New multinational companies expected to emerge from Indian pharma SMEs

Indian manufacturers are evolving up the value chain by concentrating on high-value, low volume work and moving some R&D programmes to the developed economies, says the latest report compiled by CPhI in collaboration with GBR

After relatively moderate growth in 2013, Indian companies are extremely confident about the growth potential in both the near and medium term. Outsourcing and exports are already pushing ahead again at remarkable rates, with most companies reporting double digit pace growth. This is one of the major findings of the recent report, Pharma Insights: India, published by CPhI in partnership with GBR, which provides a comprehensive analysis of the India pharma market.

One of the most startling trends to emerge from the report is that small and medium sized enterprises (SMEs), which have traditionally relied on the domestic market, are now expanding rapidly and emerging as multinational corporations (MNCs) based on export-led growth strategies.

India no longer supplies just simple formulations but is actively focused on delivering complex formulations, highly potent compounds and biosimilars

Globally, the largest pharma companies in India have consolidated a presence in export markets; now, a second wave of Indian manufacturing firms are looking to grow beyond the US$100m mark and to increasingly export internationally. 'India’s pharma exports stood at $15bn in 2013-2014,' the report says. 'Most interestingly, India no longer supplies just simple formulations but is actively focused on delivering complex formulations, highly potent compounds and biosimilars.'

Several new key export regions are emerging, notably Japan, a market that currently has limited overseas penetration but that is now opening its doors. Collectively Indian companies are looking at this region as the next great growth market. 'Japan is the second largest pharma market in the world. Currently the presence of generics is only 34% of the Japanese market by volume and only 8% in terms of value. This is because the Japanese consumer has always equated low cost with low quality,' said Ramesh Swaminathan, CFO of Lupin. 'However, the Japanese Government has been working hard on changing this perception over the last eight years by taking strong measures to increase generic penetration.'

The next few years promise to see a more mature and globally dominant Indian pharma industry

Another key area will be South and Latin America; countries like Argentina recently removed trade barriers and are welcoming Indian imports for their healthcare economy. Two thirds of India’s pharma industry is still coming from the SME sector and with these companies increasingly expanding into international markets, the next few years promise to see a more mature and globally dominant Indian pharma industry.

And in 2015 a significant number of companies will enter the African market as the growth of the pharma market there is put at 25–30% by volume per year.

The report also predicts a continued shift in activities from API manufacturing to more high value, low volume work, with complex chemistry and IP challenges. 'Currently, the Indian pharmaceuticals industry is disproportionally driven by small molecule generics and limited to India and Rest of World (RoW),' points out K.V. Subramanian, CEO and President, Reliance Life Sciences. 'India will have a [bigger] future when it graduates from this mindset and moves i) to being competitive, ii) to being able to participate in developed country markets and iii) engages with more scientific and technologically challenging products as well as novel molecules.'

The API market in India continues to do extremely well, but pressures from rivals are increasingly being felt. Government support and large capacity facilities in China are increasingly putting pressure on India’s API manufacturing sector, says the report, particularly across low cost, commodity type product classes. 'Countries like Italy and China with a good base in API manufacturing will continue to be tough competitors.,' says Daara Patel, Secretary General, Indian Drug Manufacturers Association. 'It is unfortunate that [some] Indian manufacturers of formulations [now] import their APIs from China.'

India is naturally evolving from a low cost API base to being a supplier of advanced manufacturing at reduced cost

Essentially, India is naturally evolving from a low cost API base to being a supplier of advanced manufacturing at reduced cost. The growth in this market is clear with over '40% of new drug approvals in the US now belonging to Indian companies,' according to Manish Kothari, CEO, BEC Chemicals.

In the near and medium term, the most significant growth opportunities will continue to come from generics. A large volume of drugs are still to come off patent, including $90bn in 2015 alone. But as patents dry up, the industry will have to find new revenue models to sustain its growth.

India’s biggest companies are now investing heavily in R&D programmes, increasingly across new drug delivery systems, formulation and manufacturing technology, along with biosimilars. However, sustained investment into riskier NCE projects still seems unappealing, the report suggests. 'There simply needs to be more focus on the “R” in R&D,' says Dr Prasad Panzade, Vice President/Head, Corporate Analytical Services (R&D and Quality), Aditya Birla Science & Technology. 'Compared with what giant players like Johnson & Johnson, AstraZeneca and Pfizer are doing in terms of investing into research, the big name companies in India are doing little.

'In India, companies are focusing on an already existing molecule, and thinking, “How can I modify this?”. Many of them say they are doing R&D, but in the true sense their R&D means just modifying what is available in the market.'

One surprising conclusion in the report , which bucks historical norms, – is a significant shift in the location of facilities, with some R&D programmes run in Western countries, where it is felt that technology and expertise can compensate for higher costs. For example, Lupin recently invested an undisclosed amount in setting up two R&D plants in the US, while Cipla has said it would invest $166m for research and clinical trials to develop drugs for respiratory and oncology related diseases in the UK.

This newer multimarket approach, searching the globe for the best facilitates and skill sets to meet their growth ambitions, is enabling India to compete on all levels with its rivals – in terms of cost, development or technical IP. The report sees this trend as a clear indication of India’s MNCs ambitions in actively targeting higher profits through more complex formulations.

The Indian Drug Manufacturers Association is actively encouraging its members to invest in innovation to ensure the sector moves up the pharmaceutical value chain to advanced and complex formulations

All the companies surveyed for the report praised the new Government of India’s active support for the pharma industry. Recently, Indian regulators visited the FDA for training and the government is committed to enhancing the pharma sector’s reputation globally with the launch of the Responsible Healthcare Trust. Similarly, the Indian Drug Manufacturers Association is actively encouraging its members to invest in innovation to ensure the sector stays ahead of its rivals and moves up the pharmaceutical value chain to advanced and complex formulations.

The long-term effect of this move up the value chain is that there will be more partnerships between Western and Indian pharma companies, such as those between Mylan and Biocon, and Sun Pharmaceuticals with Merck, the report says. It may also boost the country's aspirations to be one of the world’s top producers of drugs by value (currently 12th), as well as by volume.

However, sustaining the industry as the Indian economy gentrifies and production costs gradually rise was identified by the report as a key challenge. In the future, Indian manufacturers may start using Indian (and Western) facilities as a base for complex R&D, with Indian MNCs using their experiences to move some lower margin manufacturing to cheaper regions. This model effectively sees India-based companies replacing the USA as the global centre of pharma manufacturing, the report concludes.

A full copy of the report can be obtained from http://l.cphi.com/india2015/.

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