Great time ahead for pharma exports
India’s pharmaceutical exports are set to scale new heights of Rs 30,000 crore in the current fiscal. Sapna Dogra examines Indian pharma exports, which seem to be the main growth driver for the industry
It is boom time for the Indian pharmaceutical industry, with a growth rate of almost 11 percent. It is enhancing its size to Rs 60,000 crore by 2007-08 as against Rs 43,290 crore in 2004-05. This will also mean a considerable increase of pharmaceuticals exports to regulated markets of the US and Europe in generic drugs, according to the findings of a study undertaken by the Associated Chambers of Commerce and Industry of India (ASSOCHAM). The industry is gung-ho about the prospect, and is preparing itself to take full advantage of this opportunity.
Despite generic competition
India is one of the top ten producers of bulk drugs in the world and 60 percent of India’s bulk drugs production is exported. Also, in the last three years, generic exports to developed countries have picked up. Indian pharmaceutical companies are in the process of upgrading their manufacturing facilities and adopting Good Manufacturing Practices. Companies are also obtaining international regulatory approvals like USFDA, MHRA and so on to tap developed markets.
According to D B Mody, Chairman of Pharmexcil, the Indian pharma industry has globalised in the real sense. This is with reference to the sophisticated technology used, being in tune with current Good Manufacturing Practices and the product range. The most favourable factor for the success of Indian exports in this sector is cost-effective, truly world class products. Also, Indian companies work on low profitability margins on volumes.
Rahul Sehgal, CMD, Nestor Pharmaceuticals concedes this and adds, “Low overhead costs, mass productions, global sourcing by Indian companies are also playing in favour of Indian exporters.” Compliance with global standards is a critical factor, which has enabled Indian firms to export products to developed countries, points out Utkarsh Palnitkar, Healthsciences Industry Leader, Ernst & Young India. He added that the industry is witnessing the setting up of SEZs, which are likely to make exports more attractive.
|The global pharmaceuticals market today is estimated at $357 billion against which India’s share is about $1.5 billion. The ASSOCHAM study reveals that Indian pharmaceutical exports have tremendous potential to grow at around 18 percent by 2007-08 to take its total export volume to about Rs 30,000 crore as against Rs 18,290 crore in 2004-05. The projected exports of domestic pharma products would be within the range of $4 billion by 2010 which would further grow to $6 billion by 2015 because of the strength that this industry would have acquired owing to its continuous focus on upgradation and modernisation.
“Barring a few markets in Africa and Asia, practically all export markets are now regulated ones,” says Mody. As such, share of Indian exports to regulated markets other than the USA, in the year 2004-05, can safely be placed at about 60 percent or worth Rs 10,000 crore approximately. Potential for growth in exports by the Indian pharma industry is very promising indeed. This is reflected in the 30 percent growth per annum projected by Pharmexcil. During 2004-05, the North America region accounted for about 18 percent of total Indian exports worth Rs 16,681 crore approximately. Also, there is a large generics opportunity in the non-US markets (Japan, EU and Latin America) as these markets account for almost 50 percent share.
Indian pharma exports have a huge potential since there are several branded products which will lose patent protection in the developed markets in the coming years. This will provide ample opportunity for Indian drugs manufacturers in the generic drug markets to capture a large market share. The Assocham study points out that globally, drugs worth $40 billion are likely to go off patent by the current year and another $70 billion worth drugs by 2008. This is against the projection of US and Europe, in which drugs worth $65 billion will go off patent.
“It is a big opportunity for Indian companies to take a bite of the increasing generic market pie,” says V K Mehta, MD, Ind-Swift. The market for patent expired drugs will grow particularly for Indian manufacturers due to their cost-effective production and the tendency on the part of health insurers the world over to shift to generics, adds Mody.
Companies setting up new plants or those upgrading their existing infrastructure to comply with international standards will benefit from the current situation as they will easily be able to cater to the increasing demand for generic products in regulated markets. “Companies which have been focusing on compliance to global standards, preparing for tapping the generic opportunity, investing consistently in R&D and securing a foothold in markets such as EU and Latin America, are likely to gain the most from the present scenario,” states Palnitkar. “Such companies are in the process of diversifying their risk resulting from overdependence on the US market, and they are likely to focus on innovative products rather than only generics,” he adds.
The growth in drug exports, despite the pressing generic competition in the global markets, is also due to increased ANDA approvals in the US market and contribution from unconventional and relatively less regulated markets in Latin America (growing at 23 percent), Australia and the emerging markets in the Middle East and African region. The export potential to such locations has been significant due to lower competition and entry barriers.
Companies are rationalising their product portfolio by phasing out low volume products and going in for acquisitions to increase their therapeutic reach and market penetration. Mody opines that integration with global operations is the key for any player in the pharma field. “Of course, conformity to standards and practices in regulated markets coupled with competitive prices will ensure growth in exports,” he adds.
Most companies are opening up offices and plants in various countries to have direct interaction with the respective markets. Positive developments on the exports front reflect the success of initiatives like exploring new geographies, launching new products, and entering into contract manufacturing agreements with multinational corporations (MNCs). In line with these trends, DMF filings from India have been increasing rapidly, and currently account for nearly 35 percent of all filings globally. The number of USFDA approved facilities has crossed 75 in India—the largest outside USA.
Indian firms, in view of the ASSOCHAM study, can take advantage of low costs to score over others to grab a huge market share of African countries in generic drugs market also. Africa, in future, will provide a huge opportunity to Indian drugs manufacturers. This is particularly after the withdrawal of the patent suit filed by 39 global pharma companies against the South African government for allowing the sale of cheaper branded generic drugs.
Domestic sales vs export profitability
On the other hand, marketing of pharma products, globally and in the Indian market, are two different phenomena as in the latter case one has to contend with controls
“Instead of the goldmine exports used to be once, now it has become an extended market,” rues JPS Kohli, independent pharma consultant. He adds that the word export has lost it relevance, now it is just a matter of numbers. Also, profitability is product specific. On the other hand, according to Mody, marketing of pharma products globally and in the Indian market are two different phenomena as in the latter case one has to contend with controls. “In the global market, however, having satisfied the customers about safety, efficacy and high quality standards, Indian products are usually found to be quite competitively priced,” he adds.
However, Mehta says that profitability in exports is five to seven percent higher than domestic markets. Because, in domestic markets, there are no regulatory requirements and companies can definitely justify ROI in exports. The big players like Ranbaxy, Cipla and Cadilla are clear winners here. However, mid-size companies are also gaining in terms of contract manufacturing et al. “SSI have not been able to gain from the current scenario. Tax and legal benefits have not really helped them,” laments Kohli.
However, no one can refute the fact that healthcare spending is on the rise in India due to a rise in lifestyle related diseases. “This is currently driving the domestic sales for the Indian pharmaceutical market, despite the initial setbacks from the VAT implementation,” says Palnitkar. Contract Research Manufacturing Services (CRAMS) also promises a growing opportunity for the domestic market.
Facing Chinese competition
China is becoming a major competitor to India, especially in exports of active pharmaceutical ingredients (APIs). However, industry observers feel that pharma operations in India are more vertically integrated than they are in China. Indian companies are proving to be better at developing APIs than their competitors from target markets. “India is much ahead of China in implementing regulatory compliance and it will take another three to five years for China to catch up,” says Mehta. “The Chinese manipulate processes,” says Kohli, “but advent of the patent regime has given India an edge.”
The industry has to take some measures to ward off the Chinese competition like early entry and development of non-infringing processes for products with complex patents to develop a profitable generic or API product pipeline.
But the government will also have to play an important role by simplifying the rules and give more incentives to the industry, laments Sehgal. He adds that the Chinese are very competitive in APIs and also produce volumes. Mody senses an opportunity: “The very forces of competition generate strength and in course of time, both India and China will be allies rather than competitors.”