Tag Archives: Indian

Envisaging ‘five emerging key strategic changes’ in the Indian Pharmaceutical Industry

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In India, the domestic pharmaceutical market has clocked a CAGR of around 13% to 14% since the last five years. Currently, the market is dominated by the drugs for mass ailments. However, such trend has already started showing a shift towards ailments related to the life-style of patients. This emerging trend is expected to fast accelerate in future.All such factors put together, driven by the following key drivers for growth backed by strong logistics support and hopefully improving healthcare delivery system are expected to contribute significantly towards faster growth of the Indian pharmaceutical industry, as we move on.Key growth drivers:

The growth drivers may primarily be divided into two categories:

- Local and
- Global

Local:

• Rapidly growing more prosperous middle class population of the country.

• High quality, cost effective, domestic generic drug manufacturers who will have increasing penetration in both local and emerging markets.

• Rising per capita income of the population and in-efficiency of the public healthcare system will encourage private healthcare systems of various types and scales to flourish.

• Expected emergence of a robust healthcare financing/insurance model for all strata of society.

• Fast growth in Medical Tourism.

• Evolving combo-business model of global pharmaceutical companies with both patented and generic drugs boosting local outsourcing opportunities.

Global:

Global pharmaceutical industry is going through a rapid process of transformation. Cost containment pressures due to various factors are further accelerating this process. Some of the critical effects of this transformation process like Contract Research and Manufacturing Services (CRAMS) will drive growth of many Indian domestic pharmaceutical players.

Expecting the need for ‘New Strategic Changes’ of radically different in nature:

The impact of many of these evolutionary changes is being felt in India already. However, some more radically different types of changes, which the industry has not experienced, as yet, are expected to be felt as the country moves on to satisfy the desired healthcare needs of its population while fully encashing the future growth opportunities of the Indian pharmaceutical industry.

Five ‘New Strategic Changes’ envisaged:

Five new key strategic changes, in my view, will be as follows:

1. As the country will move towards an integrated and robust healthcare financing system:

• Doctors will no longer remain the sole decision makers for the drugs that they will prescribe to the patients and the way they will treat the common diseases. Healthcare providers/ medical insurance companies will start playing a key role in these areas by providing to the doctors well thought out treatment guidelines.

• For a significant proportion of the products that the pharmaceutical companies will sell, tough price negotiation with the healthcare providers/ medical insurance companies will be inevitable.

• Health Technology Assessment (HTA) or outcome based pricing will play an important role in pricing a healthcare product.

2. An integrated approach towards disease prevention will emerge as equally important as treatment of diseases.

3. A shift from just product marketing to marketing of a bundle of value added comprehensive disease management processes along with the product, will be the order of the day

4. Patents will be granted on truly innovative medicines and incremental innovation to be protected within the patent life of the original product only or separately for a much lesser period.

5. Over the counter medicines, especially originated from natural products for common and less serious illness, will curve out a larger share as the appropriate regulations will be put in place.

Conclusion:

With the above changes in the ball game of the Indian pharmaceutical industry, it may not be easy for the local players to adapt to such changes sooner and compete with the global players on equal footing. Those Indian Pharmaceutical companies who are already global players on their own rights, will be well versed with the nuances of this new game, within the country. These domestic companies, in my view, will offer a tough competition to the global players, especially, in the generic space.

However, so far as other domestic players are concerned, the new environment could prove to be a real tough time for them, further accelerating the process of consolidation within the Indian pharmaceutical industry. So the ‘writing on the wall’ appears to be ‘prepare now’ or ‘perish’.

By Tapan Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

Europe: now emerging as a more preferred market for the domestic Indian Pharmaceutical Industry

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Since almost last 30 years the Pharmaceutical Industry of India has been a net foreign exchange earner. Deutche Bank Researchindicates that over the last ten years the export surplus has widened from EUR 370 million to EUR 2 billion.Around 80% of these pharmaceuticals manufactured in India are sold to the US and Europedriven by higher purchasing power of the people in those countries and also due to recent regulatory changes towards greater cost containment initiatives by the respective governments.
Europe – a preferred destination for Indian Pharmaceutical companies:

In the quagmire of global recession, prompted by increasing pricing pressure with consequent pressure on the bottom-line, many Indian pharmaceutical companies have started increasing their focus on Europe. The European generics market is now growing faster than overcrowded US generics market.

Top domestic Indian pharmaceutical Companies like Ranbaxy, Sun Pharma, Dr. Reddy’s Laboratories (DRL), Glenmark, Wockhardt and Aurobindo whose performance is highly dependent on their revenues from the US and Europe perhaps will need to have a sharper look at both western and eastern Europe.

It has been reported that because of higher volume penetration of over 55% of generics pharmaceuticals in Europe, which is significantly higher than US, Europe offers an attractive and better growth opportunities to the Indian pharmaceutical companies in the medium to longer term. Companies like Ranbaxy, Wockhardt and Aurobindo have already reported to have started showing higher revenue growth in Europe than USA.

Major merger and Acquisition (M&A) initiatives of the Indian pharmaceutical companies in Europe augur well towards this direction. Ranbaxy has already acquired companies in France, Belgium, Romania and Zydus Cadila in France. DRL purchased Betapharm in Germany.

Inorganic growth will demand a more cautious approach:

However, the path of M&A by Indian pharmaceutical companies should be treaded with more caution. The case in point is Wockhardt, which grew with a scorching pace of over 30% on an average for several years in the recent past driven by its inorganic growth strategy. In 2006-07 Wockhardt acquired two companies in Europe, one in Ireland and the other in France. Unfortunately, the company could not manage its rapid growth through such M&A as efficiently for long and got entangled in a debt trap of around Rs. 34,000 crore in that process.

Converting problems into opportunities:

Global financial meltdown throws open an opportunity for the Indian pharmaceutical companies to acquire the distressed specialty pharmaceutical companies at a very competitive price in Europe. Many small pharmaceutical companies in Europe are now looking to sell their facilities because of difficulty in maintaining their business arising out of higher operating costs.

In such a scenario after acquiring a company in those countries, the Indian acquirer will have an opportunity to transfer the manufacturing operations to India, where the costs are much lower, keeping just the marketing operations there.

A report from The Economic Times (ET) indicates that Pharmaceutical majors like Zydus Cadilla are looking for acquisition in Spain and Italy and Glenmark in the Eastern Europe. Kemwell of Bangalore has recently acquired the manufacturing plant of Pfizer located in Sweden and has expressed intention to shift their manufacturing operations to India to concentrate only on marketing with the acquired local infrastructure.

Just at the same time and for the same reasons many global pharmaceutical companies plan to outsource their manufacturing requirements from India and China retaining the R&D and marketing operations with them.

Increasing attention on Eastern Europe:

According to PMR, the Polish Market Research company, countries like Ukraine, Bulgaria, Turkey, Russia and Romania are quite attractive for pharmaceuticals business in the Eastern Europe.

In that part of the world, Russia, Romania and Ukraine have been dominating in terms of sustained high growth since last five years. Acquisition of a local company will provide the best option for quick entry into these markets, recommends PMR.

Conclusion:

Global financial meltdown has thrown open many doors of opportunities for rapid entry into both eastern and western European markets by the Indian pharmaceutical companies for better future growth potential. I am sure the domestic pharmaceutical companies will carefully evaluate these opportunities to take appropriate action to catapult themselves to a higher business growth trajectory in the years to come by.

Tapan Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

Changing recipe for growth in the new paradigm of Indian Pharmaceutical Industry… for its effective implementation there appears to be more questions than answers:

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India, the world’s largest democracy with its economy on a sustained growth track is creating an overall environment for high performance for all key sectors, including pharmaceuticals. In terms of GDP growth India is second only to China and is expected to become the fifth largest economy by 2017.
Dawn of a New Era:
Over a period of time, India has emerged as a fast growing pharmaceutical industry through various policy measures taken by the government of India (GoI). Such policy measures have been very supportive to the domestic companies. The absence of product patents from 1970 to 2005 enabled the Indian pharmaceutical companies to become world’s leading producers of ‘copycat’ versions of patented drugs. Lower cost base and expertise in ‘reverse engineering’ immensely helped the domestic industry to sustain its competitive edge during this period.

New product patent regime in 2005 heralded the dawn of a new era triggering a transformation of the industry. Return of large global companies like, MSD, Roche, Eli Lilly and entry of other company’s like Biogen, Genzyme, Allergan, Astellas, Eisai etc together with the emergence of many Indian companies to become research-based multinationals, are making this transformation more interesting.

Generic pharmaceuticals will continue to play a significant role:

Even with all these changes, generic pharmaceutical products will continue to play a significant role towards the growth of the industry. While being major global generic players, some large Indian companies like Dr. Reddy’s laboratories (DRL), Glenmark, Ranbaxy, Piramal Healthcare etc have commenced their journey on the long road of product discovery research with reasonable amount of initial success. There are now several new drug development programs by many of these Indian pharmaceutical companies, which will hopefully result in global product launches in not too distant future. India’s emphasis on research and development and new drug discovery is indeed growing since the country signed WTO agreement for product patent in 1995.

An industry with high success quotient:

Currently India is the world’s fourth largest producer of pharmaceuticals by volume and directly employs about 5 lakh people. The market is crowded with 20,000 pharmaceutical firms, 60,000 distributors and 700,000-800,000 retailers. Although there are around 5,600 licensed generics players, in reality around 3,000 of them are engaged in pharmaceutical production. The domestic pharmaceutical companies now cater to about 70% of the country’s requirements for medicines. The top 10 companies control about 30% and 250 companies control around 70% of the market.

Key determinants of success:

Following in my view are the key determinants, which will decide the extent of success of the Indian pharmaceutical industry as a whole:

• Healthcare delivery and infrastructure

• Access and affordability of modern medicines

• IPR environment

• Domestic R&D success

• Speed of regulatory reform process

• Disease trends and prescription patterns

• Public and private healthcare spending

• Penetration of health insurance

Domestic companies adopting different business model:

In this changing scenario different domestic companies are adopting different business models, as follows:

1. Penetration to the regulated generics markets:

- With partnership agreements with established generic companies

- Setting up own sales and marketing organisations both greenfield and also through acquisitions

- With acquisition of manufacturing facilities

2. Contract Research and Manufacturing Services (CRAMS):

Ballooning costs for research and development and low productivity have prompted the research-based global pharmaceutical companies to outsource part of their research and manufacturing activities to lower-cost, developing nations like, India and China.

India is gradually emerging as a competitive hub for CRAMS. The country is playing a significant role in manufacturing Active Pharmaceutical Ingredients (APIs) and intermediates for the global pharmaceutical industry. We have also seen the global pharmaceutical companies signing-up long-term outsourcing contracts with the Indian manufacturing and contract research organizations.

Generic pharmaceuticals produced in India are increasingly being accepted all over the world, excepting some recent US-FDA related issues. Many Indian companies like Piramal Healthcare, Aurobindo, DRL etc are taking up global generic manufacturing contracts for the global players like, Allergan, Pfizer and GSK, in addition to marketing generic pharmaceuticals themselves. Outsourcing of such business processes to India has undoubtedly been proved to be not only effective in saving costs, but also in saving valuable developmental time for the Multinational companies (MNCs).

Besides all these, India is emerging as the preferred destination for outsourcing clinical trials because of its both high quality and lower cost facilities of global standards.

3. Operating in domestic generic market

4. Investing more in R&D for discovery of NCE/NME

Key growth drivers:

A recent study jointly undertaken by the Organization of Pharmaceutical Producers of India (OPPI) and Yes Bank identified following key growth drivers for the domestic pharmaceutical Industry:

• Consolidation leading to better pricing

• Population growth, changing demographics and urbanization

• Increasing per capita income leading to higher penetration

• Access to quality healthcare through health insurance schemes

• Robust product patent regime, although generics will continue to grow

The questions to ponder:

1. Whether domestic Indian pharmaceutical companies will make large-scale investments in R&D to compete effectively with the global companies across the world?

2. Whether global pharmaceutical companies will be successful in marketing drugs patented in India?

3. Whether the government, physicians and patients keep supporting the generics?

4. How will the new Drug Policy be?

5. How will the government go about improving access to modern medicines from the current level of 35% to 100% of the Indian population?

Conclusion:

It is not quite easy to gauge the rate of progress of the Indian pharmaceutical industry in the new paradigm, at this stage. One of the key growth drivers of the domestic pharmaceutical industry has been the launch of a slew of new products of various types. The pipe line of such products has already started drying up in a comparative yardstick, in post product patent regime. Consequently, as already launched such new products reach the maturity stage from the growth phase of their ‘product life cycle’, a possible slowdown in the rate of growth of the respective companies in the domestic market is well anticipated.

There are other growth drivers though, for the industry, but how will these drivers actually drive the industry growth will, to a large extent, depend on proper answers to the above five questions. Thus, in the new paradigm though the growth recipe is ready, in its effective implementation there are more questions than answers.

By Tapan Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

Biosimilars –Indian Pharmaceutical Companies are sharpening their focus on fast growing Oncology segment

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The global market for Bio-pharmaceuticals is estimated to be around US$ 50 billion by the next year. Currently about 25% of New Molecular Entities (NMEs) under development are of biotech origin. Indian pharmaceutical majors like Dr. Reddy’s Laboratories (DRL), Reliance Life Science, Shantha Biotech, Ranbaxy, Biocon, Wockhardt and Glenmarkhave made good investments in biotech drugs manufacturing facilities keeping an eye on the emerging opportunities with Biosimilar drugs in the developed markets of the world.
Regulatory pathway for Biosimilar drugs:
Already a regulatory pathway for Biosimilar drugs exists in the European Union (EU). In the USA President Barak Obama administration has already expressed its clear intention to have similar pathway established in the country through the US-FDA, which is expected to come by the end of this year.

Steps taken by the Indian pharmaceutical companies towards this direction:

Copycat version of Rituxan (Rituximab) of Roche used in the treatment of Non-Hodgkin’s lymphoma has already been developed by DRL in India. Last year Rituxan clocked a turnover of over US$ 2 billion. DRL also has developed filgastrim of Amgen, which enhances production of white blood-cell by the body, and markets the product as Grafeel in India. Similarly Ranbaxy has collaborated with Zenotech Laboratories to manufacture G-CSF. Meanwhile Biocon of Bangalore has commenced clinical trial of Insugen for the regulated markets like EU. All these initiatives are being taken in India.

On the other hand Glenmark is planning to come out with its first biotech product by 2010 from its biological research establishment located in Switzerland.

Within Biopharmaceuticals the focus is on Oncology:

Within Biopharmaceuticals many of these domestic Indian pharmaceutical companies are targeting Oncology disease area, which is estimated to be the largest segment with a value turnover of over US$ 55 billion by 2010 growing over 17%. As per recent reports about 8 million deaths take place all over the world per year due to cancer. May be for this reason the research pipeline of NMEs is dominated by oncology with global pharmaceutical majors’ sharp R&D focus and research spend on this particular therapy area. Thus about 50 NMEs for the treatment of cancer are expected to be launched in the global markets by 2015.

Indian market for oncology products:

Current size of the Indian oncology market is US$ 18.6 million, which is expected to be over US$ 50 million by the end of 2010; the main reason being all these are and will be very expensive products. Biocon has just launched its monoclonal antibodybased drug BIOMAb-EGFR for treating solid tumours with an eye to introduce this product in the western markets, as soon as they can get regulatory approval from these countries. Similarly, Ranbaxy with its strategic collaboration with Zenotech Laboratories is planning to market oncology products in various markets of the world like Brazil, Mexico, CIS and Russia.

Conclusion:

From the available information it appears that many Indian domestic pharmaceutical companies are now poised to leverage their R&D initiatives on Biosimilars. Oncologies being one of the fastest growing therapy segments, sharp focus on this area is indeed a step in the right direction.

By Tapan Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

Managing expectations of the emerging markets of the world, proactively, will differentiate winners from the rest, in the Global Pharmaceutical Industry.

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Change or Perish:In Mid 2007, PricewaterhouseCoopers (PwC) recommended to the research-based global pharmaceutical companies that for sustainable business performance they should move a part of their expenditure from marketing to research. They also recommended that the drug prices should be related to incremental efficacy that the products would provide. That global pharmaceutical business model is “economically unsustainable and operationally incapable of acting quickly enough to produce the types of innovative treatments demanded by global markets” as a challenge of change, was forecasted in 2007 by PwC in their ‘Pharma 2020: The vision’, report.Fast evolving scenario:

The global pharmaceutical industry scenario is fast evolving. More drugs are going off patent than what the innovator companies can replace with the new products. The research is undoubtedly failing to deliver.

At the same time, the business growth in the developed markets of the world has been declining over a period of time. The growth in the top two pharmaceutical markets of the world viz, USA and Japan has gone negative. IMS predicted in their recent ‘CEO Conclave’ in Mumbai that negative trends in these markets will continue even beyond 2013.

In the same conclave IMS predicted that ‘Pharmerging’ markets and Venezuela will drive the growth of the global pharmaceutical industry in the next five year period. Within ‘Pharmerging’ markets, China is expected to record highest CAGR growth of over 25%, followed by India and Turkey around 12-14% each. With such a scorching pace of growth China is expected to become third largest pharmaceutical market in the world in 2013 with India holding its 2008 ranking of no. 13. Venezuela is expected to register highest CAGR growth of around 40% during this period placing itself as the eleventh largest pharmaceutical market of the world, comfortably overtaking India.

Emerging markets will drive global growth:

IMS health reported that last year the global pharmaceutical market recorded a turnover of US$712 billion, which is an increase of US$178 billion over last five years. However, the growth rate has come down to 6.4% compared to 11.8% in 2001. Emerging markets like India, China, Russia, Turkey and South Korea have recorded a growth of 13%, 25.7%, 20.2%, 17.2% and 10.7%, respectively against just 3.8% growth of the US market.

Making up sales revenue of world’s top 10 products:

World’s 10 top selling prescription drugs, as reported by IMS, which will be difficult to replace in terms of single-product value turnover after they go off patent, are as follows:

- Lipitor, US$13.5 billion (Pfizer)

- Plavix, US$7.3 billion (Sanofi-Aventis)

- Nexium, US$7.2 billion (AstraZeneca)

- Seretide/Advair, US$7.1 billion (GlaxoSmithKline)

- Enbrel, US$5.3 billion (Amgen and Wyeth)

- Zyprexa, US$5 billion (Eli Lilly)

- Risperdal, US$4.9 billion (Johnson & Johnson)

- Seroquel, US$4.6 billion (AstraZeneca)

- Singulair, US$4.5 billion (Merck)

- Aranesp, US$4.4 billion (Amgen)

Focus on the emerging markets and other measures are expected to more than offset the loss of revenue and profit for these products.

Key business issues in the emerging markets:

Governments of many of these emerging markets expect some local benefits out of the evolving growth opportunities of the global pharmaceutical companies from their respective countries. Various reports indicate that there will be mainly the following two key issues in these markets:

• Local manufacturing of products
• Pricing

Local manufacturing:

Out of these emerging markets, Indonesia has clearly spelt out its intention by specifying that the pharmaceutical companies marketing their products in Indonesia will need to establish local manufacturing facilities. The new rule is directed towards local job creation.

The Health Minister of Indonesia has said, “If they want to get licenses (to sell their products) they have to invest here also, not just take advantage of the Indonesian market.” The Minister further added, “they can’t just operate like a retailer here, with an office that’s three meters by three, and make billions of rupiah. That’s not fair.” It has been reported that India and China may also come out with similar requirements for their respective countries.

U.S. Chamber of Commerce has registered a strong protest in this matter with the President of Indonesia and has urged a reversal of this decision. However, the country appears to have taken a firm stand in this matter. This is evident when in response to the report that some global pharmaceutical companies have threatened withdrawal of their business from Indonesia because of this reason, the Health Minister retorted, “If they want to go away, go ahead.”

Pricing:

Anticipating such moves in the emerging markets, GlaxoSmithKline (GSK) has already started reducing the prices of its products in the emerging markets.

The visionary CEO of GSK, Andrew witty strongly believes that such price reduction will enable more patients in the emerging markets to afford GSK products. Consequently the increased sales volume will not only be able to offset the price loss but will also create a substantial goodwill for the company in these markets.

Quoting Andrew Witty the ‘Wall Street Journal’ (WSJ) reported that in Philippines, GSK has reduced the price of 28 products by 30% to 50%. In other emerging markets in Asia including India, Malaysia and Thailand the company has reduced the prices of Cervarix, its cervical cancer vaccine, substantially.

Price reductions made by GSK in Philippines in March have started paying rich dividends to the company with 15% to 40% increase in sales revenue.

Conclusion:

To achieve the growth objectives in the emerging markets of the world, global pharmaceutical companies will need to find out a win-win solution. Andrew Witty of GSK has set examples in this area with various path breaking initiatives. Pricing and local manufacturing of products, in that order, are expected to be the key issues in the business model for emerging markets of the global pharmaceutical companies. Witty has responded to such expectations proactively and in an exemplary way. His vision is widely expected to be emulated by many others, as we move on, in the interest of all stakeholders.

By Tapan Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

Global ‘Contract Research and Manufacturing Services’ (CRAMS) – a new growth opportunity for mid-cap Indian pharmaceutical companies… Are we ready?

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Intense competition within global pharmaceutical industry, patent expiries of blockbuster drugs, ballooning R&D costs together with low R&D productivity, more and more stringent regulatory standards coupled with intense cost containment measures are exerting intense pressure on the bottom lines of the global pharmaceutical companies. The situation, which is continuing for quite some time from now has triggered two important strategic business considerations:1. A rapid consolidation process through ‘mega mergers’ and ‘mega acquisitions’ while medium to smaller M&As continued mostly with an intent to bridge strategic business gaps.2. Increase in interest towards ‘Business Processes Outsourcing’ initiatives of various scales and types, which include contract manufacturing and contract research to lower cost countries with clear objectives of saving both cost and time.

Such a situation has given rise to the evolution of Contract Research and Manufacturing Services, popularly known as CRAMS, especially in countries like India and China.

India is fast emerging as one of the key outsourcing hubs for contract research and global formulations manufacturing activities by improving its manufacturing standards through global benchmarking and simultaneously honing its competitive edge.

CRAMS market – Global and Local:

In 2006 the global market for CRAMS was reported to be of US$52 billion, which is expected to grow to US$76 billion by 2010.

However, the CRAMS market in India was just around US$1.00 billion in 2006, which is expected to grow to around US$3.50 billion by 2010, with an estimated CAGR of around 38% during the period.

Contract Research Market:

In 2006, including clinical trials with data management, contract research market in India was estimated to be around US$370 million with an annual growth of around 45%. In that year out of total contract research market, clinical trials activities contributed over 50%, closely followed by pre-clinical trials with a contribution of around 30%. Custom synthesis together with chemistry and biology related R&D activities contributed balance 18% of the contract research market.

Contract Manufacturing market:

In 2007, the global market for contract manufacturing was around U.S$26 billion. The market is estimated to be of U.S$40 billion in 2011 registering a CAGR of around 12%.

Contract manufacturing market in India was reported to be of U.S$ 660 million with an annual growth of 48% in 2007. However, both India and China are expected to grow faster during this period with a CAGR of around 20% because of availability of skilled human resource and world class manufacturing facilities.

The global market for contract manufacturing is highly fragmented. The market share of top 10 companies in this field is just around 30%. As Catalent Pharma Solutions, USA is the largest contract manufacturer of the world with a turnover of U.S$1.8 billion in 2007; Piramal Healthcare is the largest contract manufacturer in India, which has registered a growth of over 30% in 2007-08. In the field of biotechnology Lonza of Switzerland is the largest contract manufacturer with a growth of over 75% in 2007.

Key Services provided by the CRAMS in India:

Contract Manufacturing Organizations:

They provide mainly:

• Manufacturing capacities to the global pharmaceutical companies
• Formulations development
• Value-added services like process development and process optimization

Contract Research Organizations:

They provide services mainly related to:

• Drug discovery
• Pre-clinical and clinical trial management

The Growth Divers for CRAMS business:

• Collaboration with global pharmaceutical companies in various areas of manufacturing, like local country-specific packaging of finished formulations from bulk packs imported from the originator, to complete manufacturing of the finished formulations, including supply of indigenously made raw material as per originators specifications.

• Outsourcing of formulations of off-patent molecules by the global companies to effectively compete with generics, as has happened between Pfizer and Aurobindo Pharma of Hyderabad, India.

• Expertise in cost-effective custom synthesis for global innovator companies of various scales of operation.

• Clear and sharp focus on CRAMS business by constantly improving manufacturing and supply chain management efficiencies. As is currently being practised by Piramal Healthcare. They have already spun off their R&D activities into a separate legal entity to unleash its commercial potential.

• Anytime readiness for audit of the approved site/s by any global regulator.

CRAMS space in India offers an emerging growth opportunity of global scale, especially to mid-cap domestic pharmaceutical companies. Many of these companies are still engaged in their old business model of the old paradigm of pre-IPR regime – manufacturing and marketing of generic brands and Active Pharmaceutical Ingredients (API). This business model can still work. But not without its huge inherent risk of continuous heavy pressure on the bottom lines due to intense cut-throat competition.

A strategic shift in the business model by those mid cap Indian pharmaceutical companies, who have wherewithal of creating world class CRAMS facilities for their global collaborators, would, to a great extent, be able to insulate their current high risk generic brands or API manufacturing and marketing business. At the same time, it will be quite possible for them to register a decent business growth by availing the emerging opportunities of the new paradigm of post IPR regime-CRAMS.

By Tapan Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

Is rural India emerging as the new ‘Eldorado’ for the Indian pharmaceutical industry?

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“If we stop thinking of the poor as victims or as a burden and start recognizing them as resilient and creative consumers, a whole new world of opportunity will open up,” wrote the management guru C K Prahalad in his well known book titled, “The Fortune at the Bottom of the Pyramid”.I am not sure whether the above profound observation is encouraging the pharmaceutical companies to spread their wings, at a much organized way, in rural India, where over 70% of the Indian population live and most of them are poor.Rural reforms have commenced in India at a much faster pace than ever before. Even many die-hard skeptics will now agree that the “Rural India has started Shining”. The shine, however, may not be as much as it ought to be. But surely, it is happening. The result of recent General Election in India perhaps will vindicate this point.

Is rural India the new growth opportunity for the pharmaceutical industry?

Decent business prospects in largely un-tapped rural India are making the pharmaceutical companies to move into this uncharted frontier. Reaching out to about 65% of the population who do not have access to modern medicines, could prove to be the new ‘Eldorado’ for the industry. Some well organized but small preparatory steps are already being taken towards this direction, which ultimately could lead to taking a giant leap towards this new frontier.

Some companies have started charting in a new way in this much uncharted frontier:

Possibly as a testimony to this new business approach we can now see:

1. Novartis with its “Arygoya Parivar” initiative working out a tailor-made program for rural areas of seven selected states, to start with. They have developed special packs of essential medicines with special prices to reach out to the rural marketing population.

2. Novo Nordisk screening patients suffering from diabetes in the rural areas of Goa with mobile clinics.

3. Eli Lilly developing a program along with the Self-Employed Women’s Association in Ahmedabad to educate and encourage rural patients suffering from tuberculosis to go for treatment.

4. Ahmedabad based Cadila Pharma setting up a dedicated rural marketing arm called ‘Explora’, which has already clocked a reported annual turnover of Rs. 50 crore.

5. Vadodara based Alembic Chemicals creating a rural business unit called ‘Maxis’.

6. Piramal Healthcare launching a pilot project in Rajasthan to take its products to rural areas where there is no proper public health system.

These are just a few illustrations and not an exhaustive list. However, the question is whether the rural marketing initiatives will continue to remain an illusion to the pharmaceutical companies in India or will get translated into a decent strategic move?

Going by various published reports, it appears that fortune still exists at the bottom of the pyramid.
In 2007 the rural markets registered a growth of over 40% over the previous year. This scorching pace of rural market growth is expected to continue in the next decades.

Moreover, according to McKinsey Report, rural markets will contribute about 27% of the total consumption of India by 2020 and by 2015, rural India will account for over 24% of the domestic pharmaceutical market from its current level of 17%.

Rural market size:

The rural markets currently contribute about 17% of U.S$8.1 billion pharmaceutical market in India. As reported in ‘India Pharma 2015’ of McKinsey,” by 2015 rural pharma market size is expected to reach U.S$4.8 billion from U.S$1.2 billion in 2005.”

Key growth drivers, as McKinsey indicated in this report, will be as follows:

• Income growth: 40%
• Medical infrastructure: 20%
• Health insurance penetration: 15%

Rural markets are currently dominated by ailments related to various types of infections. This disease pattern is expected to change by the next decade to non-infectious chronic illness, like diabetes, cardiac diseases, cancer, hypertension etc.

The opportunities in the rural markets:

‘The Fortune at the Bottom of the Pyramid’, the famous observation of the management guru C.K. Prahalad is equally apt for the pharmaceutical industry of India, where the just 35% of the population has access to affordable modern medicines.

Further, 20 million middle class households living in about 6,00,000 villages, which is almost the same as the number of middle class households residing in urban India, is currently instrumental to significant increase towards healthcare spending in rural India.

Rural market entry strategy:

Instead of transplanting the urban marketing strategy into rural India, some companies like, Novartis, Novo Nordisk and Eli Lilly, as mentioned above, have taken the community-welfare route to make the rural population aware of particular disease segments like, tuberculosis, diabetes, waterborne diseases etc together with the treatments available for such ailments.

These value added marketing strategies offer benefits to both the patients and the company concerned. The local medical practitioners, in turn, are also benefitted as they get increasing number of patients in their clinics through such disease awareness community program by the pharmaceutical companies.

Key challenges:

There are some key challenges, as well, for effective rural penetration by the Indian pharmaceutical industry, which are as follows:

• Inadequate basic healthcare infrastructure. Only 20% of total healthcare infrastructure of the country is in rural areas where over 70% population lives.

• Density of doctors per 10,000 populations in India is just 6. About seven lakh villages in India do not have doctors. As per AC Neilsen study, an average rural Indian has to travel about 6 km to visit a doctor. A Medical Representative will require travelling about 250 to 300 km every day just to meet about 10 doctors and 4 dealers.

• Villages are not well connected by proper all season roads.

• Lack of appropriate supply chain network and logistics support.

National Rural Health Mission (NRHM) – a key facilitator:

Be that as it may, greater focus of the new UPA Government on NRHM will help immensely to overcome many of these challenges in various different ways.

In the interim budget 2009, the Government has allocated U.S$ 2.35 billion for the NRHM. It is expected that this initiative, if implemented well, will help improving not only the healthcare infrastructure in rural India, but also supply of affordable medicines, in these long neglected areas.

Conclusion:

With required infrastructural support and tailor made value added marketing strategies for rural India, simultaneously delivering both preventive and curative therapies under one umbrella, it may not be difficult for the Indian pharmaceutical companies to discover ‘The Fortune at the Bottom of the Pyramid’ – a win-win situation indeed for both the ‘haves’ and a vast majority of ‘have nots’ living in India.

By Tapan Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.

Global API manufacturers are poised to penetrate the Indian market in a bigger way – will the API ‘marketing warfare’ be even more intense, in future?

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India currently plays a relatively dominant role in the Global Active Pharmaceutical Ingredient (API) Market with China being ahead of India. While this is the current scenario, many experts in this field contemplates that important players from the regulated markets will soon start making significant inroads in India.Current API Market situation in India:In 2007 the API output value in India was around US $4.1 billion registering a 5 year CAGR of around 19% and ranking fourth in the world API output. According to the Tata Strategic Management Group, Indian API export value is expected to increase to US $12.75 billion in 2012.

Currently in India about 400 different types of APIs are manufactured in around 3000 plants, Ranbaxy Laboratories, Lupin, Shasun Chemicals, Orchid Chemicals, Aurobindo Pharma, Sun Pharmaceuticals Ipca Laboratories and USV being the top API manufacturers of the country. Indian domestic companies source almost 50 percent of their API requirements from China, because of lower cost in that country.

In terms of global ranking, India is now the third largest API producers of the world just after China and Italy and by 2011 is expected to be the second largest producer after China. However, in Drug Master File (DMF) filings India is currently ahead of China.

In addition, India scores over China in ‘documentation’ and ‘Environment, Health and Safety (EHS)’ compliance. All these have contributed to India having around 100 US FDA approved world class manufacturing facilities, which is considered the largest outside the USA.

Indian API manufacturers are facing a cut throat competition from their Chinese counterparts mainly because of lower costs in China. Considerably higher economies of scale and various types of support that the Chinese API manufacturers receive from their Government are the main reasons for such cost differential.

Growing competiton from the regulated markets:

We now observe a new trend within the API space in India. Many of the global innovators and generic companies are keen to enter into the API space of India.

It is known that API manufacturers from the regulated markets are already selling their products in India. However, at present, the numbers of Indian registrations for API applied by some of the large global companies, as reported by ‘Thomson Reuters Newport Horizon Premium’, are quite significant, which are as follows:

1. Novartis, Switzerland:20
2. Pfizer, USA:16
3. Sanofi-Aventis, France: 26
4. Teva, Israel: 45
5. Schering-Plough, USA:39
6. BASF: 37
7. DSM: 26
8. E.ON AG: 16
9. Kyowa Hakko: 23

All these companies who are entering into the API business space in India, I am sure, have worked out a grand design to compete not only with the the low cost domestic API manufacturers, but also with the cheaper imports, particularly from China.

What will then be the competitive edge of these companies in India?

It appears that each of these companies has weighed very carefully the existing strategic opportunities in the API sectors of India, both in terms up technology and also in terms of domestic demand.

Strategic gap in API manufacturing technology:

India, undeniably, is one of the key global hubs in the API space, with competitive edge mainly in ‘non-fermentation technology’ product areas. This leaves a wide and perceptible technological gap in the areas of products requiring ‘fermentation technology‘.

Significant demand from domestic formulations manufacturing :

India is much ahead of China in pharmaceutical formulations manufacturing, especially in the area of exports to the regulated markets like, the USA and EU. Over 25 domestic Indian companies are currently catering to exports demand of the U.S market. However, it is interesting to note that the global manufacturers like Sandoz, Eisai, Watson, Mylan have already set up their formulations manufacturing facilities in India and some more are expected to follow suit over a period of time. Hence, fast growing domestic demand for APIs, especially for exports, will drive the business plan of the global API players for India.

Is the cost advantage in India sustainable?

Indian API manufacturers although currently have a cost advantage compared to their counterparts in the regulated market, this advantage is not sustainable over a period of time because of various reasons. The key reason being sharp increase in cost related to more stringent environmental and regulatory compliance, besides spiralling manpower and other overhead costs.

Indian regulatory requirements for the global API players:

To sell their APIs into India, global companies are now required to obtain the following regulatory approvals from the Indian authorities:

1. Foreign manufacturing sites for the concerned products
2. APIs which will be imported in the country

The Drug Controller General of India (DCGI) has stipulated a fee of U.S$1,500 to register the manufacturing premises and U.S$1,000 to register each individual API. Since January 2003, around 1,200 registration certificates have been issued in India. Large number of Indian registrations is attributed by many to the strategic technology gap in India, as stated above, demand of high-quality API for finished formulations required by the regulated markets like the U.S and EU, and relatively cheaper product registration process.

As we see above Teva has gone for maximum number of Indian registrations, so far and most probably selling the APIs to their contract formulations manufacturers in India. Similarly, Schering-Plough and Sanofi-Aventis, if not Pfizer are perhaps catering to the API demand of their respective formulations manufacturing plants in the country.

Whatever may be the reasons, these global players are now exporting APIs at a much larger scale to India and in that process have started curving out a niche for themselves in the Indian API market. Impressive growth of the domestic pharmaceutical formulations manufacturing market fueled by increasing domestic consumption and exports to the regulated markets, coupled with gradual improvement in the regulatory environment of the country, is expected to drive the growth of API business of the global players.

However, the moot question is how significant will this competition be?

By Tapan Ray

Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.