The Indian pharmaceutical industry today is leading India’s science-based industry with wide ranging capabilities in the complex field of drug manufacture and technology. The Indian Pharma Industry has grown consistently at 9.5 percent CAGR in last five years and is presently estimated to be worth a little over $ 5.7 billion and expected to reach $ 9.48 billion mark by 2010.
As the Indian Pharma Industry grows and more and bigger players gear up to bring global blockbusters in the Indian market, the competition is definitely going to heat up. Many of these MNCs are collaborating with Indian companies, which often offer as much as 30% to 50% savings in total drug discovery and development costs. Recent amendments to India’s patent laws have also made India more attractive as a drug discovery destination. In 2005, India amended its patent laws to comply with the World Trade Organization’s (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), an international treaty mandating minimum standards for trade and intellectual property protection. These amendments allowed, for the first time, patent protection in India for pharmaceutical products. The earlier law provided patent protection only for the process of making the drug, not for the drug itself.
Companies in India offer two types of opportunities for drug discovery and development: outsourcing and true collaborations. The outsourcing model entails an alliance between one or more entities to perform discrete tasks or specific operations and processes previously done in-house. In this model, the company soliciting the research typically maintains control over the technology and related assets, including intellectual property.
More recently, a growing number of MNCs have entered into more collaborative ventures with Indian pharmaceutical companies and contract research organizations, extending well beyond task-driven outsourcing. These transactions involve more complex intellectual property considerations.
A recent Price Waterhouse Coopers report indicates that India could well become one of the top 10 global pharmaceutical markets by the year 2020. Thus, any pharmaceutical company doing research and development in India will likely choose to patent its technology in India and, therefore, will need to be familiar with Indian patentability standards1.
Indian Pharma Industry- Current Scenario
India currently represents just U.S. $6 billion of the $550 billion global pharmaceutical industry but its share is increasing at 10 percent a year, compared to 7 percent annual growth for the world market overall. Also, while the Indian sector represents just 8 percent of the global industry total by volume, putting it in fourth place worldwide, it accounts for 13 percent by value, and its drug exports have been growing 30 percent annually.
The “organized” sector of India’s pharmaceutical industry consists of 250 to 300 companies, which account for 70 percent of products on the market, with the top 10 firms representing 30 percent. However, the total sector is estimated at nearly 20,000 businesses, some of which are extremely small. Approximately 75 percent of India’s demand for medicines is met by local manufacturing. According to the German Chemicals Association, in 2005, India’s top 10 pharmaceutical companies were Ranbaxy, Cipla, Dr. Reddy’s Laboratories, Lupin, Nicolas Piramal,Aurobindo Pharma, Cadila Pharmaceuticals, Sun Pharma, Wockhardt Ltd. and Aventis Pharma.
India’s potential to further boost its already-leading role in global generics production, as well as an offshore location of choice for multinational drug manufacturers seeking to curb the increasing costs of their manufacturing, R&D and other support services, presents an opportunity worth an estimated $48 billion in 20082.
The pharmaceutical industry in India has made phenomenal progress in the past 10 years. With over $ 8 billion in domestic sales and another $ 5 billion in exports in the year 2006, both growing at double digit, it has acquired its place in the sun. It has also started making global footprints and over $ 2.5 billion worth of acquisitions were made overseas in past couple of years. Undoubtedly, the major inflexion point in the history of Indian pharma industry is the passage of product patent law in 2005. This has resulted in many pharma majors almost doubling their R&D investment and it is likely that New Chemical Entities (NCEs) will start trickling down from Indian R&D labs, in few years time. However, before we start patting ourselves on the back for these commendable achievements, we must remember that India contributes less than two percent of the global pharmaceutical sales of about $ 650 billion. While McKinsey has projected a domestic sale of $ 20 billion by the year 2015, we need to identify key strategic drivers for growth and use these levers to accelerate the pace. While robust economy with eight-nine percent GDP growth will certainly give right business environment, there are other internal factors which will act as catalysts. These are Intellectual Property Rights (IPR), government pricing policies, regulatory reforms, scientific and technical manpower and capital funding3.
The Indian Pharmaceutical industry is currently the largest amongst the developing nations and one of the flagship sectors of the Indian economy. Indian pharmaceutical companies continue to move to the center stage of the global pharmaceutical market. There is a worldwide structural trend evolving in pharmaceuticals and Indians companies play a key role in this framework, driven by their superior biotech and drug synthesis skills, high quality and vertically integrated manufacturing assets, differentiate business models and significant cost advantages. The pharmaceutical industry in India has emerged, as a prominent maker of healthcare products, currently meeting almost 95% of the domestic healthcare needs. From a modest beginning in 1970, today the total Indian pharmaceutical sector is valued at US $ 8.8 billion with a growth rate of 8 %. The Indian pharmaceutical industry is a net exporter of bulk drugs and generics and ranks 17th in the world in terms of bulk drug and formulation exports. In 2004-05 the net pharmaceutical export was more than US $ 3.75 billion, formulations accounted for 55% while the remaining 45% came from bulk drugs. US, Germany, Russia, the UK and China are the top five export destination for the Indian pharmaceutical sector4.
Indian Pharma Industry: Scenario- 2020
The pharmaceutical industry in India is expected to grow from $5.5 billion now to $25 billion by 2010 and $75 billion USD by the year 2020. By 2020, global integration of most sectors in the world economy would be much more pronounced, and the pharma industry will not be an exception. In fact the Indian pharma industry, which currently has strong linkages with the global pharma market, will become even more strongly integrated. Globally the pharma market is undergoing a transformation led by change in demand patterns, realignment of supply chains, and global regulatory shifts. In order to predict the state of the Indian pharma market in 2020, it is useful to understand the current global environment of the pharma market and its key trends and analyse the implications that these factors will have on the global as well as on the domestic pharma market. Key trends of global pharma industry are declining R&D productivity, increasing spread of generics and increasing outsourcing5.
India is expected to host 30% of the world’s contract research within the next 10-15 years, driven by the attractions of low cost and high quality standards, says the India Brand Equity Foundation, IBEF. The IBEF quotes a McKinsey forecast for the value of pharmaceutical clinical trial outsourcing in India at $1.23 billion by 2010. This would represent 7% of the total world market, projected by Biopharm at $18.5 billion in 2010.
India offers a huge cost advantage in clinical trials compared with Western countries. A multinational company moving R&D to India could save as much as 30-50%, IBEF says. Indian companies can conduct clinical trials at less than one-tenth of US costs.
The US National Institutes of Health trial registry (www.clinicaltrials.gov) lists 272 trials actively recruiting patients in the country, of which 60% are Phase III. There are currently 70 CROs in India, according to Biopharm’s Contract Research Annual Review 2006 – a number that is projected by to increase in the coming years.
Several western CROs, including Aptuit (US), Synergy Research Group (Russia) and ethica Clinical Research (Canada) have formed alliances or joint ventures with their Indian counterparts in recent months. Investment has also flowed in the opposite direction, with US CROs Radiant Research and Taractec both being acquired by Indian groups this year6.
India is likely to be in the league of top 10 pharmaceutical markets by 2020. As per the Government of India’s annual report 06-07 the Indian pharma industry is worth about $12 billion (over Rs 55,000 crores) as of now which includes $4.5 billion in exports of drugs, pharma and fine chemicals. The pharma industry needs to focus more on R&D and better productivity to capitalise on the immense existing opportunities. India, with its inherent competitive advantages and cost-effective manufacturing capabilities, has now become one of the most preferred destinations for Contract Research and Manufacturing Services (CRAMS). As per the KPMG report, India holds huge potential to tap the $20 billion CRAMS business, which is expected to reach $ 31 billion by 2010. India with its intrinsic competitive advantages remains as one of the most preferred outsourcing destinations and is now playing a vital role in manufacturing as well as drug development value chain of various innovator companies7.
The Indian Pharma Industry is entering an era where the value chain components are reassessed and redesigned to realize optimum value. While the cost of doing business is increasing, the customers are demanding more innovative pharmaceutical products at more competitive prices. The change in patent regime has also become heralded a change in the industry dynamics. On one hand, patents on blockbuster drugs are expiring and on the other hand, there are insufficient drugs in the pipeline. The changing industry dynamics both at the domestic level as well as the international level has forced the pharma players to rethink their traditional business strategies.
The Indian market has some unique advantages. India has a 60-year-old thriving democracy. It has an educated work force and English is business language. It has a solid legal framework and strong financial markets. More than 9,000 companies are publicly listed. Professional services are easily available. There is already an established international industry and business community. It has a good network of world-class educational institutions and established strengths in information technology. The country is now committed to an open economy and globalisation. Above all, it has about 200 million middle class market, which is continuously growing. Over time the international pharmaceutical industry has been finding great opportunities in India.
The Indian pharmaceutical industry players in the future can continue to look forward with confidence. There are immense opportunities for pharmaceutical players both at the domestic as well as the global level, but along with opportunities are challenges which need to be overcome in order to achieve sustainable growth in the future. The future will be extremely promising with many more milestones to come in the journey of the Indian pharma industry.
4) Jayashri kulkarni, Strategies to drive sustainable growth and leadership, Pharma Bio World January 2007, pp 72-80.
7) http://www.silobreaker.com/DocumentReader.aspx? Item=5_817288715