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The Indian Pharmaceutical Industry 2009: Diversification, Expansion & Ambitions
Espicom Business Intelligence Ltd, May 2009, Pages: 250
The days when the Indian pharmaceutical industry was synonymous with cheap generic drug production are passing. While generics continue to play a major part in the industry’s success, many companies have started down the long road of drug discovery and branded product development.
With low-cost manufacturing, high-quality research and manufacturing facilities and educated personnel, the Indian pharmaceutical industry presents both a competitive threat and partner opportunities.
India is the world’s fourth largest producer of pharmaceuticals by volume, accounting for around 8% of global production. In value terms, production accounts for around 1.5% of the world total. The Indian pharmaceutical industry directly employs around 500,000 people and is highly fragmented. While there are around 270 large R&D based pharmaceutical companies in India, including multinationals, government-owned and private companies, there are also around 5,600 smaller licensed generics manufacturers, although in reality only around 3,000 companies are involved in pharmaceutical production. Most small firms do not have their own production facilities, but operate using the spare capacity of other drug manufacturers.
The advent of pharmaceutical product patent recognition in January 2005 changed the ground rules for Indian companies. In the run up to the new post-patent era and since, the Indian industry has been evolving. R&D departments are moving away from reverse-engineering in favour of developing novel drug delivery systems and discovery research.
INDIAN PHARMA INDUSTRY TRACKER
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With a particular focus on 18 leading companies, this report examines the evolution of the Indian pharmaceutical majors in the new era and asks...
- What effect has the advent of the product patent regime had on the industry?
- What are the key markets for the industry now and in the future?
- How well placed is the industry with respect to the growing market for biosimilars?
- Does the industry feel its competitive advantage will come under threat from other low-cost countries, particularly China?
- Following Ranbaxy’s surprising sell-out to Daiichi Sankyo, will the Indian industry become prey to cash-rich foreign companies?
- What are the different strategies being adopted by companies with an eye to the future?
Focus on...current and future markets
Geographically, the key markets for the Indian industry are India, the US, Europe, Russia and the former CIS countries, Africa and Latin America, particularly Brazil. Some companies have also begun to gain generic approvals in Australia. In the future, Japan and other Asian markets are likely to be added to this list.
India remains an important market for the vast majority of Indian companies. The indigenous industry supplies around 70% of the country’s pharmaceuticals. The proportion of revenue derived from India depends largely on the strategy of the individual company and its penetration into overseas markets. For example, while Zydus Cadila aims to grow rapidly in key generic markets in the US, Europe and Latin America, India remains its most important market, accounting for 63% of revenue in fiscal 2007/08. India is also Cipla’s key market, generating almost half of the company’s revenue in 2007/08, although this percentage has been declining in recent years as the company has increasingly targeted overseas markets. Other companies, such as Dr. Reddy’s, are less reliant on the Indian market; in 2007/08, India contributed 15.7% of the company’s global revenue.
STRATEGIES
Indian companies have adopted different strategies in order to penetrate regulated generics markets. Some have entered these markets through partnerships with established generic companies; others have set up their own sales and marketing organisations, either organically or through acquisitions. A number have gone one stage further and acquired manufacturing bases in their target markets. Ranbaxy acquired Ohm Laboratories in the US in 1995, providing the company with an entry into the US market. Jubilant Organosys acquired US generic company Cadista Pharmaceuticals (formerly Trigen Laboratories) in 2005. Aurobindo Pharma acquired an FDA-compliant formulations manufacturing plant in Dayton, New Jersey in 2006. Dr. Reddy’s has MHRA-approved manufacturing facilities in the UK. Wockhardt has manufacturing facilities in the UK, Ireland and France.
Indian pharmaceutical companies are no strangers to competition. The Indian market is highly competitive with more than 300 organised players and branded promotional costs associated with every product, yet the industry is able to offer low-priced products and remain profitable in India. However, whether the Indian industry will be able to maintain the pace of expansion across the world is questionable in the current economic climate.
INTERNATIONAL DEVELOPMENT...A STEP TOO FAR IN A TOUGH MARKET?
Outside India, the US and EU generics markets are currently the major targets for companies following a generic strategy – but for how long? The attractive opportunities offered by the loss of patent protection on several major products in the coming period has to be offset against price reduction pressures driven by the ongoing economic downturn and aggressive competition for the business that is on offer. US Market...Ranbaxy
Ranbaxy is an established player in global generics and the US is the company’s largest market. In 2008, 26.6% of the company’s formulations revenue was generated from North America compared with 19.7% in Europe. In 2006/07, North America was the leading revenue generator for Dr. Reddy’s, contributing 43.5% of the total. In 2007/08, however, the company’s revenue from this market dropped significantly due to loss of market exclusivity for key products and higher manufacturing costs and was down to 16% of the total. Problems with lower revenues in other markets, notably in the European area, may cause Ranbaxy to reconsider its international operations.
Europe...Wockhardt
For Wockhardt, Europe is the more important market. In 2007, the company gained 53.1% of its revenue in Europe compared with 10.2% in the US. Growth has been through strategic acquisitions, alliances and new products. During 2006, Wockhardt completed its largest acquisition to date, Pinewood Healthcare, to become a major player in the Irish generics market. The company also has a significant presence in the UK and Germany and has recently purchased a research-based pharmaceutical company, Negma Laboratories in France. Europe is likely to account for more than 60% of the company’s revenue, however the current economic downturn has increased pressure on prices in key European markets and industry speculation is rife concerning Wockhardt’s trading position.
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