AMSEC - Knowledge Frontier Series
April 27, 2010

‘Indian Pharmaceutical Industry — a prescription for growth’
Expert Speaker: Dr. Bomi Gagrat
Executive Director, Pfizer Limited

Dr. Bomi Gagrat was expert speaker at AMSEC’s Knowledge Frontier Series
held on April 27, 2010. In an enthralling one-hour session on ‘Indian
Pharmaceutical Industry — a prescription for growth’, Dr. Gagrat spoke to
a select group from India’s investment community on the prospects and
challenges for Indian the pharmaceutical industry.

Gleaned here are key insights from the session:

A new world order is emerging: Advanced economies are slowing
down and emerging economies are driving global growth. Developing countries are growing rapidly, driven by strong economic fundamentals and domestic consumption demand. Thus, the impact of the current economic slowdown on these countries was less pronounced and they are showing early signs of recovery. The BRIC (Brazil, Russia, India, China) countries are projected to be among the six largest economies by 2040. China is expected to overtake the US by 2035 and emerge number 1 and India would overtake the US by 2050 to take the second lead.  Global Pharma growth slows down: This slowdown is underpinned by
reducing R&D productivity, fewer blockbusters, and increasing ‘market genericization’. The global pharma market grew 7% in 2009 and this is expected to slow down to 4–6% in 2010; economic recovery and large patent expirations would help the industry register 5–8% CAGR over 2010-14
Emerging markets take center stage: Emerging markets are expected
to grow at 14–17% over 2010-2014, whereas major developed markets are expected to grow 3–6%. Increasing growth chal enges in regulated markets and projections of growth being driven by developing markets such as India, China, and Brazil are prompting this strategic shift. The US would remain the largest market, with an expected 3-6% growth annual y over the next five years. Big Pharma has started to focus on entering the global generics space, and in particular the generics business in the developing markets. A spate of announcements over the past few quarters by Big Pharma companies including GSK, Aventis, Pfizer, Astra Zeneca, Fresenius and Daiichi point to this trend.  Indian pharma is ready for the big leap: The Indian pharmaceutical
market (IPM), which is valued at US$ 9 bn in 2009, ranks fourth in volumes and fourteenth in value and is projected to emerge the tenth-largest market by 2015. Home-grown companies dominate the market with 82% share. The major drivers for this market are changing prescription dynamic, product innovations, geographic penetration, Increasing disposable incomes and healthcare spend, changing disease patterns, and growing penetration of medical insurance.  The patent scenario is not encouraging: In 2005, product patents were
reintroduced and patent protection was extended to twenty years, compared with seven years provided in the 1970 act. In India, however, there is no patent linkage. This means that marketing approval issued by DCGI is not linked to the patent status issued by the patents office. A case in point in Nexavar (Sorafenib) from Bayer, which was issued a patent by the patent office; however, Cipla also got permission from DCGI to market the generic version, which became legal contention. There are still no express provisions guaranteeing data exclusivity to original researchers. Until these anomalies and fal acies are addresses, companies will not find the scenario conducive to introduction of new products.
The pricing scenario is challenging: The government formed a National
Pharmaceutical Pricing Authority that monitors and fixes prices of bulk drugs and formulations under a scheduled list. Currently 30% of the pharma market is under this price control mechanism. The government maintains vigil on the balance, monitors periodic price increases, and questions those that have risen more than 10%. The industry anticipates regulatory intervention in the launch price of patented new drugs.
Most therapeutic areas have displayed strong: As of January 2010,
growth has been robust across therapeutic areas (TAs), with Indian pharma growing 17.2%. Growth across segments was as follows: Anti-infective –14.6%; Cardiac –18.8%; GI 17.3%; Respiratory – 19.6%; Pain –16.4%; Vitamins and Minerals – 16.6%, Gynaec – 16.9%; Neuro and CNS – 20.2%; Derma – 20.1%; and Anti-diabetic –22.1%. Top companies accounted for 60% of the total market, led by Cipla with 5.4%, Ranbaxy with 4.9%, GSK with 4.3%, Piramal with 4.1%, Zydus with 3.7%, Sun with 3.7%, Alkem with 3.2%, Pfizer with 3.0%, Mankind with 2.8% and Lupin with 2.7%. Successful companies have a presence across TAs and are among the top five in at least two to three therapies.  Industry structure is fuelling consolidation globally: Building scale,
establishing a global footprint, and acquiring a diversified portfolio has been a common theme across deals. Major landmark global acquisitions in the past few years are Pfizer’s acquisition of Wyeth, Merck’s acquisition of Schering Plough, Daiichi Sankyo’s acquisition of Ranbaxy, Mylan’s acquisition of Merck KGaA, Fresenius Kabi’s acquisition of Dabur Oncology, Teva’s acquisition of IVAX, and Mylan’s acquisition of Matrix Labs.  Challenges abound for outbound M&A in Indian Pharma:
– Integration issues with past deals has put a brake on further expansion; for instance: Dr Reddy’s Betapharm faces pricing pressures in European markets, Wockhardt’s European acquisitions facing similar issues, coupled with mounting debt troubles – Increasing pricing pressure in generics is rapidly eroding margins – Ongoing consolidation in generics and Big Pharma’s foray in this – Industry trends and ongoing consolidation present unique al iance – Big Pharma’s foray into generics has led to partnerships offering low- cost base, wide portfolio and manufacturing capabilities: E.g. Pfizer’s sourcing tie-up with Aurobindo and GSK’s with Dr Reddy’s – Need to de-risk business through global footprint in generics enhances potential for inbound M&A deals: E.g. Acquisition of Indian assets by Generics’ majors Mylan, Actavis and Teva Ranbaxy’s acquisition by Daiichi Sankyo might set the trend for future dealsCustom manufacturing presents a massive opportunity: Global pharma
outsourcing stands at $ 33 Bn; outsourcing accounts for 24% of pharma manufacturing spend and has grown at 13% CAGR during 2007-10. The Indian market accounts for $ 1 Bn of the total spend; it has been growing at 43% and is estimated to reach $ 2.3 Bn in 2010. India’s share of the global outsourcing market has grown from 2.8% in 2007 to 5.5% in 2010. API/Intermediate outsourcing dominates with 64% share.  India offers advantages of quality, skil ed manpower, talent, and cost benefits. Manufacturing costs are 65% lower in India than in the US and 50% lower than in Europe. Cost of installation of a USFDA-approved plant in India is 30% lower than in US. India’s pool of trained chemists and pharmacists is six times the size and one-tenth the cost in the US; India accounts for 3% of global drug discovery and development outsourcing and offers 61% cost savings versus the US. MNC Pharma in India—a new era is unfolding:

MNC Pharma companies are executing India-focused strategies through:
i. increased investments;
sharp ramp-up in field force (after a lull of several years GSK increased its field-force by 200 to support growth in its vaccines, oncology and other specialty segments; Sanofi Aventis added 300 people under a rural market division launched recently); India-specific pricing (Merck launched Januvia at significantly lower price compared with US and European price levels)’; and MNC Pharma companies are also adopting rural marketing strategies. Some of the diverse success strategies of these companies include: branding, pricing, sourcing, positioning, indication rol out, market development, clinical development, and technology. Foreign companies view India as a significant contributor of future sales and they are ramping up investments in the country. Several overseas companies have outsourced research and clinical trials to Indian contractors and others have entered into col aborative R&D arrangements to supplement their R&D productivity.



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