Growth Outlook of Pharmaceutical Sector ! Key Points to Know..

The Indian market is impossible to ignore, given its economic prospects. Foreign companies view India as a potential significant contributor of future sales and are ramping up their investments in the country accordingly. India’s domestic market looks promising for global pharma looking to launch new products. 

The country’s growing capabilities in contract manufacturing, R&D and clinical trials also make it a preferred outsourcing partner for global pharma at every stage of the value chain. So what strategy should foreign pharmaceutical companies eager to enter the country or expand their existing operations adopt?

 The growth trajectory for the Indian pharmaceutical industry is likely to remain at 10-13 percent in 2020-21 despite challenges, according to rating agency ICRA. The expected growth in the next financial year is on the back of healthy demand from the domestic market given increasing spend on healthcare along with improving access, ICRA said in a statement.

India’s strong position as a pharma supplier rests on its ability to provide high quality medicines backed by strong innovation capabilities and a structural cost advantage. The cost of manufacturing formulations in India remains 30 to 40 % lower than other comparative manufacturing hubs such as China and Eastern Europe, notwithstanding low productivity levels. This is driven by lower labour costs vis‐à‐vis other geographies. 

Despite inflationary trends, India’s labour cost advantage will sustain in the medium to long term, especially if Indian companies can improve productivity through operational excellence and digital initiatives.  

The supply of local talent into the pharma industry (e.g., B.Pharm, M.Pharm, B.Sc.) is stronger than in countries such as China. Indian pharma companies are foraying into complex products (e.g., microspheres, liposomes, emulsions), building capabilities in R&D and the manufacturing of these products while still ensuring the required quality.   

However, the industry is also facing several challenges in supplying to export markets, which must be addressed going forward.  

  • The increasing pricing pressure in the regulated market is squeezing margins and profitability. Key drivers include customer consolidation, greater competition in commoditized, easy‐to‐ manufacture products with increased ANDA approvals, and a slowdown in new launches.    
  • Another key challenge stems from compliance issues affecting the reliability of supply. While many Indian companies have fared well in regulatory audits over the last year and seem to be emerging out of remediation, others continue to face challenges.   
  • India continues to rely on imports of key starting materials, intermediates and API’s for, China with the share of dependence increasing over time. This potentially exposes us to raw material supply disruptions and pricing volatility. 

This along with abatement in pricing pressure for the U.S. market, new launches and market share gains for existing products and consolidation benefits will drive growth in 2020-21, it added. 

“The Indian pharmaceutical industry’s growth remained stable at 12.2 % per during H1FY2020 led by rebound in domestic growth in Q2FY20 to 14.2%  supported by seasonal factors and stable growth in chronic therapies.

During second quarter of current fiscal, India witnessed outbreak of many diseases in many parts, aiding the growth of the anti-infective segment, he added. Though margins remain healthy, pricing pressures for the U.S. base generics business (albeit moderating), lack of limited competition products and manufacturing quality issues will continue to put margin pressure, ICRA said. 

Higher share of domestic business and operational efficiencies will provide overall cushion to margins, it added. The key sensitivities to growth and profitability estimated of the Indian pharma industry will be regulatory interventions such as price controls and compulsory genericization for domestic market and continued regulatory overhang with respect to manufacturing quality deficiencies during U.S. FDA audit says.

There is an opportunity for India Pharma to drive growth by building on the cost advantage, and improving reliability of supply—major buying criteria for customers.

Three priority areas thus emerge for Indian pharmaceutical companies:   

■ Build stronger quality systems and achieve full compliance  

■ Refocus efforts on operational excellence   

■ Alternate sourcing and self sufficiency in APIs / intermediates.

 These imperatives are inter related operational excellence is a strong enabler of quality and supply reliability. Unlike in the past, when several Indian pharma companies ramped up their R&D spend targeting pipeline of specialty drugs, niche molecules and complex therapies, this time around companies are optimizing their R&D spend. 

The credit metrics of leading pharma companies are expected to remain stable in view of future growth prospects in regulated markets and relatively strong balance sheets Global Pharma’s evolving business models and options in India.

The global pharmaceutical industry is changing. Challenging business models, we describe how the pharmaceutical business model is witnessing a paradigm shift from a fully integrated company structure towards a future where companies use a wide range of outsourcing, partnership initiatives and other contractual and relationship arrangements to create networks of collaboration and discovery.

This evolution in pharma business models has enormous repercussions for the Indian pharmaceutical sector, and related sectors like biotechnology. Indian companies now have an unprecedented opportunity to partner with global players across a wide range of activities, from contract manufacturing and licensing arrangements, to franchising and joint venture opportunities. 

The range of option spans a wide spectrum of levels of ownership and control, from straightforward outsourcing of manufacturing to licensing arrangements to more involved joint ventures and partially or wholly-owned subsidiaries The amount of investment risk varies accordingly.
The bottom line: Global pharma players can take advantage of a variety of options to maximize their investment in India. As many pharma companies turn to more collaborative business models, Indian companies are likely to play an increasingly important partnering role. 

Outsourcing has been the traditional method of doing business with Indian companies. Historically, the focus for the pharmaceutical industry has been on lower value add manufacturing activities such as APIs and generics, and India continues to play an important role in these segments. In recent years, India’s pharma companies have also begun to move up the value chain.

India’s retailing industry also offers huge opportunities for foreign companies to either set up their own retail franchisee or enter into collaboration with existing players. Medicine Shoppe India, the master franchisee of US-based Medicine Shoppe International has already forayed the market Franchising arrangements can leverage on purchasing power from the franchisor buying in large quantities and passing down savings to franchisees. 

Continued business support from the franchisor such as technology, products, training and marketing is an added advantage. However, there are restrictions on how the business must be managed in order to retain consistency among franchises. All franchisees are obligated to conform accurately to the initial business model.

Joint Ventures 
Joint ventures (JVs) are becoming a more prevalent option for companies looking to capitalise on the opportunities presented in India. Foreign companies are increasingly looking at local partners to work with in order to increase their presence in India. 

Domestic partners bring together extensive local expertise due to their familiarity with the business environment, knowledge support and the networked capabilities of other local pharmaceutical companies.

These advantages, along with low production costs, skilled labor and faster drug development can be productively utilized by western pharmaceutical companies coming into India. As noted, India is home to more then 100 US FDA approved plants, so foreign companies looking for local partners can access a substantial manufacturing base.

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