Subscribe Now!

Growth drivers for pharmaceutical sector

Growth Outlook of Pharmaceutical Sector! Key Points to Know.

SHUCHI.P.NAHAR

The Indian market is impossible to ignore, given its economic prospects. Foreign companies view India as a potential significant contributor of future sales and are ramping up their investments in the country accordingly. India’s domestic market looks promising for global pharma looking to launch new products. 

The country’s growing capabilities in contract manufacturing, R&D and clinical trials also make it a preferred outsourcing partner for global pharma at every stage of the value chain. So what strategy should foreign pharmaceutical companies eager to enter the country or expand their existing operations adopt?

 The growth trajectory for the Indian pharmaceutical industry is likely to remain at 10-13 percent in 2020-21 despite challenges, according to rating agency ICRA. The expected growth in the next financial year is on the back of healthy demand from the domestic market given increasing spend on healthcare along with improving access, ICRA said in a statement.

India’s strong position as a pharma supplier rests on its ability to provide high-quality medicines backed by strong innovation capabilities and structural cost advantage. The cost of manufacturing formulations in India remains 30 to 40 % lower than other comparative manufacturing hubs such as China and Eastern Europe, notwithstanding low productivity levels. This is driven by lower labor costs vis‐à‐vis other geographies. 

Despite inflationary trends, India’s labor 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. 

This along with abatement in pricing pressure for the U.S. market, new launches and market share gains for existing products, and consolidation benefits will drive growth in 2020-21, it added. 

"The Indian pharmaceutical industry's growth remained stable at 12.2 % per during H1FY2020 led by a rebound in domestic growth in Q2FY20 to 14.2%  supported by seasonal factors and stable growth in chronic therapies.

During the second quarter of the current fiscal, India witnessed an outbreak of many diseases in many parts, aiding the growth of the anti-infective segment, he added. Though margins remain healthy, pricing pressures for the U.S. base generics business (albeit moderating), lack of limited competition products, and manufacturing quality issues will continue to put margin pressure, ICRA said. 

A higher share of domestic business and operational efficiencies will provide an overall cushion to margins, it added. The key sensitivities to growth and profitability estimated of the Indian pharma industry will be regulatory interventions such as price controls and compulsory genericization for the domestic market and continued regulatory overhang with respect to manufacturing quality deficiencies during U.S. FDA audit says.

There is an opportunity for India Pharma to drive growth by building on the cost advantage, and improving the 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   
■ Refocus efforts on operational excellence   
■ Alternate sourcing and self-sufficiency in APIs / intermediates.

 These imperatives are interrelated operational excellence is a strong enabler of quality and supply reliability. Unlike in the past, when several Indian pharma companies ramped up their R&D spend targeting a pipeline of specialty drugs, niche molecules and complex therapies, this time around companies are optimizing their R&D spend. 

The credit metrics of leading pharma companies are expected to remain stable in view of future growth prospects in regulated markets and relatively strong balance sheets
Global Pharma’s evolving business models and options in India.
The global pharmaceutical industry is changing. Challenging business models, we describe how the pharmaceutical business model is witnessing a paradigm shift from a fully integrated company structure towards a future where companies use a wide range of outsourcing, partnership initiatives and other contractual and relationship arrangements to create networks of collaboration and discovery.

This evolution in the pharma business models have enormous repercussions for the Indian pharmaceutical sector, and related sectors like biotechnology. Indian companies now have an unprecedented opportunity to partner with global players across a wide range of activities, from contract manufacturing and licensing arrangements, to franchising and joint venture opportunities. 

The range of option spans a wide spectrum of levels of ownership and control, from straightforward outsourcing of manufacturing to licensing arrangements to more involved joint ventures and partially or wholly-owned subsidiaries The amount of investment risk varies accordingly.

The bottom line: Global pharma players can take advantage of a variety of options to maximize their investment in India. As many pharma companies turn to more collaborative business models, Indian companies are likely to play an increasingly important partnering role. 



Export-oriented business: CRAMS 
Outsourcing has been the traditional method of doing business with Indian companies. Historically, the focus for the pharmaceutical industry has been on lower value add manufacturing activities such as APIs and generics, and India continues to play an important role in these segments. In recent years, India’s pharma companies have also begun to move up the value chain.

Licensing 
Multinationals are also striking licensing agreements to get a share of the Indian pie. For example, Elder Pharmaceuticals has entered into an exclusive in-licensing deal with Israel’s Enzymotec to sell the latter’s cholesterol-reducing dietary supplement, CardiaBeat, in India.

Most developmental costs are borne by the licensor in licensing arrangements, resulting in the licensee paying a high unit cost and having little control over manufacture. However, licensing can be effectively used to establish a common platform in order to gain rapid in-market acceptance and create a complete therapy range through arrangements such as cross-licensing.

Franchising 
India’s retailing industry also offers huge opportunities for foreign companies to either set up their own retail franchisee or enter into collaboration with existing players. Medicine Shoppe India, the master franchisee of US-based Medicine Shoppe International has already forayed the market Franchising arrangements can leverage on purchasing power from the franchisor buying in large quantities and passing down savings to franchisees. 

Continued business support from the franchisor such as technology, products, training, and marketing is an added advantage. However, there are restrictions on how the business must be managed in order to retain consistency among franchisees. All franchisees are obligated to conform accurately to the initial business model.

Joint Ventures 

Joint ventures (JVs) are becoming a more prevalent option for companies looking to capitalize on the opportunities presented in India. Foreign companies are increasingly looking at local partners to work with in order to increase their presence in India. 

Domestic partners bring together extensive local expertise due to their familiarity with the business environment, knowledge support and the networked capabilities of other local pharmaceutical companies.  

These advantages, along with low production costs, skilled labor, and faster drug development can be productively utilized by western pharmaceutical companies coming into India. As noted, India is home to more than 100 US FDA approved plants, so foreign companies looking for local partners can access a substantial manufacturing base.

Conclusion
The answer to all the above question can be sum up here, One approach is to call on India’s increasing expertise in biotechnology, bioinformatics and clinical testing. Several overseas companies have outsourced research and clinical trials to Indian contractors, while others have entered into collaborative R&D arrangements to supplement their R&D productivity. 

Many foreign companies have also already initiated research on neglected diseases. We believe that many more will do so, as the patent the regime is strengthening. This will enable them to capitalize on the cost savings to be gained from shifting some research activities to India, without jeopardizing their most valuable intellectual property.

Another approach is to tap into the growing domestic market. Foreign companies with a product portfolio spanning across different therapeutics segments can look at bringing newer products in India by entering into collaborative networks across the value chain, from sourcing and manufacturing to marketing and distribution. 

One way to build a presence in India may be through an increased presence in the OTC market. Promoting a range of OTC products could serve as means of building brand awareness and as a source of new revenues. Indigenous producers dominate the generics business, and about 97% of all drugs sold in India are already off-patent. The OTC market is, by contrast, relatively undeveloped.

Nonetheless, India’s appeal is growing rapidly in a number of respects. It has long been a formidable player in pharmaceutical manufacturing, but its socio-economic strengths provide even greater grounds for optimism. If the economy outpaces that of every another emerging country for the next half-century, as many commentators expect, large portions of the population will be able to afford modern medicines. India’s increasing scientific expertise will also equip it to play a significant role in researching and developing those drugs. 

It has a large pool of highly educated, English speaking scientists who can undertake research and conduct trials more cheaply and in some cases faster than their Western peers. These are major advantages in a world where drug development costs are soaring and getting to market fast is vital. 

Sources: McKinsey Research Report 
                 Ficci Website 
                 Bloomberg Quint
                 PwC Research Report 
                

Comments

  1. India consists of around 60,000 generic brands belonging to 60 therapeutic categories. The Medicine Manufacturing Companies in India produces more than 500 different Active Pharmaceutical Ingredients (APIs).

    ReplyDelete

Post a Comment

Most Favorite Reads!

Ethanol - Demand, Production, Opportunities & Production Projections (Part-2)

Ethanol - Demand, Market Size, Opportunities & New Goverment Policies (Part-2)

Ethanol - Demand, Market Size, Opportunities & New Goverment Policies (Part-1)

Nutraceuticals - The Next Gem of Healthcare Sector

Laurus Labs - Result Update Q4FY21 & Full Year FY21