Indian pharmaceutical market update

Generic affordable alternatives are much more easily available India

With around 1.3 billion residents, India is home to just a fraction fewer people than China, the world’s most populous nation.

India is also developing fast, consistently posting annual gross domestic product (GDP) growth rates in the mid-to-high single digits since the turn of the millenium, and outpacing all other nations in 2018 with growth of 7.3%.

The country’s GDP is now roughly equivalent to that of the UK in nominal terms. Adjusting for purchasing power differences it is the third largest, behind the USA and China.

Despite these impressive figures, hundreds of millions of people live in poverty. India remains a developing nation, with a healthcare system to match. At around $30 billion, the country’s pharmaceutical market generates revenues roughly equivalent to those of the newly-enlarged Japanese drugmaker Takeda Pharmaceutical (TYO: 4502).

The market for pharmaceutical products does not, therefore, move the needle for global drugmakers, but as it continues to grow in line with wider economic development, new opportunities will continue to emerge.

“By 2020, the value of pharma products sold in the country is is expected to reach $55 billion.”

By 2020, the value of pharma products sold in the country is is expected to reach $55 billion, with double-digit growth in the coming years outstripping even the strong performance of the broader economy.

Generics

For years, pharma development in India has been synonymous with generics manufacturing, as companies like Sun Pharmaceutical (NSE: SUNPHARMA), Cipla (NSE: CIPLA), Lupin (NSE: LUPIN) and Dr Reddy’s Laboratories (NSE: DRREDDY) have grown off the back of an appetite for lower-cost medicines.

By value, Indian generics companies sell about as much inventory on a global basis as is sold in the entirety of the domestic pharmaceutical market.

However, following intensifying competition in the all-important US market and increasing pricing pressure, exacerbated by the new US administration’s focus on lowering drug prices, generics drugmakers in India are feeling the heat.

This has led more firms to diversify into new areas, investing in more complex generics as well as biosimilars and innovative medicines. Specialty generics products tend to have higher margins, and represent around half of all generics sold in the USA.

Domestic trends

At home, drugmakers are also cashing in on a trend, picked up on by firms including the USA’s Abbott Laboratories (NYSE: ABT), towards selling branded versions of generic drugs.

In India, these premium generic products account for over 60% of all pharma sales by value, a trend that is promoted by a lack of trust in non-label products and enabled by industry efforts to prevent the government from restricting the sector.

Sun Pharma is investing heavily in this area, with expectations that there will continue to be an increase in the use of such products in developing countries. Within the next two years, the firm says it expects branded versions of generics to make up around 20% of the global pharma market.

A changing epidemiological profile in the country, driven by population change and the evolving way of life, will likely continue to push demand for therapies not previously sold in high volume.

As well as its economy, India’s population is growing rapidly, resulting in the creation of a substantial middle class with increasing resources to afford innovative medicines.

This includes drugs for chronic diseases, central nervous system disorders and cardiovascular conditions.

Regulatory environment

Spying the potential of its growing market, many multinational pharmaceutical companies have started increasing the level of their investments in India.

In addition to building a new $150 million facility in Karnataka, London-listed GlaxoSmithKline (LSE: GSK) is upgrading an existing facility in the western state of Maharashtra.

Meanwhile Pfizer (NYSE: PFE), the third-largest global firm in the country, is set to launch several new products after experiencing bumper growth in recent quarters.

Part of the reason for Big Pharma’s confidence in market conditions is a political and regulatory environment that appears increasingly conducive to growth.

“…there must be a minimum local content of 75%, going up to 90% by 2023-25.”

New legislation announced in recent days will remove price restrictions on novel therapies developed by foreign companies, for the first five years at least, including drugs for treating orphan diseases.

These price caps were introduced under the Drug Price Control Order (DPCO) of 2013, which has been blamed by the industry for a decline in R&D, and fewer new drug introductions in India.

While these measures will boost the global industry in India, local domestically-produced products for public procurement have been given a fillip as well, under the government’s “Make in India” initiative.

The Department of Pharmaceuticals (DoP) has said that for public procurement there must be a minimum local content of 75%, going up to 90% by 2023-25.

While analysts have been critical of the level of investment, the new government-led insurance scheme, dubbed “Modicare,” signals an intention on the part of government to respond to people’s need for improved healthcare outcomes.

Formally titled Ayushman Bharat, the program will cover hospitalization costs for poorer rural families, as well as certain occupational categories of urban workers, up to $7,000.

GlobalData analyst Prashant Khadayate said: “The different aspects that the government is focusing on include the Drug Price Control Order (DPCO), and various other policies related to the manufacturing, R&D, financing, quality control, drug control and price control of medical devices.”

Source: The Pharma Letter