Reintroducing Indian pharma
From US to Europe, Latin America to CIS and now Africa; Indian pharmacos are on a world tour. But are they travelling so far that they will uproot from India? Katya Naidu does a status check
Once upon a time, India used to import life saving medicines. But that is a history fairly forgotten. As of now, the tag ‘Made in India’ is associated with low cost medicines in many parts of the world. This radical change also has a side-effect. Exports have become extremely important to Indian pharmacos and the country’s exports are far more than the retail sales of drugs in the country.
|“Today, there is nothing like domestic and international. It’s a global arena, which is what we are talking about, and it is a platform with an opportunity”
– Manoj Garg Analyst-Pharma
Emkay Share & Stock Brokers
The gap between domestic sales and exports is widening by the year. All the estimates seem to come to one conclusion—exports will be the choice of companies in the times to come. “Definitely, going forward by 2010 or 2011, the gap would be as much as doubled. International market would be two times what the domestic market would be, because there are a lot of opportunities that are coming in the international market space,” says Manoj Garg, Analyst-Pharma, Emkay Share & Stock Brokers. In the next few years, the international generic market will become big, as drugs worth $100 billion are set to go off-patent by 2010, making exports far more delicious than what Indian market dishes out.
Not in India
|“As of now, every company that is working on exports is also concentrating on domestic sales. No wise man would ignore domestic sales”
– F X Coutinho Director-Marketing
There are more reasons why exporting is a better bet for many companies. India is known for low cost drugs and has been traditionally a price sensitive market. This trait is both a boon and a bane. Though it gives India an edge over others while exporting, the same dampens price realisations from domestic sales. Added to that, government policies like Drug Price Control Order (DPCO) offer no reprieve to the already depressed prices in India. “India is historically a price sensitive market even if we take out the DPCO…so it is more profitable to export. Before DPCO, even with those 74 drugs even across all those categories are amongst the lowest in the world,” remarks Sujay Shetty, Associate Director -Financial Advisory Services- Pharma/LifeSciences, PricewaterhouseCoopers.
Apart from a bad deal in pricing, Indian pharma market is intrinsically fraught with certain hassles. One of them is competition. The Indian pharmaceutical sector has more than 20,000 registered units and has expanded drastically in the last two decades. The leading 250 pharmaceutical companies control 70 percent of the market with the top three companies holding nearly five percent of the market share each. “It (Indian pharma market) is a very fragmented market with even the top most company getting about 5.5 percent market share. It is not like the FMCG segment where the brand leader takes over 50-60 percent of the market share,” says F X Coutinho, Director-Marketing, Indoco Remedies. Indoco Remedies is a significant player in domestic markets and domestic sales constitute a major part of their sales module. However, they wish to change this. ” As of now, in Indoco, 75 percent of the sales come from domestic market, but I expect that by 2010-2011, sales will be 50:50 from exports and domestic,” he says. The bend towards exports is marked in top companies where the entire topline is funded by business overseas. “Among the top few companies, almost 50-60 percent of their revenues are from the US are Europe markets,” says Shetty.
Crests, troughs and gaps
However, companies prefer not to label this behaviour as the domestic and international divide. They consider the wholesome picture, and India as a part of the world market. “Today, there is nothing like domestic and international. It’s a global arena, which is what we are talking about, and it is a platform with an opportunity. When the world market is $650 billion why should I go and compete only for $5 billion. That’s how Indian companies are operating,” says Garg. This manner of liberal thinking has made Indian companies go ahead of US and Europe, where competition is wrecking margins. Their second line of target is countries which have less competition and good margins.
Reports say that the next generation economies that will consequently become prospective markets, are the BRIC (Brazil, India, Russia and China) countries. “By 2040, BRIC economy will take over the G6 economy. This phenomenon has still not been settled in the pharma industry, but looking at the growth prospects, things are moving very fast over there,” comments Garg. Also, reports forecast that the E7 countries (Brazil, China, India, Indonesia, Mexico, Russia and Turkey) will become much more prosperous, with real gross domestic product (GDP) projected to triple over the next 13 years. The E7 could go ahead to account for as much as one-fifth of the global sales.
It is interesting to note that India features in the list of the ‘markets of the future’. Historically, pharmaceutical sector has been defensive, wherein it has remained stable irrespective of changes in economic cycles. But as the economy is getting healthy, the populations are getting exposed to new diseases, thereby expanding the market of medicines. “As we get more affluent, certain disease profiles tend to emerge. By 2020, two things will happen—one, our market will become one of the world’s top 10. And two, as we get affluent, even the diseases will mirror the affluent country diseases,” observes Shetty. By 2025, an estimated 189 million Indians will be 60 or older, up from about 63 million in 2004. The number of Indians with diabetes is projected to reach 73.5 million in 2025. The pattern of demand for medicines is shifting accordingly.
|Though fragmented, Indian market is fat enough because of the population of the country, making it a play of numbers. As far as policy based issues like DPCO are concerned, many companies view them as bottlenecks, which though discouraging, is not a reason enough for companies to shy away from domestic markets. Companies have started cutting down on costs, a skill already mastered by Indian companies. Many companies have also come up with alternate ways like dealing with products, which are not under price control, and thereby striking a balance. The onset of TRIPs has opened opportunities as well. “Patents have come in and the influence of new products has decreased, so one can work on the development of the older products. I look at that as an opportunity,” says Coutinho. Rural markets in India too are heavily under-rated and hence, offer handful of prospects.|
Though new emerging therapeutic areas is good news, it is not going to an easy way ahead for Indian companies. The expertise of Indian companies lies in manufacturing low cost medicines, but these new emerging therapeutic areas need new medicines. “In lifestyle drugs, we hardly have anything generic,” says Garg. The unique needs of the forthcoming market calls for companies to look into high end research based products. Here, the companies which have been dealing with lifestyle based situations for years and researching on them are the ones who have a better grip on the market. And MNCs are the ones which fit this bill and it could be possible that they might play a bigger role in the future. But experts downplay this threat. “As of now MNCs don’t form a threat unless they come up with a very good patented product. It is more theoretically spoken and it is a fear somewhere in the corner of your mind, but by and large there is nothing to worry. At the moment if I am not mistaken, 75-80 percent of the business comes from domestic and 20-25 percent comes from MNCs,” says Coutinho. Agrees Garg and adds, “That is fear psychosis. It is a very true concern to some extent. But if Indian companies are equally strong and capable of producing a strong drug able to research it; they will able to compete.” And, as of today, GSK is the only multinational company which features in the top 10 companies in India.
Although the Indian pharmacos have been quite aggressive with exports, they have never neglected the Indian market. “I wouldn’t say that Indian companies are ignoring domestic markets. Though this was the issue five years ago,” recalls Garg. Now, Indian pharmacos have realised the importance of domestic markets and are paving ways to stay firmly rooted in the country while profusely branching everywhere. “As of now, every company that is working on exports is also concentrating on domestic sales. No wise man would ignore domestic sales,” says Coutinho. After all there is no place like home!