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Rohan Sanghavi
Pharmaceuticals
In 2007, the Indian pharmaceutical industry looks ahead at a colourful horizon, what with contract research and clinical trials businesses taking wing, and the new patent regime opening new avenues for players in the country.
Globally the Indian pharmaceutical industry ranks 4th in terms of volume (with an 8 per cent share in global sales) and 13th in terms of value (with a share of 1 per cent in global sales). Today, the sector today is in the front rank of India’s science-based industries with wide ranging capabilities in the complex field of drug manufacture and technology. A highly organised sector, the Indian pharmaceutical industry is estimated to be worth US$ 4.5 billion, growing at over 9 per cent annually.
Economic Survey 2006-07 says:
Driven by the knowledge skills, growing enterprises, low costs, improved quality and buoyant demand (both domestic and international), the pharmaceutical sector's value of output grew more than tenfold from US$ 1.1 billion in 1990 to over US$ 12.4 billion during 2005-06. With value of exports at over US$ 4.7 billion in 2005-06, India is today recognised as one of the leading global players in pharmaceuticals.
Economic Survey 2006-07 says:
Driven by the knowledge skills, growing enterprises, low costs, improved quality and buoyant demand (both domestic and international), the pharmaceutical sector's value of output grew more than tenfold from US$ 1.1 billion in 1990 to over US$ 12.4 billion during 2005-06. With value of exports at over US$ 4.7 billion in 2005-06, India is today recognised as one of the leading global players in pharmaceuticals.
Currently, Indian pharmaceutical companies produce about 20 per cent to 22 per cent of the world’s generic drugs (in terms of value). Overall, the industry is expected to grow at an average annual rate of about 15 to 20 per cent between 2005 and 2010.
Indian pharmaceutical companies now supply almost all the country’s demand for formulations and nearly 70 per cent of demand for bulk drugs. India is also one of the top five active pharmaceutical ingredients (API) producers (with a share of about 6.5 per cent) and has the world’s third largest manufacturing industry valued at US$ 2 billion.
There are about 34 foreign drug companies engaged in the Indian pharmaceutical industry and among them are 15 of the 20 largest pharmaceutical companies in the world.
Exports constitute nearly 40 per cent of the production with formulations contributing 55 per cent and bulk drugs 45 per cent. The industry ranks 17th in terms of export value of bulk actives and dosage. It comprises large, medium and small-scale operators out of which some 300 companies together account for nearly 90 per cent of the domestic market, while the rest is accounted for by a large number of small companies which total about 9000 units.
Growing consistently at 9.5 per cent in the last 5 years, the Indian pharmaceutical industry could zip at 13.6 per cent between 2006 and 2010 and reach a market size of US$ 9.48 billion by 2010 from its present level of about US$ 5.7 billion.
A fresh chapter began with the signing of General Agreement on Tariffs and Trade in January 2005 with which India began recognising global patents. Soon after, the Indian pharma market became a sought after destination for foreign players.
After the introduction of product patent in India, the domestic industry has witnessed a fresh spell of new product launches. New products launched since 2005 have accounted for 12 per cent of overall market growth.
Foreign direct investment into the country's pharma industry is estimated to have touched US$ 172 million during 2005-06 having grown at a CAGR of 62.6 per cent during the period beginning 2002-06.
Contract Research
India holds the lion's share of the world's contract research business as activity in the pharma market continues to explode in this region. Presently at around 1.5 per cent, within the next 10 to 15 years, 30 per cent of the world's clinical research will be conducted in India.
India is emerging as the global hub for contract research and manufacturing services (CRAMs) due to a combination of low cost and world-class quality standards. In fact, this segment is estimated to touch US$ 30 billion by 2010.
Currently, India accounts for 6 – 7 per cent of the total CRAMS market and many estimate it to reach 15 per cent by 2010. In 2005, the Indian CRAMS market was estimated at US$ 533 million, out of which 84 per cent was contributed by contract manufacturing and the rest by contract research.
The Boston Consulting Group estimated that the contract manufacturing market for global companies in India would touch US$ 900 million by 2010. Similarly, Frost and Sullivan has pegged the figure on outsourced contract research in India (part of which will be pre-clinical) at US$ 2 billion by 2010.
According to a McKinsey report, the global clinical trial outsourcing to India in the pharmaceutical industry is estimated to be worth US$ 1.23 billion by 2010.
Over 15 prominent contract research organisations (CROs) are now operating in the country attracted by India's ability to offer efficient R&D at competitive costs. These include names such as Novartis, Johnson & Johnson, Pliva, Astra Zeneca, Bristol-Myers Squibb and GlaxoSmithKline.
Cost advantage
India offers a huge cost advantage in the clinical trials domain compared to Western countries. A multinational company moving R&D to India could save as much as 30 to 50 per cent. Thirty five per cent of business is in the field of new drug discovery, where as the bulk - 65 per cent - of business is in the clinical trials arena – the single largest expense for drug companies during drug development.
With costs ranging between US$ 800 million to US$ 1.2 billion from patenting to approval, reducing the length of expensive research means more time to sell the drug before the patent expires and it can be copied by others.
The cost of hiring a chemist in the US is as high as US$ 250,000-300,000 per year. While Indian discovery research outfits charge global pharma companies around US$ 60,000 per chemist which is roughly one fifth of what the pharma companies pay abroad.
The comparative cost advantage in India can be seen from the fact that Indian companies can manufacture pharmaceuticals for less than half of what it costs in the US, conduct clinical trials at less than one tenth of US costs, and conduct research at less than one eighth of what it costs in the US.
Drug Master Filings (DMFs)
DMFs are confidential, proprietary assets that present to the US FDA the formulae, processes, test methodology, and other data relevant to the manufacture of products used in the composition, packaging and processing of pharmaceuticals or biologics.
A dozen Indian pharma companies led by Aurobindo Pharma, Wockhardt, Ranbaxy, Dr Reddy’s Lab and Sun Pharma have bagged almost one-fourth of generic drug approvals in the US in the four-and-a-half months from December 2006.
Out of the 186 original abbreviated new drug application (ANDA) approvals granted by the US Food and Drug Administration (FDA) during the period, about a dozen Indian companies bagged 43 approvals, which is 23.11 per cent of the total approvals granted.
In fact, India has the highest number of manufacturing plants approved by the US FDA, second only to the US.
With nearly US$ 80 billion worth of patent-protected drugs to go off patent (including 30 of the best selling US patent-protected drugs) by 2012, Indian companies are positioning themselves to offer generic versions of these drugs.
Global forays
Indian pharma companies are vying for the branded generic drug space to register their global presence.
- Intas Biopharmaceuticals Ltd (IBPL), an Ahmedabad-based biopharmaceutical company, has entered into a strategic R&D pact with the US based Virionics Corporation.
- Ranbaxy has acquired the rights from Bristol-Myers Squibb (BMS) to manufacture and market 13 dermatology brands (which have a combined sales value of US$ 15 million) in the US for US$ 25 million. This is Ranbaxy’s first major brand acquisition in the US.
- Sun Pharmaceuticals has bought Israel’s Taro Pharmaceutical Industries for US$ 454 million. The company, on the whole, has 13 acquisitions to its credit, which include manufacturing sites, brands and companies. Taro is its 14th buy.
- Mumbai-based Wockhardt Ltd is buying the entire equity of Paris-based Negma Laboratories for US$ 265 million in an all-cash deal.
- Jubilant Organosys, a leading domestic player in the pharmaceutical CRAMS segment, has acquired 100 per cent stake in US-based contract injectable maker Hollister-Stier Laboratories LLC (Hollister) for US$ 138.5 million.
- Jupiter Bioscience Ltd plans to invest US$ 5 million to set up a unit in the US as part of its strategy to focus on peptide-based drugs.
