During the 1970s, the Indian Pharmaceutical market was nowhere on the map. But is now one of the emerging world leaders. Infact, it is called “the Pharmacy of the World”. Generic drugs comprise the largest segment nearly 71%, over the counter and patented drugs account for the remaining 21 and 9%, respectively. The Indian Pharmaceutical industry brings in a revenue of 38 million USD annually, making it the third largest in the world by volume and the eleventh by value. There is a total of around 3000 pharma companies and 10500 manufacturing units that are currently operational in India. The transition has been gradual but not without its pitfalls. There have been several factors that have influenced the evolution of the Indian Pharma industry.
Since the advent of the first pharmaceutical company in the early 1900s in Calcutta, there have been four periods for evolution for the Indian Pharma sector.
- The 1900s were still dominated by the foreign players, post 1970 era saw a few changes in patent acts, it focused more on process patents and did not cover the products. This led to many players in the market take the opportunity to reverse engineer the drugs without having to pay royalty to the patent holders. This period saw a 10-fold rise in number of pharma companies in the country. Accompanied by the exodus of foreign players, the domestic generic pharma industry had an increased market share in generic drugs.
- The early 2000s, saw these companies expanding their capacity even globally. The export market received many Indian entrants. The pharma export growth gained momentum, with the liberalization of the Indian economy that opened gates for privatization and globalization.
- 2005 however saw a minor upheaval in the sector due to a change in the patents act that abolished process patenting and started product patents. This forced the pharma companies to shift focus from generics to R&D for new drugs components or API and other Biopharmaceutical products.
The key segments in the pharmaceutical business in 2019 were:
- Formulation manufacturers
- Biotechnology sector
- Contract Research and Manufacturing Services.
Figure 2: The Indian pharma industry YoY sales growth
The industry has seen a steep decline from 2007 due to increasing market volatility and even though there have been good phases, the growth still continues to remain volatile even to this day.
There are several reasons that contribute to the market volatility.
- Emerging competition in the generic drug market from other countries have caused a substantial price erosion for generics and thus have caused significant drops in the pharma revenue.
- Strict regulatory guidelines for manufacturing, quality control measures. There has been a substantial growth in the number of warning letters that the USFDA has given out to companies in the past few years.
- The 2017 GST regime caused higher production costs and reduced profit margins.
- Domestic price caps introduced by NPPA on drugs have caused these companies to reduce their production by considerable margins.
- Increase in API costs have caused formulation prices to go up. India currently imports about 60% API from other countries for drug manufacturing and the increases prices have thus caused a steep decline in the profit margins.
But the industry has also started changing its outlook and have taken steps to combat the hurdles that lie ahead. Generic drug manufacturers are exiting non-profitable portfolios and looking for alternatives and new innovation strategies.
- Focusing on differentiated complex generics because they are difficult to develop, face lesser competition and thus yield higher profit margins than normal generics. Regulatory bodies are also likely to prefer complex generics over old-school generics.
- Specialty drugs are high on pharma launch agendas. They are high value drugs that aid in the treatment of chronic, complex of rare diseases. There is a 50% predicted growth in the market spend for specialty drugs.
- One of the major focus areas in the current market are APIs. In-house API manufacturing is gaining momentum. Indian API exports have increased by 11% in 2019 and the global API market is predicted to reach USD 245 billion by 2024.
- All the above shifts in the trends for pharma manufacturing has led to steep rise in R and D investments.
The companies are strategizing for long term value creation, focussing on effective cost optimization and building a robust culture of quality and excellence in regulatory compliance. These are key aspects to sustainable growth in the sector. All strategies are focussed on growth, which is a long-term goal. They aim at steady increase in the global footprint of the industry.
From Deyasmriti Nandi : Editor – TAPMI Journal of Economics and Finance