Mr. Ranga Iyer, former managing director of Wyeth, talked with Ground View about the emerging trends in the Indian pharmaceutical industry and policy changes affecting it.
The domestic pharmaceutical industry is set to clock 12-15% growth each year over the next 4-5 years. Oncology drugs, vaccines, immunology and nephrology are true specialty plays for long-term value growth.
Before commenting on policy changes, I want to draw your attention to the fact that the Indian pharmaceutical industry has not yet reached a level at which it can address all India’s healthcare needs. On the other hand, a large portion of the Indian population needs primary/secondary healthcare. Against a backdrop of such large unmet needs, the Indian pharmaceutical policy framework is not very strict. In my view, the government is trying to draw a balance between prevailing huge unmet healthcare needs, affordability and survival of the industry. Compare the current form of drug pricing control order (DPCO) with older ones—you will find that only 20-25% of drugs are under price control, and that too, market-based pricing. This is a significant, positive shift from the initial DPCO, which controlled the prices of 80% of drugs, and that too, on cost-based pricing. So, I don’t think the current pricing policy would be a growth hindrance to the domestic pharmaceutical sector. I believe Indian formulations are well set to deliver steady annual growth of 12-15% over the next 4-5 years.
India lost out in API manufacturing a long time ago, as government policies in the past did not help the industry. In fact, the government’s API cost-based formulation pricing policy, benchmarking Chinese API costs in fixing formulation pricing, almost killed the domestic API industry. However, export opportunities in advanced markets supported the industry.
The positive change on the API front is that the government has moved away from a cost- based formulation pricing policy to a market-based pricing policy and APIs are completely de-controlled. Additionally, the anticipated API policy will strengthen the domestic pharmaceutical industry through greater backward integration. I believe this will promote healthy competition in domestic APIs and substitute Chinese imports to a large extent and offer huge scope for business.
The government’s motive behind the introduction of a new healthcare policy is to strengthen India’s healthcare infrastructure and provide affordable healthcare to all. I believe this is a stimulant for the domestic pharmaceutical and hospital sectors in India.
However, it is unfortunate to have restrictive clinical-trial policies for Indian pharmaceutical companies as they will not be able to leverage the Indian cost advantage and naïve patient population in grabbing a share of the huge global clinical-trial opportunity.
The share of patented products in the domestic market is just 2-3% and the share of patented products in the MNC portfolio is 10-15%. The fact of the matter is, MNCs are not in India for patented drugs; rather they want to establish their market presence in the region of 1.21 billion people and to participate in the steady 12-15% annual growth of the domestic formulations market. While patented drug launches are long-term growth drivers, branded generics are the mainstay for MNCs and that will continue to drive healthy growth for MNCs in the foreseeable future. Besides, their strategic inorganic moves would consolidate their position in future.
Favourable macro-economic factors such as like steady economic progress, increasing per capita income, rising awareness of healthcare, improved life expectancy (from 62 years to 69 years in the last decade), will drive steady growth of the domestic formulations market. While rising incomes open up huge business scope for the wellness segment, increased life expectancy opens up large business scope in the geriatric segment. Similarly, drug launches will support the growth of the domestic market. The introduction of new optional vaccines such as pneumococcal, typhoid, hepatitis, flu and HPV vaccines (compared with only the rotavirus vaccine in the past) has significantly expanded the vaccines market.
As far as regulatory scrutiny is concerned, I don’t think it’s an intentional crackdown by the US FDA on Indian pharmaceutical companies. Until recently, the FDA could not inspect most of India’s manufacturing plants as it did not have the resources or manpower. New legislation, GDUFA, strengthened the FDA financially. Incidentally, India is the leading supplier of generics to the US, supplying about 40% and 10% of the US’ API and generics requirements, respectively.
The sudden increase in inspections of plants and simultaneous negative observations has certainly bothered the Indian pharmaceutical industry, but going ahead, I believe the Indian pharmaceutical industry will retain its dominance in US generics, led by its proven chemistry skills, the largest basket of generic (DMFs and ANDAs) fillings and cost advantage.
Biosimilars are certainly the future of global pharmaceuticals, but success by an individual player would be subject to the successful completion of the required clinical trials. This requirement of clinical trials for biosimilar-drug approval poses a key challenge to Indian players. However, alliances by Indian players with global players with larger financial/technical capability, like Merck-Dr Reddy and Mylan-Biocon, may take India’s biosimilar prospects forward.
Complex generic and specialty drugs are the buzzwords of the industry at the moment but I believe oncology drugs, vaccines, immunology and nephrology drugs are specialty products in the true sense. Players with capability in these segments would have steady long-term growth. On the other hand, segments like women’s healthcare, paediatric drugs, vaccines for paediatrics/geriatrics, wellness drugs and derma products are preferred plays of the moment in terms of sustained profitability.
The Indian vaccine market is worth about Rs15 billion and has been clocking steady double-digit growth annually. Although the awareness of vaccines in India has recently improved,vaccines in India are in the nascent stage. I believe a change in perception from “cure” to “prevention” of disease and introduction of new optional vaccines will drive rapid growth for the vaccine market in India. For the moment, government-sponsored vaccines dominate drugs in this space. Going ahead, the launch of new optional vaccines like pneumococcal, typhoid, hepatitis, flu and HPV vaccines will drive rapid growth in the segment.
Emerging markets like Latin America, Africa, Southeast Asia and East Europe are characterised by huge unmet healthcare needs, similar to those in India. Hence, there is sustainable long-term growth visibility in these markets. However, the key question is, who gets that growth and where. These are markets of branded formulations with steady growth but limited entry barriers. Hence, competition with global innovators, global generic players and local peers is always stiff in these markets. So, only a differential strategy and product basket can ensure market share and growth.
According to me, the Indian pharmaceutical industry, led by key macro-economic factors, is well set to deliver steady annual growth of 12-15% over the next 4-5 years. I see significant consolidation in the industry in the near to medium term as numerous MNCs are trying to establish their presence in India and competition is intensifying. On the export front, India’s dominant dossier filing across the world and cost advantage would ensure healthy near-term export growth. But the specialty products or new drugs from innovative research will drive value growth for the Indian pharmaceutical industry in the medium term.
Subscribe to enjoy uninterrupted access
