2010 Business Prognosis
2010 can expect a surge in strategic partnerships with a particular focus on emerging markets
The ability of Indian companies to successfully build on, and grab a higher market share in important markets will depend on how well they adapt their business models to the dynamically changing market structures and conditions, feels Hitesh Gajaria, Executive Director, KPMG India
2009 was a challenging year for the Indian Pharmaceutical Industry (IPI). While on one hand Indian companies focused their efforts on exploiting the expanding generics opportunity – a result of the increased pressures on healthcare budgets in the developed world, due to the economic slowdown, on the other hand, they had to cope with the backlash of the slowdown in terms of increased pricing pressures, inventory de-stocking, currency fluctuations, etc.
In 2010, we can expect the IPI to bounce back strongly to continue on its historical relative high-growth trajectory. The key contributor to this growth and the highest revenue generator for the IPI will continue to be the global generics market, especially as globally an additional estimated $28 billion worth of patented drugs are expected to go off patent this year.
Concurrently, Indian Pharma companies will also consolidate their global presence by re-evaluating their target markets and moving out of unprofitable geographies. The important markets for 2010 will be the US generics market and the high-growth ‘pharmerging’ markets. Further, a key global trend which will likely augur well for the Indian players is the Big and Innovative Pharma’s diversification into the generics business segment to cope with their tapering patented product pipelines. The year 2009 witnessed some important collaborative agreements between the Big Pharma and Indian companies (GSK-Dr Reddy’s, Pfizer-Aurobindo, etc). Such deals are a win-win opportunity for both the partners as each brings its own unique capabilities to the table. The Indian partner offers ready access to internationally regulatory approved plants and a well developed product portfolio for different markets with necessary approvals hand-in-hand with a competitive low-cost manufacturing base. Big Pharma player on the other hand, brings with them proven marketing and distribution capabilities.
Thus these deals mark a fresh milestone for Indian players, which have for long worked at creating their foothold in the global generics market, sometimes even at the cost of litigating patent challenges with Big Pharma. In 2010, this trend will likely gain further momentum and we can expect a surge in strategic partnerships, licensing deals and even outright acquisitions with a particular focus on emerging markets.
The focus on making healthcare more affordable globally may drive prices downwards (induced price cuts by government, insurance or regulatory driven), pressurizing margins and forcing unviable units to merge and consolidate operations. In such a scenario, companies that can differentiate from competition by building niche product portfolios, novel drug delivery systems, chart a geographically diversified presence and sustain and nurture vertically integrated operations will benefit the most.
The domestic formulations market in India will also grow well in 2010. In 2009, the domestic drug consumption market felt a marginal brunt of the global economic crisis due to a cutback in the inventory levels at the retail levels as distributors and retailers grew cautious. As a result, the domestic formulations market grew by only 9.8 percent in 2008, vis-à-vis 13.4 percent growth in 2007. In 2010 however, the domestic market is expected to pick up rapidly as the economy recovers. The growth of this market will be driven by increasing penetration of chronic and lifestyle disease segments particularly diabetes, oncology and cardiac diseases clubbed with increasing affordability among a relatively larger populace to access and seek treatments.
In the domestic formulations business segment, rural markets deserve a special mention. Several Indian and foreign companies have ramped up investments in these markets in 2009. The rural segment will be in the spotlight for 2010 as these investments will start to pay off. The rural market will thus attract the attention of more and more companies resulting in a higher share of revenues from these currently underserved areas.
CRAMS segment too experienced a deceleration in growth due to inventory rationalization measures by MNC Pharma and a slowdown in contract research projects from small and medium research companies due to funding constraints. However, by mid 2010, we can expect the CRAMS segment to jump back on its historical growth path. Indian companies will capitalize on this opportunity and leverage their relationships with MNCs to capture a higher market share. Clinical trials and research too will expand exponentially. To conclude, the prognosis for the year 2010 is very healthy opportunities across most of the important business segments of the IPI. The ability of Indian companies to successfully build on these and grab a higher market share will depend on how well they adapt their business models to the dynamically changing market structures and conditions.