally also as local manufacturing it will surely challenge the trust perspective of indian people but will lead to government benefits , shorter lead time to markets.


Registration timelines will increase i.e 3/6 months to 3 - 4 years Leverage of developed country dossiers waivers timelines reduced by half) the upcoming pharma trend will observe faster acceptance of Generics in the markets.

Switching from Rx to OTC (permissible in certain drugs ) Medical Officer of Health will be in acceptance of such type of switching of drugs. No price cap, entry in new channel for distribution, Advertising/Marketing. Government will focus on increase in production of medicine in manufactured India and will promote marketing , distribution in India .

Quality Growth Uptick in licensing of Dossiers : Now the dossier that will be available will be of high quality dossiers and the entry time of drugs to enter the markets will be faster than before.

IP landscape is going to be more challenging for the companies.  Existing Patents will strengthen and further the Patent strength Generics will be seen to move at more faster pace. 

Pricing in reimbursed markets , the markets will be seen with a reasonable pricing policies with reference to pricing .

Reimbursement will be restricted to lowest priced generic drug (balance to be borne by patient OPE) . 

More drugs are now included in Essential Drug List Business feasibility, companies opting out of low price countries Business of larger company may be hived off from low priced markets and Illegal import activity. 

Healthy pipeline of differentiated molecules are observed in the Indian companies.  Company Budget is also been increasing looking at the opportunities bestowed by Indian government for being local manufacturers. Co’s with Specialty pipeline for future (low competition) would see higher valuations.

Contract Research/Manufacturing CRO / CMO is the developing market . Company basically dealing in CRAMS,CDMO,CRO are Expected to see rapid growth as demands for research and outsourcing of manufacturing , research bu the front-end companies will be solely dependent on these companies.

Changes in drug packing serialization, harmonization, transport temperature etc such type of improvements in the packing and marketing of the products can be expected from the Indian players. 

Higher cost Maintaining drug quality, enhanced tracking for recalls, cost efficiency as Indian companies will be motivated to expand as they have to maintain the product quality.
Packaging , marketing and advertising will be upto the mark of foreign companies to build the strong base in home country. 

Consolidation is the key 

In coming years handshakes with the big brands will be common. This type of consolidation will help the pharma companies to get their footholds not only in India but cater the markets abroad , getting excess to their markets , technical know how etc.

Growth will come from..

• Novel therapies Personalised medicines, regenerative medicine
• Biological drugs
• New Drug delivery devices/mechanisms Delivering drug at controlled rate, slow
• Delivery, targeted delivery of drug
• Private insurance Share to increase
• Automation at manufacturing plants, New manufacturing technology (cheaper
• and faster)
• Orphan drugs expected contribution in Rx drugs by 2024
• Patient engagement
• Embracing Technology DTx digital medicines, etc
• CMO CRO

Current scenario

Companies continue to provide digital and internet based educational materials to physicians.
New features include online drug refills, direct to patient, enhancing face to face interactions with physicians, online pharmacies.

Challenge: change in physician behavior (limited time and history of tech usage)
Digital Therapeutics (DTx)
Evidence based software product that delivers a clinical intervention, used standalone or in combination with drug.

Usage of AI for interpretation
Enable doctors automate routine aspects. 
Essentially to help the more informed patient to be in control.
Clinicians can prescribe them standalone or in combination with prescription drugs. 
Healthcare providers and payers are embracing DTx. 

In US, the Department of Health and Human Services has been reimbursing digital therapeutic programs for administering the Diabetes Prevention Program since 2016.

Examples: 
Standalone uses for pain management, mental health, cognitive behavior therapies.
When combined with drugs (apps that track sensors on asthma inhalers or apps used in concert with glucose monitors), can deliver interventions that improve a range of patient benefits.

Total pharma market 35 bn (exports 15 billion and domestic 20 billion)

India Supplies 50-60 of the global vaccines demand (including ARVs) and 25 of all the medicines consumed in the UK respectively.

Indian drugs account for around 30 %(by volume) and about 10 %(by value) in the US 70-80 billion US generics market.

India has second highest number of FDA approved manufacturing facilities. Healthcare sector witnessed private equity of total US 11 billion with 27 deals in first half of 2019.

Manufacturing hubs in Baddi, Gujarat, Andhra Pradesh and Goa, India have started manufacturing (key challenge in terms of labor and potential shortage of RM).

70% of India's imports totaling 2.4 billion of APIs comes from China.C hina currently has a significant edge over India in API manufacturing low utility cost, low interest rate loans etc.

India has identified and prioritized production of 53% of raw materials and APIs as part of its "China plus one" policy to fill in supply gaps of affordable medicines, plan to invest 1.3 billion in domestic pharmaceutical products. 

Challenges

Pricing Jan Aushadhis, doctors prescribe generic name, Price control. Essential medicines, DPCO useful medicines, etc. 

In 2019 about 19 plants received official action indicated status and warning letters from FDA.

Overall pharma industry will continue to see increase in cost maintenance of margins through change in product mix and cost control required.

Companies that will see growth

• Well invested in technology. 
• Strong pipeline under development (along with filings done in past where approvals are expected). 
• Investments in specialty molecules (with track record of successful conversion to commercialization)
• Low leverage. 
• Geographically diversified. 
• Strong branded portfolio. 

Companies with a difficult future

• Tender business dependence
• Revenue dependence on countries with severe strain (high debt, low growth, resource dependent
• (oil)
• Weak portfolio (generic generic)
• Lag in Operational efficiencies (Scale to enable negotiation, backward integration)
• Non adoption of technology (eg;DTx)

My Key Takeaways:

Medicine spending in India is projected to grow 9-12 % over the next five years, leading India to become one of the top 10 countries in terms of medicine spending.

Going forward, better growth in domestic sales would also depend on the ability of companies to align their product portfolio towards chronic therapies for diseases such as such as cardiovascular, anti-diabetes, anti-depressants and anti-cancers that are on the rise.

India's biotechnology industry comprising biopharmaceuticals, bio-services, bio-agriculture, bio-industry and bioinformatics is expected grow at an average growth rate of around 30 per cent a year and reach US$ 100 billion by 2025.

Companies having their major business in CDMO , CRAMS , CDO will have a bright future.

The Indian government has taken many steps to reduce costs and bring down healthcare expenses. Speedy introduction of generic drugs into the market has remained in focus and is expected to benefit the Indian pharmaceutical companies. 

In addition, the thrust on rural health programmes, lifesaving drugs and preventive vaccines also augurs well for the pharmaceutical companies.

Sources: 

 IQVIA: The global use of medicine in 2019 and Outlook to 2023

Digital Therapeutics: pharma’s threat or opportunity, eye for pharma

EvaluatePharma® November 2019

IQVIA: The global use of medicine in 2019 and Outlook to 2023 
IBEF

Coherent market insights

 Bloomberg

Disclaimer : This report is wholly based on my understanding and my knowledge gained during the webinar held on 9th May 2020. The notes that will be shared here will be just for knowledge purpose. All the points covered here are the points I fathom during the webinar and have prepared a small note over that.

 All Credits to: CFA society India

Bharat Binyani , CFA Director ( Business Head)  at Cipla

Raunak Onkar  Co-Fund Manager, Head of the Research Team at PPFAS

                                                   SHUCHI.P.NAHAR