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INDIAN PHARMACEUTICAL MARKET Indian pharmaceutical market accounts for 1-2% of the global pharmaceutical market in value terms and 8% in volume terms. In 2007 it has grown by 12.9% to reach USD8.16 billion. Market growth during 2007 was driven by a number of new product launches by both Indian and foreign companies. The pharmaceutical market has grown at a compounded annual growth rate (CAGR) of 13% during the last five years. The market size comprises of domestic consumption of bulk drugs and formulations and does not include exports of the same. Major Therapeutic Segments The growth of the domestic pharma industry is largely dependent on its therapeutic presence. In terms of end-use, the pharmaceutical industry is sub-divided into several therapeutic segments. These segments are broadly defined on the basis of therapeutic application. Some of these segments are low-volume, high-margin segments, while the others are high-volume with relatively low margins. The new lifestyle category likes cardiovascular and anti-infectives are at double-digit growth rates. The key therapeutic segments include anti-infectives, cardiovascular and central nervous system drugs respiratory and pain/ analgesics. The upcoming segment is anti diabetic, which contributes 4.9%. Among the acute therapies, anti-infective is the major contributing segment accounting for 17.7% of the total pharma sales market in India. The anti-infectives segment, being the largest, consists of five sub-segments: antibiotics, anti-protozoals, anti-helmintics, anti-malarials, and anti-tuberculosis. The anti-infectives segment has been driven by new introductions in the year 2006-07. Gastrointestinal drugs are the next major therapeutic segment contributing 11.1% of the total sales. The major sub-segments under this category include anti-hypertensives, statins and anticoagulants. Cardiovascular, respiratory and pain/analgesics were the next leading therapeutic sub-segments accounting for 11%, 9.0% and 8.9% in 2006-07. Major players India's top ten pharmaceutical companies have reported a record of 24.57% growth in their net profits during 2007-08 where as their bottom-line grew by 14.68% over 2006-07. The top ten listed companies based on consolidated net sales include Ranbaxy Laboratories, Dr Reddy's Laboratories Cipla, Sun Pharma Piramal health care, Lupin, Wockhardt, Jubilant Organosys, Aurobindo Pharma,Cadila Healthcare; posted strong growth during 2007-08 (Table 3).The consolidated sales of the top ten companies rose to Rs349.01bn in 2007-08 from Rs304.34bn reported in the previous year where as the net profit was Rs54.87bn in 2007-08 as compared to Rs44.05bn in 2006-07. Ranbaxy occupied the first place with Rs69.82bn followed by Dr Reddy with Rs 49.14bn. Growth drivers 1. Mergers & Acquisitions The year 2006-07 saw only a few outbound acquisitions and instead of bigwigs like Ranbaxy, mid-size firms like Sun Pharma and oncology drug maker Dabur Pharma hogged the limelight. Sun Pharma acquired Israel's Taro Pharmaceutical Industries, a multinational generic manufacturer for about INR18 billion in the year's biggest in the sector. Sun Pharma, Jubilant Organosys, Ranbaxy and Zydus Cadila are the major firms that came out with high valued acquisitions. (See table)   Sun Pharma acquired Israel's generic manufacturer Taro Pharma for USD454m (approximately INR18, 370m). This is the second largest overseas acquisition by an Indian drug company after Betapharm acquisition by Dr Reddy's for USD572m. Jubilant Organosys Ltd acquired the US-based Hollister-Stier Laboratories for USD122.5m. The acquisition would provide Jubilant with a fast growing contract injectables manufacturing business and also a stable and profitable allergy business. Ranbaxy has acquired Be-Tabs for USD70m, which will make it the fifth-largest generic pharma company in South Africa. Ranbaxy acquired 14.9% stake in Jupiter Biosciences, a Hyderabad-based company. Zydus Cadila bought Brazilian company, Quimica e Farmaceutica Nikkho do Brasil Ltd (Nikkho), which is purely into the market of 'branded generics', for USD26m after signing an agreement to acquire 100% stake. With this acquisition, the company will basket generic products across various therapeutic segments such as general medicine, paediatrics, gynaecology, neurology, gastroenterology, otolaryngology, dermatology and others. Zydus Cadila will strengthen its base in Japan and be accessible to the USD3 billion Japan's generics market from its acquired Nippon Universal Pharmaceuticals Ltd. Ranbaxy Laboratories Inc, the wholly-owned US subsidiary of the Indian pharma major, acquired the rights to 13 dermatology products from Bristol-Myers Squibb (BMS) for a value of USD26m (INR1,050m). These 13 products totalled USD15m (INR600m) in 2006 and are used in the treatment of dermatitis, psoriasis, fungal infections, scabies and acne. This acquisition will strengthen Ranbaxy's franchise in dermatology arena. Lupin Limited acquired a majority stake in Japanese generic drug maker Kyowa Pharmaceutical Industry Co Ltd. Lupin Limited acquired Rubamin Laboratories Ltd (RLL), part of the Baroda-based Rubamin group, for an undisclosed amount. The pharmaceutical business of the Rubamin group, RLL focuses largely on advanced intermediates for active pharmaceutical ingredients under the contract research and manufacturing model. The year 2007 witnessed only 25 M&As with 15 cross border transactions with an estimated value of about USD600-700m in the Indian pharmaceutical sector. The industry restricted itself to consolidation on the domestic turf rather than looking for acquisitions abroad. 2. CRAMS The Indian pharmaceutical outsourcing market was valued at USD1.27 billion in 2007 and is expected to reach USD3.33 billion by 2010, growing at a CAGR of 37.6%. The Indian CRAMS market stood at USD1.21 billion in 2007 and is estimated to reach USD3.16 billion by 2010. The Indian contract research industry has grown tremendously over the past few years. It has witnessed the emergence of several CROs in the area of drug discovery and development over the last decade. Contract research in India is estimated to be USD345m in 2007 and is likely to grow at a CAGR of 22.7%. In 2006, clinical trials accounted for 52% of the total outsourcing market of CROs in India, followed by pre-clinical trials, which constituted about 30%. Research chemistry and research biology together constituted 18%. The Indian CMO market stood at USD869m in 2007. It is expected to see a CAGR of 41.7% to reach USD2.4 billion by 2010. Chemical synthesis constituted 60% of the total outsourcing market by CMOs in India, followed by formulation and packaging which constituted about 40%. India is emerging as one of the most competitive CRO markets with more than 70 clinical research organisations and central labs available. Local CROs providing the full spectrum of services are Vimta Labs, which is India's largest provider, Asian Clinical Trials (ACT) and ClinInvent Research, headquartered in Mumbai. Clinigene International in Bangalore is a Biocon subsidiary and specialises in clinical trial, regulatory and accredited central reference laboratory services. Siro Clinpharm, Mumbai offers clinical services, data management, clinical quality assurance and regulatory consultation. 3. USFDA Plants India has the highest number of USFDA approved manufacturing facility outside the US. Therefore it is in a good position to manufacture bulk drugs and export to regulated markets in the coming years. There are over 80 USFDA-approved manufacturing facilities in India (2007) and the number is estimated to grow at the rate of 30% by the end of 2008. This would make India the only country having the largest number of such plants outside the US. As per 2006 figures, even China, supposedly the biggest threat to Indian business in CRAMS, had 27 FDA-approved manufacturing sites. India has almost three times the number of FDA-approved plants than China has. This is one of the most vital factors for outsourcing manufacturing services to India by the multinationals and global pharmaceutical companies. Indian companies have been at the forefront, both in terms of DMF and ANDA filings with approximately 35% share in DMFs and about 25% share in ANDAs. Over the last two to three years, several second/third tier Indian companies have aggressively scaled up their ANDA/DMF filings in the US market. India is also leading in terms of the number of DMF filings. While India has filed 1,155 DMFs between January 2000 and June 2007, China filed only 329. In 2007 itself, India has filed 110 DMFs, which is almost three times that of China's 38 filings. 4. High Growth of Generics / Patent expiries The Indian pharma industry is well positioned to capture much of the USD65 billion new business expected to open up globally in coming years. Indian pharma industry accounts for 22% of the global generics market. Bearing in mind that USD65 billion of prescription medicines in Europe (USD25billion) and the US (USD40billion) are to lose their patents in 2007-08; India is ideally positioned to sweep up much of that new business. Indian firms are likely to take around 30% of the increasing global generics market in the coming years. The generics market is taking on increasing importance globally, in contrast with the branded pharmaceutical market which has got stagnated in the last few years. The loss of patent protection by 2009 of almost USD80 billion worth of top selling drugs will be the main driver of this growth. Low production costs give India an edge over other generics-producing nations, especially China and Israel. R&D With a number of blockbuster drugs getting off patent in the coming years and increasing R&D costs coupled with low R&D productivity, major pharmaceutical companies worldwide are finding it difficult to maintain their bottom lines. The major pharmaceutical companies in India are the main R&D investor in the country. The R&D expenditure of these 15 major companies has grown up by 8.9% to INR21.01 billion in 2006-07 from INR19.27 billion in 2005-06. Moreover the top Indian pharmaceutical companies have started the new business strategy of de-merging of their R&D activities into a separate company. So now companies can focus more on NCEs and NDDS. The model of R&D investment by Indian companies is shifting from core process research to new drug development and novel drug delivery systems (NDDS).The number of Drug Master File (DMF) filings made by Indian firms has increased considerably from 14% in 2000 to 50% in 2007 (Jan- Jun). In 2007, the pharmaceutical company Cadila Healthcare Pharma has topped the table by 25 DMF filings followed by Dr Reddy with 20, Aurobindo at 15, and Sun Pharmaceutical with 15 DMFs. Exports Indian pharmaceutical market, valued at USD8.16 billion in 2006-07, has been at a CAGR of 12.36% since last five years, whereas exports grew at a higher CAGR of 20% to reach USD6.15 billion in 2006-07. While the domestic market is expected to scale up to USD14.5 billion by 2011-12 at a CAGR of 16%, exports are projected to jump much faster at 35% and reach USD25 billion by the same time, contributing over 63% of the total production ,up from 43% in 2006-07. Indian bulk drugs exports revenue were USD2.65 billion in 2006-07, with a robust growth of 25% over the previous year but the pace of growth was slower as compared to the pharmaceuticals, which grew at 28% during the same period. The reasons attributable to the higher growth in formulations exports as compared to bulk drugs are increased demand for generics coupled with better acceptability of Indian generics in the global market from perspectives of both quality and price. Regulations DCGI to curb export of fake drugs: To address the problem of counterfeit drugs in pharma exports, the Drug Controller General of India (DCGI) will introduce a new scheme of sample testing over the next six months. Under this scheme, at least 50,000 samples of drugs, which go out of the country, will be tested in DCGI labs to establish their authenticity. Pharma body may fix price for 10 drugs: The National Pharma Price Authority is likely to fix the prices of an additional ten formulations, outside the list of essential medicines price-controlled by the government. The rates of these drugs, belonging to some of the leading pharmaceuticals in the country, have seen an increase of more than the 20% limit allowed during a 12-month period. The price monitoring body was returned its powers under Para 10 (B) of the Drug (Price Control) Order 1995 earlier this year by the government to fix prices of any non-scheduled drug in public interest. The export growth is driven by the increasing number of patented drugs going off patent in the coming years. India has the highest number of USFDA-approved manufacturing facilities outside USA; placed in good condition for export to regulated markets. India currently has the highest number of USFDA approved plants at 75, followed by Italy with 55, and China at 27. Outlook India has had a strong domestic pharmaceutical industry and a rapidly expanding market with a population of over a billion and a rapidly expanding economy. Prevalence values of many diseases are likely to increase with expansion of population, urbanisation and with higher identification rates in the coming decade. As per the Cygnus estimates the Indian (in the figure) pharmaceutical industry is likely to double its value to USD14.70billion in 2011. The investment in R&D, filling of higher number of ANDAs and DMFs in highly regulated market, mergers & acquisitions, in-licensing, skilled labour force, high standard scientific base and revenues from CRAMS will give necessary edge to Indian companies in the coming years. India has over 80 FDA-approved manufacturing facilities in 2007, which is estimated to grow at the rate of 30% by the end of 2008. Cygnus Business Consulting & Research 4th & 5th Floor, Astral Heights Road No. 1, Banjara Hills, Hyderabad-500034 India www.cygnusindia.com
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