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Indian Pharma & Healthcare Report - 10 Year Forecast -2019 Indian Pharma & Healthcare Report - 10 Year Forecast -2019 Document Transcript

  • Q4 2010 www.businessmonitor.comiNDiapharmaceuticals & healthcare reportINCLUDES 10-YEAR FORECASTS TO 2019issN 1748-1937published by Business monitor international ltd.
  • INDIA PHARMACEUTICALS & HEALTHCARE REPORT Q4 2010 INCLUDING 5-YEAR AND 10-YEAR INDUSTRY FORECASTS BY BMIPart of BMI’s Industry Report & Forecasts SeriesPublished by: Business Monitor InternationalCopy deadline: September 2010© Business Monitor International Ltd Page 1
  • India Pharmaceuticals & Healthcare Report Q4 2010© Business Monitor International Ltd Page 2
  • India Pharmaceuticals & Healthcare Report Q4 2010CONTENTSExecutive Summary ......................................................................................................................................... 5SWOT Analysis ................................................................................................................................................. 6 India Pharmaceutical Industry SWOT ................................................................................................................................................................... 6 India Political SWOT ............................................................................................................................................................................................. 7 India Economic SWOT........................................................................................................................................................................................... 8 India Business Environment SWOT ....................................................................................................................................................................... 9 Table: Asia Pacific Pharmaceutical Business Environment Ratings For Q410 ................................................................................................... 10 Rewards ............................................................................................................................................................................................................... 11 Risks .................................................................................................................................................................................................................... 12India – Market Summary ................................................................................................................................ 13Regulatory Environment................................................................................................................................ 14 Table: Responsibilities Of India’s Department Of Pharmaceuticals.................................................................................................................... 15 Pharmaceutical Advertising................................................................................................................................................................................. 16 Pharmacovigilance .............................................................................................................................................................................................. 17 IP Regime ............................................................................................................................................................................................................ 17 Table: History Of The Indian Patent System........................................................................................................................................................ 18 Patent Disputes .................................................................................................................................................................................................... 19 Counterfeit Medicines .......................................................................................................................................................................................... 20 Pricing And Reimbursement ................................................................................................................................................................................ 21Industry Trends And Developments ............................................................................................................ 23 Epidemiology ....................................................................................................................................................................................................... 23 Healthcare Sector ................................................................................................................................................................................................ 26 Healthcare Funding ............................................................................................................................................................................................. 27 Healthcare Insurance .......................................................................................................................................................................................... 28 Research And Development ................................................................................................................................................................................. 29 Clinical Trials ...................................................................................................................................................................................................... 29 Recent Developments In The Clinical Trials Industry .......................................................................................................................................... 30 Active Pharmaceutical Ingredients ...................................................................................................................................................................... 31 Biotechnology Sector ........................................................................................................................................................................................... 32 Traditional Medicines .......................................................................................................................................................................................... 33Industry Forecast Scenario ........................................................................................................................... 34 Overall Market Forecast...................................................................................................................................................................................... 34 Key Growth Factors – Industry............................................................................................................................................................................ 36 Key Growth Factors – Macroeconomic ............................................................................................................................................................... 37 Table: India – Economic Activity ......................................................................................................................................................................... 40 Prescription Drug Market Forecast..................................................................................................................................................................... 41 Patented Drug Market Forecast .......................................................................................................................................................................... 42 Generic Drug Market Forecast............................................................................................................................................................................ 43 OTC Medicine Market Forecast .......................................................................................................................................................................... 45 Pharmaceutical Trade Forecast .......................................................................................................................................................................... 47 Medical Device Market Forecast ......................................................................................................................................................................... 49 Other Healthcare Data Forecasts........................................................................................................................................................................ 51 Key Risks To BMI’s Forecast Scenario ................................................................................................................................................................ 52© Business Monitor International Ltd Page 3
  • India Pharmaceuticals & Healthcare Report Q4 2010Competitive Landscape ................................................................................................................................. 53 Top 30 Pharmaceutical Companies In India According To Moving Average Total (MAT) Sales To July 2010 (US$mn).................................... 53 Key Pharmaceutical Industry Developments ....................................................................................................................................................... 54Company Profiles ........................................................................................................................................... 56 Leading Indigenous Manufacturers .......................................................................................................................................................................... 56 Ranbaxy Laboratories.......................................................................................................................................................................................... 56 Cipla .................................................................................................................................................................................................................... 59 Dr Reddy’s Laboratories ..................................................................................................................................................................................... 61 Aurobindo Pharmaceutical .................................................................................................................................................................................. 63 Venus Remedies ................................................................................................................................................................................................... 65 Granules India ..................................................................................................................................................................................................... 67 Piramal Healthcare ............................................................................................................................................................................................. 69 Zydus Cadila ........................................................................................................................................................................................................ 71 Leading Multinational Manufacturers ...................................................................................................................................................................... 73 Pfizer ................................................................................................................................................................................................................... 73 GlaxoSmithKline (GSK) ....................................................................................................................................................................................... 76 Novartis ............................................................................................................................................................................................................... 79 Sanofi-Aventis ...................................................................................................................................................................................................... 81 Merck & Co ......................................................................................................................................................................................................... 83Country Snapshot: India Demographic Data............................................................................................... 85 Section 1: Population................................................................................................................................................................................................ 85 Table: Demographic Indicators, 2005-2030 ........................................................................................................................................................ 85 Table: Rural/Urban Breakdown, 2005-2030 ....................................................................................................................................................... 86 Section 2: Education and Healthcare ....................................................................................................................................................................... 86 Table: Education, 2002-2005 .............................................................................................................................................................................. 86 Table: Vital Statistics, 2005-2030 ........................................................................................................................................................................ 86 Section 3: Labour Market And Spending Power ....................................................................................................................................................... 87 Table: Employment Indicators, 1996-2001 .......................................................................................................................................................... 87 Table: Consumer Expenditure, 2000-2012 (US$) ................................................................................................................................................ 87 Table: Average Annual Manufacturing Wages, 2000-2012 ................................................................................................................................. 88BMI Methodology ........................................................................................................................................... 89 How We Generate Our Pharmaceutical Industry Forecasts ................................................................................................................................ 89 Pharmaceuticals Business Environment Ratings ................................................................................................................................................. 90 Risk/Reward Ratings Methodology ...................................................................................................................................................................... 90 Ratings Overview ................................................................................................................................................................................................. 90 Table: Pharmaceutical Business Environment Indicators ................................................................................................................................... 91 Weighting............................................................................................................................................................................................................. 92 Table: Weighting Of Components ........................................................................................................................................................................ 92 Sources ................................................................................................................................................................................................................ 92Forecast Tables .............................................................................................................................................. 93© Business Monitor International Ltd Page 4
  • India Pharmaceuticals & Healthcare Report Q4 2010Executive Summary India’s pharmaceutical market is highly dynamic and presents significant upsides for both local firms and foreign multinationals. However, as with all emerging markets, there are under-appreciated risks to investments. BMI forecasts that combined sales of prescription drugs and over-the-counter (OTC) medicines will increase from US$15.7bn in 2009 to US$54.2bn in 2019 – a compound annual growth rate of 13.2%. In our Q410 Business Environment Ratings, India has maintained its status as the eigth most attractive pharmaceutical market in Asia Pacific, ahead of Malaysia but behind Hong Kong. However, India’s score has declined from 55.9 in Q310 to 55.3 this quarter. This was due to the Country Risks score dropping from 53 to 50. India scores above the regional average for Industry Rewards (60 versus 49) and Industry Risks (60 versus 55). Takeovers of local firms by multinational drugmakers are becoming more frequent, rasing concerns among lawmakers and regulators. In September 2010, US-based Abbott Laboratories concluded the acquisition of the healthcare solutions business of Indian healthcare company Piramal Healthcare. Abbott Chairman and CEO Miles D. White said that the acquisition will allow Abbott to become a leading player in the Indian pharmaceutical market as well as enhancing its presence in the emerging markets. Abbott expects its sales in India to exceed US$2.5bn by 2020. In line with BMI’s core view that drugmakers based in emerging markets will increasingly produce hard- to-manufacture pharmaceuticals, Mumbai-based Bhabha Atomic Research Centre (BARC) has developed three radiopharmaceuticals – lutetium-177 (Lu-177), yittrium-90 (Y-90) and phosphorous-32 (P-32) – for the treatment of cancers and other medical conditions. The much heralded Jan Aushadi programme – which seeks to provide low-cost generic drugs to those on low-incomes – is struggling to make an impact. As of August 2010, only 46 out of a planned 300 stores had opened since 2008. The slow pace of the programme was blamed on a lack of support from the Department of Pharmaceuticals. Later that month it was revelead that plans to source unbranded generic drugs from small- and medium-sized firms for Jan Aushadhi outlets had been dropped. In order to control the threat of fake drugs and protect the pharmaceuticals sectors brand image, the Indian government is planning to introduce a unique identification system for pharmaceutical exports. The new system will ensure that an exported drug from India is manufactured in the country and is not counterfeit. The new system is expected to be launched by November 2010.© Business Monitor International Ltd Page 5
  • India Pharmaceuticals & Healthcare Report Q4 2010SWOT AnalysisIndia Pharmaceutical Industry SWOTStrengths ! Massive pharmaceutical market growth potential, highly reliant on modernisation and reform. ! Strong local manufacturing sector with leading domestic players establishing a notable international presence. ! Low-cost but skilled English-speaking labour force. ! Long-established trade patterns with Western Europe and the US. ! Swift market approval times.Weaknesses ! Among the least-developed pharma markets in Asia with extremely low per capita consumption. ! Opaque and biased government drug pricing and reimbursement policy. ! Underdeveloped healthcare infrastructure. ! Vast regional disparities in healthcare coverage. ! Lack of comprehensive drug reimbursement. ! Movement away from original drug research will lower future margins. ! Many multinationals already selling their products at reduced prices.Opportunities ! Robust generic and OTC drug market growth, with the latter benefiting from expected liberalisation of sales channels. ! Large and growing population boosting pharmaceutical and medical demand. ! Underdeveloped market for chronic illnesses and diagnostics. ! The recognition of pharmaceutical patents from January 2005. ! Rising demand for generic drugs in its Asian neighbours, and globally. ! Ongoing free trade agreement (FTA) negotiations with the Association of South East Asian Nations (ASEAN) group of countries. ! Increased demand for active pharmaceutical ingredients (APIs) produced in India. ! Increasing research and development (R&D) activity by domestic firms. ! Global expansion of larger local companies. ! Increased public funding for disease eradication programmes. ! Political changes in the US to promote use of Indian generic drugs.Threats ! Failure to properly enforce World Trade Organization (WTO)-compliant patent legislation for drugs. ! Considerable counterfeit drug industry. ! Government failure to revise its opaque and discriminatory pricing and reimbursement policy. ! Need for overhaul of healthcare delivery structures hampering better access to medicines. ! Government plans to impose further price controls on essential medicines. ! India’s patent laws threatened by litigation. ! Manufacturing problems pose threat to Indian generic exports, especially to the US.© Business Monitor International Ltd Page 6
  • India Pharmaceuticals & Healthcare Report Q4 2010India Political SWOTStrengths ! India is the worlds largest democracy. A secular constitution, framed in 1950, officially guarantees justice, liberty and equality while aiming to promote fraternity among the citizenry. More than 1,000 political parties registered for the April-May 2009 general elections, competing for the preference of Indias 714mn eligble voters. ! Despite its multitude of problems, India has generally managed to avoid hard authoritarian rule or military coups, which have happened in many other developing countries, including Indias neighbours Bangladesh, Myanmar and Pakistan.Weaknesses ! Large coalition governments complicate policy-making at the centre, as coalition partners and outside parties pursue their own agendas. The competence of state government varies enormously across Indias 35 states and union territories. ! Indias tense relationship with Pakistan still weighs on regional stability. The two countries have gone to war three times since they were partitioned on independence from British rule in 1947.Opportunities ! India has in recent years edged closer to the US in foreign policy. We see the deal as evidence of Washingtons increased interest in having New Delhi as a geopolitical partner in Asia. The fact that both the US and India are democracies, face threats from militant Islamists, and the presence of a two million-strong affluent Indian diaspora in the US, are bringing the two countries closer together. ! Thawing relations with Pakistan, following the earthquake crisis in October 2005 and a tentative peace process initiated in 2004, has made it easier for the parties to defuse potentially explosive situations, such as the Mumbai attacks in November 2008, which Islamabad acknowledges were planned and launched from its territory.Threats ! Hindu nationalism presents a growing threat to Indias constitutionally enshrined secularism. Communal tensions between the Hindu majority and minority Muslims, Christians, Sikhs and Buddhists have often erupted into deadly violence, such as the Gujarat riots in 2002. ! India has experienced a series of serious terrorist attacks over the past two years, perpetrated by radical Islamist as well as rural Maoist groups. The Mumbai attacks in November 2008 have raised the spectre of further violence.© Business Monitor International Ltd Page 7
  • India Pharmaceuticals & Healthcare Report Q4 2010India Economic SWOTStrengths ! India has a very large domestic market, and rising domestic demand is a major driver of economic growth. ! A vast supply of inexpensive but skilled labour has turned India into the back office of the world. Around half of the population is under the age of 25. ! Booming exports of IT-enabled services, from call centres to software developers, are a valuable source of foreign exchange.Weaknesses ! Despite rapid economic growth, India remains a very poor country. According to BMI estimates, Indias GDP per capita was roughly US$1,100 in 2009, a third of the size of Chinas. ! Agriculture remains inefficient. Poor June-September monsoon rains can slash rural incomes and consumption. Two-thirds of the population depend on farming for its livelihood. ! India has chronic trade and fiscal deficits, the latter of which is ballooning due to fiscal stimulus measures. The government spends a significant part of its revenue on interest payments, salaries and pensions. This limits the amount of money available on infrastructure improvements.Opportunities ! Indias emerging middle class will continue to drive demand for new goods and services. A wealthier society, combined with tax reforms, would serve to boost revenue receipts, relieving fiscal pressures. ! The government has implemented some tax reforms. A value-added tax (VAT) introduced in 2005 to replace a complex web of sales taxes and a uniform goods and services tax to be implemented in FY2010/11 help should help boost compliance and therefore raise government revenue.Threats ! Indias dependency on oil imports is problematic. This undermines the trade balance and makes India vulnerable to energy price-driven inflation. ! India is at risk of severe environmental problems. Many of its cities air and rivers are heavily polluted, raising questions about the sustainability of the economys rapid growth.© Business Monitor International Ltd Page 8
  • India Pharmaceuticals & Healthcare Report Q4 2010India Business Environment SWOTStrengths ! India is now one of the biggest recipients of foreign direct investment (FDI) among emerging markets, having attracted US$36.7bn of inflows in 2008, according to the United Nations Conference on Trade and Development (UNCTAD) – a 60% increase from the previous year. ! An inexpensive but skilled English-speaking labour force can do the jobs of Western workers for a fraction of the wages paid in North America or Europe.Weaknesses ! Despite pockets of excellence, such as the IT sector, overall literacy rates in India remain far lower than in Asian and other key emerging market nations. ! Indias infrastructure is notoriously inadequate. A 500km road journey can take as much as 24 hours, owing to poor road conditions, congestion and toll booths. ! The competitiveness of local firms is undermined by reams of official red tape, from foreign investment restrictions to inflexible labour laws. ! Intellectual property rights are poorly protected in India. India is one of 11 countries on the priority watch list for 2009 compiled by the Office of the US Trade Representative.Opportunities ! India could enhance the competitiveness of local industry through further liberalisation and deregulation. ! Ongoing infrastructure projects ranging from roads, railways, and airports should provide opportunities for foreign investors for many years to come. ! Indian Prime Minister Manmohan Singh is eager to reform the banking sector in order to increase the availability of long-term financing, particularly for large infrastructure projects.Threats ! The arrival of Western players, including management consultants Accenture and technology giant IBM, is bidding up local wages in the outsourcing sector. India faces growing challenges from countries such as Vietnam and potentially Bangladesh in a variety of sectors. ! China still remains a major competitor for FDI flows into India. India has excessive bureaucracy and poor infrastructure in comparison with China. ! The November 2008 Mumbai terror attacks demonstrated that security issues will increasingly be in investors considerations© Business Monitor International Ltd Page 9
  • India Pharmaceuticals & Healthcare Report Q4 2010India’s Pharmaceutical Business Environment Ratings For this quarters update of the Business Environment Ratings (BERs) we have streamlined the indicator headings to make the ratings more user-friendly and intuitive. Where previously limits to potential returns pertained to the opportunities and rewards on offer, this has now been titled rewards, while risks to potential returns has been termed risks. Within this rewards/risks categories, pharmaceuticals and healthcare market and country structure have been re-termed industry rewards and country rewards; likewise, market risks has been renamed industry risks, while country risks has remained the same.Table: Asia Pacific Pharmaceutical Business Environment Ratings For Q410 Industry Country Rewar Industr Country Pharma Regional Rewards Rewards ds y Risks Risks Risks rating rankingAustralia 63 73 66 72 85 77 70.2 1Japan 63 70 65 73 76 74 68.8 2South Korea 67 60 65 70 70 70 67.0 3Singapore 40 73 48 80 82 81 61.3 4China 63 43 58 67 56 62 59.9 5Taiwan 50 53 51 70 67 69 58.0 6Hong Kong 40 70 48 67 78 71 57.0 7India 60 40 55 60 50 56 55.3 8Malaysia 40 57 44 70 71 70 54.6 9Thailand 60 50 58 37 58 45 52.6 10Indonesia 53 53 53 40 45 42 48.9 11Philippines 50 57 52 43 45 44 48.7 12Vietnam 43 40 43 40 44 42 42.1 13Sri Lanka 33 40 35 40 63 49 40.7 14Bangladesh 43 30 40 43 33 39 39.7 15Pakistan 23 47 29 33 43 37 32.4 16Cambodia 33 20 30 30 38 33 31.3 17RegionalAverage 49 52 49 55 59 57 52.3Scores out of 100, with 100 highest. Source: BMI© Business Monitor International Ltd Page 10
  • India Pharmaceuticals & Healthcare Report Q4 2010 Asia Pacifics attractiveness to multinational drugmakers has decreased, Business Environment Rankings By Sub- Sector Score according to BMIs BERs for Q410. The regions risk/reward score declined from Q410 52.8 in the previous quarter to 52.3 (- 1.0%). However, it is important to note that the decline is not due to any fundamental deterioration in the Asia Pacific pharmaceutical markets, but the addition of a new, low-scoring country - Sri Lanka - to the proprietary ratings system. In Q410 BERs, India has maintained its Scores out of 100. Source: BMI status as the eigth most attractive pharmaceutical market in Asia Pacific, ahead of Malaysia but behind Hong Kong. However, India’s score has declined from 55.9 in Q310 to 55.3 this quarter. This was due to the Country Risks score dropping from 53 to 50. India scores above the regional average for Industry Rewards (60 versus 49) and Industry Risks (60 versus 55). The components of India’s ‘Pharma Rating’ are:Rewards Industry Rewards India has one of the largest pharmaceutical markets in Asia, currently valued at US$16.32bn. However, due to the country’s vast 1.17bn population, individual spending is actually very low. This will change over our five-year forecast period as the economy develops and the middle class expands. Country Rewards In spite of rapid development, numerous problems – such as high levels of poverty and illiteracy, persistent malnutrition, and environmental degradation – continue to thwart India’s pre-eminence. Wealth distribution in India is fairly uneven, with the top 10% earning a third of the total income. Agriculture accounts for the majority of the workforce, but the service industry is becoming increasingly important.© Business Monitor International Ltd Page 11
  • India Pharmaceuticals & Healthcare Report Q4 2010Risks Industry Risks India’s IP laws leave a lot to be desired, but have improved dramatically since the country signed the WTO’s Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement. Likewise, approval times are shortening, with some innovative products being introduced in a relatively short period after mature market launch. Country Risks Scores for economic structure and corruption are moderate in global terms. But India is held back by an entrenched culture of bureaucracy, arguably a vestige of colonial rule. On a positive note, the country scores high for policy continuity, which is backed up by the longest and most exhaustive constitution in the world.© Business Monitor International Ltd Page 12
  • India Pharmaceuticals & Healthcare Report Q4 2010India – Market Summary India is the fourth largest market in the Asia Pacific region, behind Japan, China Pharmaceutical Market By Sub-Sector (US$bn) and South Korea. However, US$14 per- 2009 capita spending is among the lowest in the world, similar to the levels of Pakistan and Vietnam. Pharmaceutical expenditure in 2009 was 1.19% of GDP, which is just below the global average of 1.43%. Generic drugs will continue to account for the vast majority of drug consumption in India (at around 75% of total spending), largely owing to the low cost Source: IMS Health, AIOCD Pharmasofttech AWACS, Organisation of Pharmaceutical Producers of India (OPPI), BMI and limited purchasing power of most of the population. A substantial amount of the Indian generic drug market comprises illicit products, due to the country’s lax patent laws. However, conditions are quickly changing for the better. In recent years, India has begun to export large amounts of generic drugs to the international market, which has proved highly lucrative. The separation of the prescription and OTC medicines remains problematic, given the large volume of prescription drugs available over the counter as well as the presence of counterfeit drugs. The development of the healthcare system should improve the situation with the respective sectors gradually becoming more clearly defined. While prescription drugs account for approximately 88% of sales, the share of drugs prescribed by a doctor is likely to be far lower. Traditional and ayurvedic medicines very popular; however, these types of interventions are not included in our pharmaceutical market calculation. Alimentary tract, antibiotics and respiratory drugs are some of the most prominent prescription segments, as are cardiovascular and nervous system remedies, with vitamins leading the OTC sector. India accounts for almost 10% of global drug production by volume and is increasingly focusing on indigenous R&D. There are about 3,000 pharmaceutical manufacturers, the vast majority of which focus on generic drugs. India is home to 250 large manufacturers, and the domestic drug industry employs a workforce of approximately 460,000 people. However, underproduction of essential drugs is a considerable problem in India, which has led to an increase in imports of these products, despite strict price controls.© Business Monitor International Ltd Page 13
  • India Pharmaceuticals & Healthcare Report Q4 2010Regulatory Environment Drug policy is governed by the 1986 law, which has been modified a number of times. The regulation seeks to guarantee reasonable prices for essential and life-saving drugs and their quality, as well as promote indigenous capacity for satisfying pharmaceutical demand. The legislation provides the basis for quality protection, although adverse drug monitoring and similar initiatives remain under-funded and partially neglected. While the drug registration is centralised, licenses for manufacturing and sales are given by an FDA of each of the state governments, which adds layers of bureaucracy to the process. Prescription-only drugs are listed in Schedules H and X, which are included in the Drug & Cosmetics Act. Schedule G drugs – mostly antihistamines – do not require a prescription, but must carry a warning label. Drugs listed in Schedule H, X and G cannot be advertised to the public. Schedule K medicines (‘household remedies’) can be sold in certain non drug-licensed stores, but only in villages that have fewer than 1,000 inhabitants. All drugs that are not classed as prescription can be sold as OTCs, although the OTC category is not legally defined. The main regulatory body in India is the Central Drug Standard Control Organisation (CDSCO), under the auspices of the Department of Health, although a new authority is presently being created. The Central Drugs Authority of India (CDAI) has been designed to replace CDSCO, which has failed to keep abreast with India’s booming pharmaceutical industry. The CDAI will be larger than its predecessor but, most importantly, it will centralise some procedures from individual states, allowing significant efficiencies to be realised. The new body was first proposed in 2003 by the Council for Scientific and Industrial research, but has been beset by numerous challenges. The cost of forming the CDAI and the accompanying expansion of capabilities is estimated at INR3 crore (US$750,000), which will be covered by increased inspection and drug registration fees. The CDAI will assume responsibility for regulation, enforcement, legal and consumer affairs, biotechnology, pharmacovigliance/drug safety, medical devices/diagnostics, imports, quality control, and Indian systems of medicine (ayurveda, yoga, naturopathy, Unani, Siddha and homoeopathy). States will continue to grant drug licences, but supervision of manufacturing will be transitioned to the CDAI over a five-year period. The senior role of the drugs controller general will be renamed as additional secretary with two additional drugs controllers to work under that person, one on Indian systems of medicine and the other on all additional issues. Currently, the drug controller-general of India (DCGI) is in charge of the approval of licences of specified categories of drugs, which include blood and blood products, intravenous fluids, vaccines and sera.© Business Monitor International Ltd Page 14
  • India Pharmaceuticals & Healthcare Report Q4 2010 Due to significant expansion of the industry in recent years, in July 2008, India announced plans for a Department of Pharmaceuticals, which was due to become operational by November 2008. The main functions of the new branch of the government will be to promote the sector, both domestically and abroad; boost biomedical research activities; develop infrastructure; engender public-private partnerships; and oversee five state-owned drugmakers. However, we are disappointed that a framework to facilitate dialogue with the approvals agency and pricing body has not been put in place. Unless all three have harmonised objectives, the Department of Pharmaceuticals may well become another layer of bureaucracy.Table: Responsibilities Of India’s Department Of Pharmaceuticals1. Drugs and Pharmaceuticals, excluding those specifically allotted to other departments.2. Promotion and co-ordination of basic, applied and other research in areas related to the pharmaceutical sector.3. Development of infrastructure, manpower and skills for the pharmaceutical sector and management of relatedinformation.4. Education and training including high-end research and granting of fellowships in India and abroad, exchange ofinformation and technical guidance on all matters relating to pharmaceutical sector.6 .International co-operation in pharmaceutical research, including work related to international conferences in relatedareas in India and abroad.7. Inter-sectoral coordination including co-ordination between organisations and institutes under the central and stategovernments in areas related to the subjects entrusted to the department.8. Technical support for dealing with national hazards in the pharmaceutical sector.9. All matters relating to the National Pharmaceutical Pricing Authority, including related functions of pricecontrol/monitoring.10. All matters relating to the National Institutes for Pharmacy Education and Research.11. Planning, development and control of, and assistance to, all industries dealt with by the department.12. Bengal Chemicals and Pharmaceuticals Limited.13. Hindustan Antibiotics Limited.14. Indian Drugs and Pharmaceuticals Limited.15. Karnataka Antibiotics and Pharmaceuticals Limited.16. Rajasthan Drugs and Pharmaceuticals Limited.Source: Ministry of Chemicals and Fertilizers Although regulatory conditions have improved, other problems remain, especially with patent protection, a marked lack of pricing transparency and strict price controls. The legality of a vast amount of generic medicines is questionable and a sizeable counterfeit market exists. According to recent reports, India is the source of about one-third of total counterfeit drug trade in Asia, with state and national governments increasingly being urged to address the issue as a public health problem.© Business Monitor International Ltd Page 15
  • India Pharmaceuticals & Healthcare Report Q4 2010 In April 2008, the WHO criticised India’s pharmaceutical regulatory system for lacking independence, being under-staffed and insufficiently rigorous. The global body has recommended changes and a delegation from the Indian government is visiting Health Canada to learn best practices in approving new medicines, although in the Asia region, BMI places India above average for approvals process. Additionally, one accusation that cannot be levelled against the DCGI is inactivity. In February 2008, the agency suspended the production licences of four of India’s largest vaccine producers after they failed to meet good manufacturing practice (GMP) standards, following the recommendation of the WHO. Implying that the problems were significant, three of the companies – BCG Laboratory, Central Research Institute and the Pasteur Institute of India – have subsequently ceased operations. Only Haffkine Bio-Pharmaceuticals is upgrading its quality standards, which w expected to take six to 12 months. Meanwhile, the WHO has called on India’s state governments to prepare a database of registered pharmaceutical brand names, in a move that has been welcomed as a solution to the growing problem of misleading product labelling in India. The Ministry of Health and Family Welfare has noted a trend whereby pharmaceutical products continue to carry the same brand label, yet contain different ingredients. For example, following a significant reduction in the price of aspirin by the National Pharmaceutical Pricing Authority (NPPA), some pharmaceutical firms have allegedly switched to paracetamol, while maintaining the same product name on the product label. In light of such discrepancies, the states of Karnataka and Delhi have introduced procedures and a ‘No Objection’ certificate must be obtained from the registrar of trademarks when introducing a new product.Pharmaceutical Advertising Pharmaceutical advertising is regulated by the Drug & Magic Remedies (Objectionable Advertisement) Act, which bans advertising of certain conditions and misleading marketing. The Organisation of Pharmaceutical Producers of India (OPPI) and the DCGI’s office have produced a joint Voluntary Code on OTC Advertising, with the OPPI also creating a Code of Pharmaceutical Marketing Practices. While there is no formal ban on medical advertising, prescription-only drugs are not advertised by the industry, which is a general agreement. However, the DCGI is considering issuing a formal notification regarding the practice.© Business Monitor International Ltd Page 16
  • India Pharmaceuticals & Healthcare Report Q4 2010Pharmacovigilance The WHO has described the lack of adverse event reporting in India as ‘alarming’. The New Delhi-based federal regulator employs only 25 staff members to cover the entire country, which has a population of approximately 1.1bn. In comparison, Sweden – which has a population of 9.9mn people – has 250-300 drug regulators with the same responsibility. Figures compiled by WHO indicate that as few as 5% of adverse events are properly reported ‘in the best circumstances’. India is estimated at a mere 1%, which is among the worst in the world.IP Regime The origins of India’s pharmaceutical intellectual property (IP) regime stems from the early 20th century. Prior to the outbreak of World War II, the South Asian country imported the vast majority of its medicines from Europe. Following the commencement of hostilities, these supplies dwindled, leading Mahatma Ghandhi to encourage local production. Nevertheless, by the 1960s, foreign multinationals had regained 80% of India’s pharmaceutical market. Local companies were hampered by limited foreign exchange for import of raw materials, high taxation, excessive import duties and, most significantly, the Indian Design and Patents Act 1911, which favoured foreign firms. The 1972 passing of the Indian Patent act 1970 emboldened domestic medicine firms. Although intellectual property protection was given to pharmaceutical production processes for seven years, no end products were allowed to be patented. Under the Foreign Exchange Regulations Act in the late 1970s, the multinationals had to reduce their stakes in Indian ventures to 40%, or comply with certain export obligations and keep their equity stake at 51%. Within a short period, local firms had gained 80% market share and many multinationals had left India. Under intense international pressure, India reluctantly agreed in 1989 to incorporate intellectual property as defined by the General Agreement on Tariffs and Trade (GATT). The formation of the World Trade Organization (WTO) and the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) led India to adopt a more robust patent system in 2005, after a 10-year transition period. A leading representative of WTO has stated that India must update its patent laws to international standards to encourage and reward innovation. The change is virtually inevitable as the reform will benefit domestic drugmakers that are involved in R&D, as well as foreign players. If changes are not undertaken, investment in the country will fall, severely hampering economic development.© Business Monitor International Ltd Page 17
  • India Pharmaceuticals & Healthcare Report Q4 2010Table: History Of The Indian Patent System The Act VI of 1856 on Protection of Inventions based on the British patent law of 1852. Certain exclusive1856 privileges granted to inventors of new manufacturers for a period of 14 years The Act modified as Act XV; patent monopolies called exclusive privileges (making, selling and using1859 inventions in India and authorising others to do so for 14 years from date of filing specification)1872 The Patents & Designs Protection Act1883 The Protection of Inventions Act1888 Consolidated as the Inventions & Designs Act1911 The Indian Patents & Designs Act1972 The Patents Act (Act 39 of 1970) came into force on April 201999 On March 26, Patents (Amendment) Act (1999) came into force from January 1 19952002 The Patents (Amendment) Act 2002 came into force From May 20 20032005 The Patents (Amendment) Act 2005Source: Intellectual Property India (http://ipindia.nic.in) At the heart of the issue is India’s controversial patent law, specifically Clause 3d, which was introduced in 2005. The legislation is incompatible with Article 27 of the TRIPS agreement, which allows the patentability of all kinds of inventions, including chemical and pharmaceutical products, stating that ‘patents shall be available for any inventions, whether products or processes, in all fields of technology ... patents shall be available and patent rights enjoyable without discrimination as to ... the field of technology.’ However, under Clause 3d, ‘Salts, esters, ethers, polymorphs, metabolites, pure form, particle size, isomers, mixtures of isomers, complexes, combinations and other derivatives of known substances shall be considered to be the same substance, unless they differ significantly in properties with regard to efficacy.’ The problem lies in the fact that assessment of ‘efficacy’ is almost impossible to perform at the time when patent applications are filed, according to the Association of the British Pharmaceutical Industry (ABPI). Therefore, innovation through incremental steps, which is the way the vast majority of advances in medical science have occurred, is stifled. Without protection for ‘tinkered’ compounds, further research will not happen. Both domestic and overseas companies are campaigning for data protection; Indian pharmaceutical companies, such as Ranbaxy and Dr Reddy’s, are increasingly investing in R&D, and would also welcome better patent protection. The proposal that is currently under review by the government has a number of conditions, which essentially means that protection will start from the time a new product is© Business Monitor International Ltd Page 18
  • India Pharmaceuticals & Healthcare Report Q4 2010 first registered in any country, whereas in other markets, data protection starts from the date that a specific country licenses the product. The three-to-five-year term that is under review compares with five years in the US and six to 10 years in EU member states. In its Special 301 Submission for 2010, the Pharmaceutical Research and Manufacturers of America (PhRMA) requested that India be placed on the Priority Watch List and that the US Government continue to seek assurances that the endemic problems will be resolved. Key issues of concern were: ! Lack of regulatory data protection ! Inadequate intellectual property protection in terms of narrow patentability standards ! Lack of patent linkage and a growing backlog of patent applications at the Indian Patent Offices ! Poor enforcement of patents by courts.Patent Disputes After a series of recent knockbacks, a multinational drugmaker finally succeeded in securing market exclusivity for one of its innovative products in India during April 2009. BMI believes this development will attract more pharmaceutical firms to invest in one of the most promising emerging markets. However, we warn that the IP regime is still well below international standards. The Chennai Patent Office rejected the claim made by domestic firm Wockhardt and Mumbai-based non-government organisation (NGO) Sankalp that Roche’s Pegasys (peginterferon alfa-2a) was not a novel molecule and should be exposed to generic competition. The medicine therefore becomes the first drug to be given patent protection since the Indian regime was changed in 2005. Almost simultaneously, the Delhi Patent Office ruled in favour of Ahmedabad-based Torrent Pharmaceuticals, which opposed a patent application made by Pfizer to protect Caduet (amlodipine + atorvastatin). Although the combination was deemed to be novel over prior art, there was a ‘lack of an inventive step’. As such, the product is not patentable under Clause 3(d) of the patent law. Other innovative medicines to be denied patent protection in India recently include: GlaxoSmithKline’s ethane sulphonate salt of its anti-diabetic drug Avandia (rosiglitazone); Teva Pharmaceuticals Industries’ Copaxone (glatiramer acetate), which is used in the treatment of multiple sclerosis; and the alpha crystalline form of Novartis’s cancer drug Glivec (imatinib mesylate).© Business Monitor International Ltd Page 19
  • India Pharmaceuticals & Healthcare Report Q4 2010 During April 2009, an Indian court dismissed a plea by Roche and allowed Indian pharmaceutical company Cipla to continue with the production and marketing of a generic version of the lung cancer drug Tarceva (erlotinib). The Swiss company had earlier approached the court to stop Cipla from producing and marketing its generic version of the drug till the matter of patent rights is resolved. Cipla introduced its Erlocip, a generic version of Roche’s patented drug, in India in January 2008. It was revealed in April 2010 that three multinational pharmaceutical companies – Pfizer, Novartis and Eli Lilly & Company – had won almost a third of 81 contentious drug patents for drugs otherwise considered non-patentable in India. The contentious patents were awarded as two important rules contained in Indias modified patents regime were allegedly violated. In May 2010, the Indian Patent Office announced that it would not grant a patent to Roches valganciclovir drug, as it did not comply with the requirement of higher therapeutic efficacy as mentioned under Clause 3(d) of the patent law.Counterfeit Medicines In January 2008, India’s Ministry of Health and Family Welfare launched a nationwide survey to establish the true scale of counterfeit medicines in the country. The results will be used to identify perpetrators and to improve measures against the practice, which has expanded despite the counterfeit- targeting Drugs and Cosmetics (Amendment) Bill 2005. A smaller investigation funded by the WHO and conducted by SEARPharm Forum (a group of South East Asian regulatory agencies) in late 2007 found that just 3.1% of pharmaceuticals in India were fake or substandard, with the figure viewed as inaccurately low. Indian exports are, in particular, susceptible to counterfeiting activities. Some culprits are deliberate counterfeiters, faking the packaging and re-labelling chalk or another inert substance as a drug. Other perpetrators are, however, legitimate firms that are simply slack in their operations. Indeed, with a little more effort, they might make a bioequivalent copy. Sometimes the entire firm is operating to low standards and at other times rogue employees work after hours to make bespoke batches for criminal organisations. In August 2008, the WHO’s proposed changes to the definition of medicine counterfeiting angered the Indian pharmaceutical industry. Drugmakers and regulators have expressed apprehensions that the sub- continent will be labelled as a centre for sub-standard pharmaceuticals. However, BMI believes the change will ultimately benefit both medicine manufacturers from India and patients around the world. Under the proposals, any ‘false representation in relation to identity, history or source’ will be considered a case of medicine counterfeiting. The problem with this new definition is that genuine Indian exports could be termed counterfeit if medicines intended for one country end up in another through the actions of© Business Monitor International Ltd Page 20
  • India Pharmaceuticals & Healthcare Report Q4 2010 smugglers. India is of the opinion that this meaning goes beyond the previous concept of ‘safety, efficacy and quality’ and that smuggled drugs should be considered as ‘unregistered products’. Despite the protest, it is likely that the new definition will be adopted, which will strengthen supply chains across the globe. In the absence of advanced tracking technologies such as radio-frequency identification, tightened controls on the production, export, import, distribution and retailing of pharmaceuticals will ensure that medicines are fully traceable via invoices and trading receipts. This will mean that patients will have more confidence in the drugs they take. Indian drugmakers will also see upsides as their products will be increasingly associated with the high production standards that the vast majority already meet. India is continuously looking to improve its production of healthcare products, which did not meet Western standard until the last couple of decades. In late July 2008, the Central Drugs Standard Control Organization announced that it was planning to expand its definition of counterfeit drugs to include medical devices, diagnostics and active pharmaceutical ingredients.Pricing And Reimbursement The body responsible for pricing in India is the NPPA, which has been operational since mid-1997. The NPPA is responsible for fixing and controlling the prices of 74 bulk drugs and formulations under the Essential Commodities Act, although only a few OTC ingredients (such as ephedrine) are price controlled. While controversial, the authority cannot be accused of being static – the NPPA holds price- fixation meetings every other month. The latest round of price cuts came in April 2008, as part of the populist 2008-2009 Union Budget, despite a cut to excise duty on all formulation products. Overall, price control covers around 40% of the total pharmaceutical market in India. Given that a number of essential drugs are already imported due to their low profit margins at home, the move to include more drugs under the price-fixing system has potential to worsen access to products and put the local industry at a disadvantage. This would open the door to regional competition, especially from parts of South East Asia. Furthermore, industry sources claim the change may also encourage the counterfeit industry to the overall detriment of both legitimate pharmaceutical industry and public health. The NPPA’s price controls and opaque pricing mechanisms are a subject of long-standing criticism. The agency has been keen to keep prices as low as possible, and has been reluctant to award price rises in line with inflation. The profits of pharmaceutical companies are also limited to 8-13% of pre-tax sales. Industry players, and in particular multinationals, view such practices as a major barrier to market entry and have voiced their opposition accordingly. As of July 1 2006, the maximum retail price (MRP) of a drug sold in India includes local taxes. The NPPA has very little access to market information originating from retail outlets. Therefore, it relies on prices that drug companies give chemists. This is sourced by the market research firm ORG IMS Research, a joint venture (JV) between IMS Health and ACNielsen.© Business Monitor International Ltd Page 21
  • India Pharmaceuticals & Healthcare Report Q4 2010 Nevertheless, public sector procurement policies appear to be working effectively, with median prices lower than the international reference price (IRP) based on surveys in five states conducted between 2003 and 2005. However, private pharmacy mark-ups of up to 500% on branded generic drugs were found in a 2007 survey of Delhi’s pharmacies, due to opaque controls on the MRP set by manufacturers, resulting in high prices when drugs were out of stock in the public sector. The Indian government announced in November 2006 that the country’s pharmaceutical industry voluntarily reduced the prices of 886 pharmaceutical products by between 0.26% and 74.50%. Medicines targeted for the cuts included anti-diabetic agents and antibiotics, as well as painkillers and anti- hypertensives. However, local sources decried the reductions, claiming that the list of formulations covered only approximately 10% of the market by volume and around 5% by value. Although the list included nearly 100 types of drugs, the leading brands were not included. This led to speculation that the pharmaceutical industry is merely negotiating with the government in order to prevent regulation on essential drugs, by offering some price concessions on its lowest-selling brands. The Indian Ministry for Chemicals and Fertilisers subsequently claimed that pharmaceutical companies had ‘cheated’ over proposed price cuts. The industry reportedly failed to apply the formula that had been agreed upon with the government, warning that the authorities should not be considered ‘toothless’. Although it is not known what action would be taken, there was speculation that some drugmakers could face some kind of penalty. It had been alleged that the pharmaceutical industry had agreed to the concessions in the first place in order to prevent further regulation of essential drugs, a strategy that now seems to have backfired. Central VAT is 16.0% or 57.5% of the MRP. State VAT accounts for a further 4% of the drug price, with wholesale margins being around 10% of the MRP (excluding taxes). The final consumer price includes a margin of 20% of the MRP (excluding taxes). Price-controlled products have a retail margin set at 16% by the Drugs Price Control Order (DPCO). Both wholesale and retail margins are determined by the OPPI and the All India Organisation of Chemists & Druggists (AIOCD).© Business Monitor International Ltd Page 22
  • India Pharmaceuticals & Healthcare Report Q4 2010Industry Trends And DevelopmentsEpidemiology BMI’s Burden of Disease Database Burden Of Disease Projection (BoDD) reveals that non-communicable 2005-2030 diseases – such as diabetes and cancer – 250 Millions have a slightly greater burden in India 200 than non-communicable diseases – such as tunerculosis and HIV/AIDS. In 2008, a 150 total of 99,892,742 diability-adjusted life 100 years (DALYs) were lost communicable 50 diseases, while 116,772,455 DALYs 0 2005 2010f 2015f 2020f 2025f 2030f were lost to non-communicable diseases. By 2030, the number of DALYs lost to DALYs lost to communicable diseases non-communicable disease will have DALYs lost to non-communicable diseases increased by 24% to 144,498,455. f = forecast. DALYs = disability-adjusted life years. Source: BMI’s Burden of Disease Database (BoDD). Meanwhile, over the same period of time, the number of DALYs lost to communicable disease will have dropped by 33% to 67,022,332. According to the BoDD, diabetes accounted for approximately 3.35mn disability-adjusted life years (DALYs) in India during 2008, equating to 1.14% of the country’s total disease burden and posing a major drain on resources. Worryingly, by 2030, this percentage is set to increase by more than 50%. Expanding waistlines on the subcontinent are becoming increasingly common in middle and upper classes as people ditch traditional, typically vegetarian diets for Western-style foods that are high in saturated fats. This trend is coupled with reduced physical activity and a growing awareness for image improvement. In July 2009, nearly 70mn people in India were re-classified as overweight after the obesity threshold was lowered in the country. The threshold has been reduced to a body mass index of 23 (overweight) and 25 (obese), compared with the worldwide standards of 25 and 30, respectively. The reductions in the index come on the back of Indians being found more likely to develop obesity-linked conditions such as heart disease and type 2 diabetes. Hypertension is a serious issue on the sub-continent. Driven by changing lifestyles, studies indicate that prevalence of the disease has risen from under 5% in 1960s to 12-15% in the 1990s. A number of recent studies also found that South Asians were more susceptible to atherosclerosis than Caucasians, providing opportunities for manufacturers of statins. While generic drugs will continue to dominate sales, patented products such as Pfizer’s Lipitor (atorvastatin) will see increased market share over the next few years.© Business Monitor International Ltd Page 23
  • India Pharmaceuticals & Healthcare Report Q4 2010 The WHO estimates that by 2020, a staggering 60% of the world’s cardiac patients will be found in India. In the past 50 years, rates of coronary disease among India’s city dwellers have increased from 4% to 11%. Diabetes is also approaching epidemic proportions. Accordingly, the potential for manufacturers of therapeutics for chronic diseases is enormous. The Indian anti-depressant sector is experiencing robust growth because acceptance of the disease is more common now and the growing economy implies that patients are demanding higher quality healthcare. In 2006, the value of the sector was US$70mn out of a US$11.2bn pharmaceutical market and the growth rate was an impressive 12%. In fact, older drugs should be supplanted by modern interventions and increased diagnosis of the disease will result in more prescriptions. According to the January 2007 IMS Health data, the selective serotonin reuptake inhibitor (SSRI) sertraline is the fastest-growing drug in the segment, displaying 40% sales growth for the US innovator Pfizer and a 16% hike for domestic firm Unichem. There are over 10 versions of sertraline on the Indian market, with Pfizer’s Daxid and Sun Pharma’s Zosert being the most popular brands. Other health issues are emerging as a threat to the Indian population. The country suffers from one of the highest rates of infectious diseases, including tuberculosis (TB) and HIV/AIDS. According to recent UN reports, the use of fake drugs and injections is worsening the situation. Rural poverty and environmental disasters also continue to hamper efforts to eradicate such problems. HIV/AIDS has emerged as a particular problem, with India estimated to have more sufferers than the vast majority of countries in the world, barring Nigeria and South Africa. In November 2007, a senior WHO officer indicated that India, China, Russia and South Africa face an increased risk of a TB crisis. While 96% of all TB cases in the world can be treated with standard pharmaceuticals, the remaining drug-resistant strains – namely MDR-TB and XDR-TB – must not get out of control. In India the epidemic is seen more often due to widespread poverty and the lack of hygiene and health care. India, China, Russia and South Africa already account for up to 60% of all reported cases of patients infected with killer strains of TB, often found in association with the HIV virus. India is said to have over 2.5mn people living with HIV. The Joint UN Programme on HIV/AIDS (UNAIDS) estimates that the number of AIDS cases topped 124,000 in 2006, with a third of patients being under the age of 30. Overall, 0.36% of India’s population lives with HIV and accurate figures are extremely difficult to gauge. Nevertheless, the number of cases has been falling in recent months, suggesting that the infection rate has effectively been decelerated by prevention campaigns and programmes urging people to practice safe sex. The 2008-2009 Union Budget allocated INR9.9bn (US$246mn) to the National AIDS Control Programme, with a further INR10.4bn (US$258mn) earmarked for the polio eradication plan. In the meantime, India remains one of the world’s largest producers of second-generation anti-retrovirals used to treat the disease, but it still does not provide the life-saving medicines through its national programme.© Business Monitor International Ltd Page 24
  • India Pharmaceuticals & Healthcare Report Q4 2010 Smoking is set to cause 1mn deaths a year in India throughout the next decade, according to a study published in the New England Journal of Medicine. Unlike in a number of countries, Indians still smoke freely in many public places, such as railways stations, sidewalk cafés, children’s playgrounds and even hospitals. The health minister has enacted a number of laws to ban smoking in certain public areas, but most are routinely ignored. As a sizeable proportion of deaths will be among those that cannot read, it has been proposed that pictorial warnings on tobacco products – instead of the current written cautions – could be part of a more effective anti-smoking strategy. In the meantime, smoking cessation remedies and devices should see a boost in the medium term. In August 2008, the publication of results from the Indian Genome Variation (IGV) project was set to have far-reaching implications for drugmakers, clinical research organisations (CROs) and health insurance companies. Depending on the sub-population within the world’s second most populous country, some pharmaceuticals are metabolised differently and certain diseases have alternate outcomes. The IGV project looked at 75 genes from nearly 2,000 people from 55 diverse castes, religious groups and tribal communities. Due to its long history and location at the intersection of several trade routes, India is essentially a melting pot for free gene flow. However, this heterogeny is tempered by religious barriers to inter-marriage and varying geography, resulting in several thousand endogamous groups. 30 genes have been identified that correlate to extreme complications from the severe form of malaria. Knowing this will influence the distribution of insecticide-treated mosquito nets. Moreover, certain Indian populations respond differently to the asthma drug salbutamol, which should be of interest to pharmaceutical companies that sell this drug. HIV/AIDS may spread faster than usual in India because the protective CCR5 protein is virtually absent. Due to mutations in the MTHFR gene, there are increased levels of homocysteine in certain populations throughout India. This is of importance to health insurance companies because elevated homocysteine is strongly associated with cardiovascular conditions. Genetic testing for this anomaly in insurance applicants could result in vastly different premiums. According to the figures released by the National Cancer Registry Programme of the Indian Council for Medical Research in August 2009, more than 2.5mn Indians are reported to be suffering from cancer. Oncologists are expecting a five-fold increase in cancer cases in the next 10 years. Hemant Malhotra, secretary of the Indian Society of Medical and Paediatric Oncology (ISMPO), has stated that persistent late diagnoses pose a potent challenge to addressing the increasing incidences of the disease in the country.© Business Monitor International Ltd Page 25
  • India Pharmaceuticals & Healthcare Report Q4 2010Healthcare Sector Healthcare services are provided by public and private sectors, the latter having developed in the latest decades when India embraced privatisation. Private healthcare boasts of superior quality and facilities. It accounts for more than 65% of primary care and more than 40% of hospitals, resulting in personnel shortages in the public sector. The large geographical size and growing population numbers traditionally have hampered adequate access to medicines and medical services in the sub-continent. Overcrowded public hospitals are a continuous problem and finances remain scarce for providing extra beds and facilities. The situation is perpetuated by low government spending on health, despite the fact that the majority of the population is forced (by low income) to use public facilities. The Federation of Indian Chambers of Commerce and Industry (FICCI) believes that it would cost approximately US$200bn over the next five years to solve the crisis in Indian healthcare. According to a study conducted by the FICCI, even though 72% of India’s population live in rural areas, 80% of doctors, 75% of dispensaries and 60% of hospitals are in urban areas. It is hence almost impossible for the rural people to receive quality healthcare services. To address the funding shortfall, the federation has proposed a five-pronged public-private-partnership (PPP) model. The ability to provide care to the poor received a blow in July 2007. The World Bank barred India-based Nestor Pharmaceuticals and Pure Pharma from pursuing business with the bank for ‘collusive practices’ and procurement of pharmaceuticals for a reproductive/child health project in the country. The UK and other shareholder nations argued that by halting the loans, the World Bank was only hurting the poor. They argued that the World Bank should keep the loans flowing to fix the problem. Apollo is the largest private healthcare provider in Asia, operating 39 hospitals in India, the United Arab Emirates (UAE), Sri Lanka, Bangladesh and Oman. Since being formed in 1983, the company has sought to provide high quality healthcare at competitive prices. In August 2005, Apollo’s facility in Delhi became the first hospital on the sub-continent to be accredited by the Joint Commission International (JCI), which defines the gold-standard in medical care. Demonstrating its pre-eminence, Apollo is affiliated with Johns Hopkins University and the Mayo Clinic. Apollo also pioneered telemedicine in rural India in 1999, with the company now boasting over 60 centres across India. In August 2007, the company launched Oman’s first private telemedicine centre at its Muscat hospital. The centre is linked to the group’s network of hospitals in India, which include specialist units for cosmetic surgery, oncology and cardiology.© Business Monitor International Ltd Page 26
  • India Pharmaceuticals & Healthcare Report Q4 2010 To boost margins, Apollo started looking at the UK in February 2007. The 22 hospitals under the control of Capio UK swiftly became the number one target, but they were eventually snapped up by Australian healthcare major Ramsey Health Care. Not to be deterred, Apollo seems to remain committed to the establishing a foothold in the UK. Moreover, in June 2008, in an effort to expand into South America and Western Europe, Apollo was evaluating acquisition targets in Peru and Spain. The group has set aside more than INR1,000 crore (US$236mn) to buy tertiary level facilities in both countries. Apollo is also likely to be involved in further activities in Oman, following the July 2008 invitation to Indian private hospital chains by Oman’s government to establish large-scale facilities in the southern Dhofar region. In September 2008, the Indian external affairs minister, Pranab Mukherjee, stated that – as part of its ‘Look East’ policy, and its commitment to the 14th South Asian Association for Regional Co-operation (SAARC) summit – India would execute telemedicine projects in other SAARC countries. The country has already implemented telemedicine projects in Bhutan and Sri Lanka in association with two super- specialty hospitals. The minister mentioned that the shortage of skilled health workers is a basic problem faced by countries in South Asia. He also stressed the need for exploring novel methods of project financing to meet the objective of providing reasonable and accessible healthcare services. The SAARC trade bloc was formed in 1985 by India, Pakistan, Bangladesh, Sri Lanka, Nepal, the Maldives and Bhutan. In April 2007, Afghanistan became its eighth member. The telemedicine projects to be implemented by India will play a significant role in developing SAARC countries over the long term by efficiently addressing the increasing demand for health services.Healthcare Funding In March 2008, India revealed the populist 2008-2009 Union Budget, which came into effect on April 1 2008. A cut to excise duty on all formulation products and more funds directed to disease programmes should have led us to revise figures upwards; however, medicine price cuts introduced simultaneously by the NPPA have negated this scenario. A total of INR15,580 crore (US$3.86bn) was set aside for healthcare in the budget, which is an encouraging 12.3% increase on the previous year’s figure. To reinvigorate small-scale drugmakers, excise duty has been halved to 8.0%, while the levy for the HIV/AIDS drug atazanavir and bulk drugs for its manufacture has been abolished completely. The Indian Drug Manufacturers’ Association (IDMA) claims its lobbying over the last two-to-three years played a significant part in the decision to lower excise duty. A distinct loser in the budget was the research sector. Despite the allowance of tax breaks of 125% on expenses incurred on outsourced R&D, the OPPI said that an opportunity had been missed. The body had wanted the continuation of tax breaks on in-house R&D until 2017, since discovery research is a lengthy and expensive process. OPPI had also suggested a tax holiday on exports of biotechnology, R&D and clinical trials, which was not included in the budget.© Business Monitor International Ltd Page 27
  • India Pharmaceuticals & Healthcare Report Q4 2010 While speaking at the opening of the first of Apollo’s Reach Hospitals at Karim Nagar via tele-link in September 2008, Indian Prime Minister Manmohan Singh emphasised the need for public-private partnerships in the health sector. Due to the vastness of India and its under-developed infrastructure, the public sector alone cannot bear the burden of increasing demand for healthcare. The prime minister was encouraged by Apollo’s Reach Hospital initiative, which will provide dependable, affordable and accessible care, and hopes that such efforts will be repeated by other providers.Healthcare Insurance India’s vast 1.15bn population generally pays for healthcare out-of-pocket. According to the WHO, the private sector accounted for nearly three quarters of total healthcare spending in 2007. Of that non-public expenditure, just 1.1% was directed to prepaid or risk-pooling plans – which BMI uses as a proxy for health insurance. Therefore, we calculate that India’s health insurance market was valued at US$325mn two years ago. According to ‘senior executives in the business’, as quoted by The Economic Times, the market is estimated, as of April 2009, to have a value of INR6,500 crore (US$1.3bn). This valuation is 30% more than the previous year. The increase in the uptake of policies is being driven by greater consumer awareness and higher demand for healthcare in the world’s second most populous country. Nevertheless, only 2% of the population – mainly those on high- or upper middle-level incomes – have health insurance. The number of providers operating in India is very low. There are full-spectrum insurers such as ICICI Lombard, Iffco Tokio, Bajaj Allianz and Reliance General, as well as specialist firms, such as Apollo DKV, Max Bupa and Star Health & Allied Insurance. Due to the returns on offer, we expect many more to enter the market over the near term. One of the more recent entrants to the rapidly expanding sector is Max Bupa. Formed in July 2008, the company is a joint venture between UK-based Bupa and domestic player Max India. Using seed capital of INR100 crore (US$20mn), it intends to have 1mn customers within three years. In June 2009, India - based Religare Enterprises signed an agreement with Swiss Re to establish a joint venture with an initial investment of US$100mn. Operations are expected to start in 2010. At that time, Swiss Re was already present in the India health insurance market, holding a 26% stake (the maximum permissible) in TTK Healthcare Services.© Business Monitor International Ltd Page 28
  • India Pharmaceuticals & Healthcare Report Q4 2010Research And Development Despite a challenging intellectual property regime, pharmaceutical research and development (R&D) activites are increasing in India. The sector received a boost in September 2009, when the MSD- Wellcome Trust Hilleman Laboratories was launched in India. With US$147mn in start-up funding, the organisation will initially attempt to develop heat-stable vaccines and a group A streptococci preventative. The MSD-Wellcome Trust Hilleman Laboratories will also look to optimise existing vaccines.Clinical Trials The reasons behind the attraction of India Clinical Trial Registrations as a clinical trials destination are multifold. As a trade route junction for 2006-2009 millennia, it has a large and genetically diverse population. Most of these people will be drug-naïve and are therefore perfect candidates for drug evaluation investigations. The Indian healthcare system is relatively advanced and has the necessary degree of integration to facilitate the clinical trial process. Costs are very low, sometimes as much as 60% below the rates seen in developed Source: ClinicalTrials.gov, BMI. N.B. Sourced by date of initial countries, as well as China. Wages in registration. India are particularly competitive. One area in which India has clear advantage over China is the general reputation of doctors and healthcare ethics. In addition, the country also has a large pool of well-educated, English-speaking personnel; and there are fewer administrative barriers to the approval of clinical trials than there are in China. In India, the average time to clear a clinical trial with the authorities is three to nine months, while in China, clearance takes between nine months and a year. India also has the advantage of faster patient recruitment times, due to a large number of ‘treatment naïve’ patients and willing volunteers. In September 2006, India accounted for less than 1% of the 763 human clinical trials conducted around the world, according to the US National Institutes of Health. The low figure was attributed to regulatory hurdles as well as the small overall size of the Indian drug market when compared to global standards. By early 2008, according to a study conducted by the Planning Commission, India has now overtaken China as the premier destination for clinical trials in Asia, although other studies using different methodology put China first. Nevertheless, a total of 139 new studies were outsourced to the subcontinent recently,© Business Monitor International Ltd Page 29
  • India Pharmaceuticals & Healthcare Report Q4 2010 compared with 98 recorded in China. India’s clinical trial sector is currently valued at US$300mn, with this valuation expected to reach US$1.5bn by 2010, thus providing a significant underpinning to the economy. In terms of ongoing clinical trials, India ranks third in Asia, with 347 studies, behind China (389) and Japan (406). One drawback to conducting clinical trials in India is that the country does not allow phase I clinical trials on the basis of patient safety, and began allowing phase II trials only a couple of years ago. Additionally, India lacks adequate numbers of research personnel. A document from the Planning Commission estimates a shortfall of 30,000-50,000 people in this field, such as trial investigators, auditors and individuals to sit on ethic committees. In light of this shortfall, both the Institute of Clinical Research India (ICRI) and the Bioinformatics Institute of India (BII) have launched a number of courses for clinicians, in addition to the diploma currently being offered by India’s Academy of Clinical Excellence (ACE).Recent Developments In The Clinical Trials Industry In June 2009, the Indian government mandated that all human clinical trials must be registered with the Indian Council of Medical Research (ICMR). Previosuly, obtaining official accreditation was voluntary. At that time, the clinical trials sector had a value of US$400mn. India’s growing reputation as a prime location for outsourced clinical trials is at risk, following the August 2008 revelation that 49 babies died while taking part in studies of investigational drugs at a leading research hospital in New Delhi. An investigation was under way, although the deaths were subsequently found to be most likely not related to the clinical trials. This is because the mortality rate is below normal levels and the infants were already suffering from life-threatening conditions. Nevertheless, the All India Institute of Medical Sciences (AIIMS) subsequently revealed that five foreign drugs had been investigated in 42 clinical studies, but cleared of any wrongdoing. A tablet formulation of zinc was being studied for zinc deficiency, which is associated with diarrhoea and death. Olmesartan and valsartan were being tested for blood pressure-related problems. Rituximab was being investigated in the treatment of chronic focal encephalitis, which is characterised by frequent and severe seizures, and loss of motor skills and speech. Meanwhile, gene-activated glucocerebrosidase was being studied for the treatment of Gaucher’s disease, which is lysosomal storage condition that leaves sufferers susceptible to infections. The status of India’s regulatory environment was at a new low in September 2008, after a leading trade publication accused the medicines regulator of acting illegally. By approving letrozole for the treatment of infertility without sufficient clinical evidence, the publication claimed that the DCGI is risking the lives of young women. The DCGI approved Sun Pharmaceutical’s letrozole for infertility on the basis of© Business Monitor International Ltd Page 30
  • India Pharmaceuticals & Healthcare Report Q4 2010 positive results from clinical trial involving just 55 women. Moreover, this study was performed by private practitioners in small clinics, rather than in large independent hospitals as is normal practice.Active Pharmaceutical Ingredients According to a study by Italy’s Chemical Pharmaceutical Generic Association (CPGA), European API manufacturers are going to lose market share to Asian counterparts in the near future. India is expected to supplant Italy as the second largest producer of APIs globally. Asian countries are positioned for growth as a result of low labour and environmental costs, dynamic and expanding economies, and government incentives factors that are particularly relevant to India, a country that could even jeopardise the dominance of China as the premier supplier of APIs in the long term. With sales of US$2bn in 2005, the Indian API manufacturing industry is the third largest in the world and is expected to grow by a phenomenal 19.3% annually to attain sales of US$4.8bn by 2010. India has over 200 GMP facilities, the highest number outside the US. The potential of Indian API market is already being explored by foreign companies. US-based Akorn, which focuses on speciality markets such as ophthalmology, anaesthesia, antidotes and rheumatology, recently signed an API supply and margin sharing agreement with domestic pharmaceutical firm Natco Pharma to commercialise two abbreviated new drug application (ANDA) injectable drug products. The two ANDA products will be aimed at the anti-emetic and cancer-related markets in North America, which have a combined current market value of about US$875mn. In August 2008, it was obvious that the trend of vertical integration in the pharmaceutical industry is continuing. German generic drug outfit Fresenius Kabi announced that it is to invest up to EUR30mn (US$44mn) over the next three years in the API plant of Indian firm Dabur Pharma. By expanding its source of raw materials, Fresenius will be able to produce its generic drugs for less money, which will result in increased profits. Fast-moving consumer goods conglomerate Dabur India sold its pharmaceutical division, Dabur Pharma, to Fresenius in April 2008. In addition to a portfolio of finished drugs and APIs, the Bad Homburg-based company acquired a pipeline of around 15 product candidates. Dabur Pharma has two production facilities in India and one in the UK. Dabur Pharma chamged its name to Fresenius Kabi Oncology in January 2009. In January 2008, Indian firm Dishman Pharmaceuticals and Chemicals was to build an API plant in China, in an effort to further penetrate the rapidly expanding contract research and manufacturing services (CRAMS) market. While it may seem counterproductive to move away from one low-cost base to another, BMI presupposes that the company is merely protecting its future interests. A downturn in the Indian manufacturing landscape is unlikely, but a possibility that Dishman is clearly entertaining.© Business Monitor International Ltd Page 31
  • India Pharmaceuticals & Healthcare Report Q4 2010 In the same month, Teva revealed its intention to strengthen its presence in Asia. Teva is planning to use India for API production with its announcement that it is looking out for acquisitions in the country and setting aside money to expand its own independent manufacturing locally. In total, the company plans to spend US$1bn in India in 2008, with around US$250-300mn to be invested in expanded operations and the rest on acquisitions. Teva is already present in India, with a 2003 acquisition of Regent Drugs from JK Industries. In late 2007, Teva acquired 100 acres of land in Madhya Pradesh to set up API manufacturing facilities to match the capacity of leading domestic generic drug producers such as Ranbaxy, Cipla, Dr Reddy’s and Sun Pharma. The move should eventually reduce Teva’s API sourcing requirement from Indian API firms as part of the company’s increasingly obvious drive towards API self- sufficiency. Also in January 2008, Pfizer contracted domestic company Hikal to manufacture and supply APIs. By outsourcing this stage of the production process, costs will be dramatically reduced for the world’s largest, but currently embattled, pharmaceutical company. Few details of the deal were released, but the APIs will be made at Hikal’s US FDA-approved plant within the Jigani industrial zone. Payments from Pfizer were unlikely to have a significant impact on Hikal’s financial performance in FY07/08, but will have a substantial benefit to the company’s sales and profit in 2008-2009, when compound annual growth is expected to be a very healthy 25-30%. Pfizer is not the only large pharmaceutical company to recruit an emerging bulk drug manufacturer in India. In early December 2007, Dutch chemicals group DSM signed up Mumbai-based Arch Pharmalabs to manufacture generic APIs. US firm Sagent Pharmaceuticals has entered into a pact with Strides Arcolab of Bangalore to jointly develop 25 injectable products. Meanwhile, Indoco Remedies, another Mumbai firm, will supply New Jersey-based Amneal Pharmaceutical 10 ophthalmic products.Biotechnology Sector The value of India’s biotechnology industry is projected to reach the milestone of US$5.0bn mark in 2010, according to Associated Chambers of Commerce and Industry of India (ASSOCHAM). Considering that the sector was valued at US$1.45bn in 2005-2006, this growth equates to an impressive CAGR of over 35%. In 2006-2007, biotechnology companies posted US$2.08bn in revenue. In the same period, biotechnology exports from India topped US$1.2bn, accounting for almost 60% of turnover, while the total investment in the industry rose 38% y-o-y to US$560mn. Due to this high figure, strong government support and friendly regulatory environment, numerous opportunities exist for drugmakers, both multinationals and indigenous firms, already in or about to enter India’s biotech industry. In fact, it is BMI’s view that ASSOCHAM’s forecast is perhaps on the conservative side as we frequently highlight the promise of both biotech and India.© Business Monitor International Ltd Page 32
  • India Pharmaceuticals & Healthcare Report Q4 2010 More than 300 biotech firms are operating in India, including Bharat Biotech, Biocon, Dr Reddy’s, Panacea Biotech, Serum Institute, Shantha Biotech, Wockhardt and Zydus Cadila. Illustrating their belief in growth opportunities in Indian biotech, French Merieux Alliance acquired a majority stake in Shantha, active in the fields of vaccines, monoclonal antibodies (MABs) and therapeutic proteins. The number of players is expected to double by 2010, and consolidation is also anticipated. A small minority of firms are looking at innovative R&D, but the vast majority are involved in biosimilars. A wave of biologics are set to lose patent protection in the lucrative US and Western European markets over the next few years. And some companies have already succeeded in launching innovative products (such as Serum Institute’s indigenously developed haemophilus influenzae type b (HIB) vaccine), which will increase their international profile as well as revenues. A key sub-sector positioned for growth is biosimilars. It was announced in March 2009 that the Indian government planned to make US$70mn in funding available to local players for the development of biosimilars. In January 2010, Navi Mumbai-based Reliance Life Sciences said it had the ‘deepest biosimilar pipeline in the industry globally’Traditional Medicines India has a long tradition of traditional medicines. Ayurvedic medicines, traditional Indian remedies based on natural and herbal ingredients, are also regulated by the Drugs & Cosmetics Act (DCA), but can be sold freely. Leading ayurvedic brands in the country include Vicks VapoRub, Amrutanjan Balm, Zandu Balm, Moov Pain Crea and Halls Lozenges, which are all registered as traditional medicines due to their herbal active ingredients. There is no formal price control on ayurvedic medicines. In October 2008, Emami, an ayurveda-focused, health, beauty and personal care product company in India, has entered into a deal with Zandu Pharmaceutical Works, whereby the former is to purchase an additional 18.18% stake in the latter. This would make Emami the largest shareholder in Zandu, a manufacturer of OTC ayurvedic products, with a stake of around 70% in the company, with the transaction indicating the dynamism of the India’s OTC sector. During September 2010, BMI formed the core view that the addition of Western pharmaceuticals to traditional medicines is a minor, but growing trend. Indigenous or folk remedies play an important role in Indian culture. In certain rural regions the majority of the population rely on them for their primary healthcare needs. However, traditional medicines are only fortuitously effective on an occasional basis and sometimes dangerous. Peddlers of these products look to improve customer satisfaction and consequently boost sales by adding actual pharmaceuticals, which have been proven to be safe and efficacious in controlled clinical trials.© Business Monitor International Ltd Page 33
  • India Pharmaceuticals & Healthcare Report Q4 2010Industry Forecast ScenarioOverall Market Forecast India’s pharmaceutical market is set for a Pharmaceutical Market Forecast period of rapid expansion. Combined sales of prescription drugs and OTC 2005-2019 medicines will increase from INR739bn (US$15.7bn) in 2009 to INR838bn (US$19.30n) in 2010. Due to the strengthening rupee, this equates to growth of 13.3% in local currency terms and 23.3% in US dollar terms. Foreign drugmakers are therefore set for a lucrative year. Market expansion will be sustained by a f = forecast. CER = constant exchange rate. Source: IMS Health, combination of factors over the next AIOCD Pharmasofttech AWACS, Organisation of Pharmaceutical Producers of India (OPPI), BMI decade. The key driver of medicine sales is a booming economy. In February 2010, BMI’s Country Risk team said that Indian industry was ‘on fire’, with reported output growth of a remarkable 16.8% y-o-y in December 2009, the fastest rate of expansion in two decades. Manufacturing, which accounts for roughly 80% of the industrial production index, rose by 18.5% y-o-y, more than offsetting a subdued agricultural performance (which suffered in Q409 due to the lagged effects of a poor monsoon). Over the next decade, India’s GDP is forecast to more than treble, from INR62,016bn (U$1,313bn) in 2009 to INR22,976bn (US$6,127bn) in 2019. Another source of increased demand for medicines in India is greater state involvement in healthcare, which, traditionally, has been minimal. The FY2010/11 (April-March) budget provides INR18,380 crore (US$3.99bn) for the Ministry of Health & Family Welfare, representing an 18.0% increase compared with the previous year. The government also intends to provide INR155.25 crore (US$33.6mn) in dedicated funds to the Department of Pharmaceuticals for the first time. Inflation is a significant issue in India. The consumer price index (CPI) – which BMI uses as a proxy for inflation – averaged 12.0% during 2009. This is high by regional and global standards and an acute concern for all stakeholders. We expect the CPI to rise slightly to 12.4% in 2010, before stabilising at 8.0% over the medium term.© Business Monitor International Ltd Page 34
  • India Pharmaceuticals & Healthcare Report Q4 2010 India’s large, growing and ageing population is an obvious enticement for pharmaceutical firms. According to the UN Population Division, the number of people living in the country will increase from 1.04bn in 2000 to 1.41bn in 2020 – a rise of 36%. The percent of the population aged 65 and over will increase from 4.3% to 6.3% over the same period. However, we caution that Indian per-capita spending on medicine is, and will remain, relatively low (US$15 in 2009, US$31 in 2014 and US$50 in 2019). Nevertheless, India represents one of the most attractive pharmaceutical markets. Sales of medicines are expected to post compound annual growth rates (CAGRs) of 12.23% and 10.64% through 2014 and 2019 respectively. Within a decade, the value of the pharmaceutical market will exceed US$50bn.© Business Monitor International Ltd Page 35
  • India Pharmaceuticals & Healthcare Report Q4 2010Key Growth Factors – Industry Healthcare expenditure in India is Healthcare Expenditure Forecast expected to increase from INR2,427bn (US$51.4bn) in 2009 to INR2,697bn 2005-2019 (US$62.1bn) in 2010. Due to the strengthening rupee, this equates to growth of 11.1% in local currency terms and 21.0% in US dollar terms. Annual per-capita spending on medical services was US$45 in 2009, well below the regional average of US$125. The government accounts for just over a quarter of spending and expenditure as a f = forecast. CER = constant exchange rate. Source: World Health percent of GDP is a disappointing 3.9%. Organization (WHO), BMI By 2014, yearly healthcare spending will have risen to INR4,058bn (US$106bn). The key driver of healthcare spending in India is the expanding economy. India’s real economy enjoyed a steady return to form in the latter half of 2009, and BMI’s Country Risk team is confident this momentum will be sustained well into FY2010/11, despite official efforts to cool activity. The main engine of the economy – domestic demand – will be fuelled by rising private consumption and fixed investment levels, as well as the need to rebuild inventories. In February 2010, BMI upgraded its real GDP growth forecasts for FY2009/10 and FY2010/11 to 7.0% (from 6.1%) and 7.5% (from 6.4%), respectively, putting India right among the world’s top economic performers in the coming years. India’s growing and ageing population is another reason for healthcare spending increasing rapidly. According to the United Nations Population Division, the number of people living in the Asian country is forecast to increase from 1.21bn in 2010 to 1.29bn in 2015 – a rise of 6.6%. Between 2025 and 2030, India’s population will exceed that of China’s and become the largest in the world. The percentage of India’s population aged 65 or over is expected to increase from 4.9% in 2010 to 13.7% in 2050. India’s government has minimal involvement in the healthcare sector. In its place, health insurance companies and private hospital chains are experiencing robust sales growth. The increased provision of low-cost generic drugs in underserved rural areas, such as that offered by Novartis’s Arogya Parivar (Healthy Family) project, introduced in 2008, is also boosting the private healthcare market. Growth in healthcare expenditure will be moderated by a greater uptake of vaccines and continued lack of state investment.© Business Monitor International Ltd Page 36
  • India Pharmaceuticals & Healthcare Report Q4 2010Key Growth Factors – Macroeconomic Ready To Outshine Its Peers BMI View: While headline expansion should cool from Q110s 8.6% y-o-y rate, Indias domestic demand-driven economy will remain a global outperformer this year and next. On a sector basis, we particularly like infrastructure and retail – both of which should benefit from higher credit growth. The major risk, as always, is the worrisome fiscal position. Echoing the strong first quarter numbers enjoyed across Asia, Indias economy chalked up impressive real GDP expansion of 8.6% y-o-y – and 13.4% saar quarter-on-quarter (q-o-q) – in Q110 (Q4 FY2009/10). The quarterly outturn, in turn, helped to propel full-fiscal year growth to 7.4% in FY2009/10 (April- March), above our 7.0% projection largely due to substantial upgrades to the Q309 (up 8.6% from 7.9%) and Q409 (up 6.5% from 6.0%) real GDP prints. Revisions aside, the numbers lent further weight to our deep-rooted belief that India would be an outperformer in the post-crisis global economy. We expect to see a number of important macro dynamics playing out over the next 12-24 months. ! India will continue to outshine its emerging market peer group, buffeted by strong domestic activity and a lack of direct exposure to Chinese demand. However, a deteriorating global backdrop and a steady withdrawal of government support mean we remain below consensus and see growth settling at a softer pace in upcoming quarters. ! We believe infrastructure and retail could be attractive sectors in which to tap into Indias robust domestic demand story. ! Overheating fears are currently being overplayed. As growth consolidates, inflationary pressures will peak in Q210. Thus, we remain of the view that the RBI will normalise rates, rather than tighten aggressively. ! Despite near-term improvements, Indias poor public finances will remain under the spotlight, especially given sovereign credit concerns emanating across the globe. From our perspective, Indias fiscal situation will continue to represent the weak link in an otherwise healthy growth outlook, as the government has shown little willingness and/or ability to kick its overspending habit.© Business Monitor International Ltd Page 37
  • India Pharmaceuticals & Healthcare Report Q4 2010 Domestic Demand Leads the Way Real GDP Growth, pp Contribution and Comparison Growth Rates, % *EM, DM Growth Rates Weighted By Nominal GDP. Source: BMI, MOSPI Self Sustaining Growth As we had expected, Indias brisk pace of expansion in Q110 was largely underpinned by domestic demand. Indeed, expenditure/market price real GDP actually rose by 11.2% y-o-y, the strongest reading in the past five years, with domestic demand weighing in with a 7.9 percentage point (pp) contribution. Admittedly, household spending growth still remains below-par, but this was more than offset by a 17.7% y-o-y (176.9% q-o-q) surge in fixed investment growth – an encouraging sign for future growth potential. From our perspective, robust domestic demand should ensure that Indias economy remains a global outperformer this year and next. We are pencilling in real growth rates of 7.8% in both FY2010/11 and FY2011/12, which would put the country comfortably above our emerging market (EM)-weighted averages of 5.5% and 5.1% in 2010 and 2011 respectively. That is not to say that the pace of growth will continue to accelerate as 2010 unfolds. Indeed, signs are that we will see a cooling in activity. First, we believe that industrial activity has already hit a peak in the cyclical recovery. Output growth will continue to moderate as low base effects from the trough of the downturn in H109 and the inventory restocking cycle wear out. Secondl, global conditions will be less accommodative: eurozone growth concerns, coupled with double-dip slowdowns in the US and China, will inevitably have a deleterious impact on financial and commercial inflows into India. Finally, the government will continue to wind back its extraordinary stimulus. This trend has already begun. We note that public consumption grew by just 2.1% y-o-y in Q110, well off the highs of 30.5% in Q309 and the slowest pace of expansion in three years. For these reasons, our 7.8% FY2010/11 projection remains below the 8.2-8.4% consensus, and the governments 8.5% projection.© Business Monitor International Ltd Page 38
  • India Pharmaceuticals & Healthcare Report Q4 2010 Infrastructure And Retail Worth Watching On a sector basis, services grew by 8.6% y-o-y during the quarter, weighed down by sluggish community and personal services – again, a result of fiscal retrenchment. Meanwhile, agriculture also disappointed, with modest growth of just 0.7%. Instead, it was industrial activity which really galvanised the Indian economy, notching up red-hot expansion of 13.4%, and led by strong showings for both construction and manufacturing. We believe that both infrastructure and retail will offer attractive opportunities to tap into the countrys compelling domestic demand story. As we wrote in April (see our online service, April 13, Building An Attractive Growth Story), aggressive capital outlay could see infrastructure investment rise to as high as 8.5% of GDP this fiscal year, from just 3.7 % in FY2002/03. On the retail side, a strong Indian rupee and growing consumer confidence will underpin demand for big ticket purchases. Moreover, the benefits of (relatively) conservative monetary policy in the downturn will come to fruition. We expect to see credit growth grind higher, as banks start to expand their loan portfolios, offering further support to both infrastructure investment and consumption over the coming months – a stark contrast to events playing out in regional rival China, where the economy is starting to feel the hangover from its credit binge in 2009. Gradual Tightening Ahead With growth likely to consolidate in the months ahead, we believe that overheating fears are now overdone. While we acknowledge that wholesale price inflation has flirted with double digits, we believe that inflationary pressures will start to retreat in H210 as lower base effects and commodity prices kick in. As such, we believe that monetary policy will continue to focus on rate normalisation rather than aggressive tightening. With this in mind, we only envisage an additional 75bps worth of hikes this fiscal year, taking the benchmark repo rate to 6.00% – well below the 9.00% rates seen in August 2008. Fiscal Concerns A Drag A large caveat to an otherwise promising growth outlook is Indias poor public finances. Despite some near-term improvement, largely the result of a strong cyclical bounce in revenues and the auction of generation (3G) wireless spectrum licences, our core view is that the government has yet to face up to its chronic overspending habit. According to our forecasts, India will fail to run a primary surplus over the coming decade on current trends, meaning that the absolute debt burden (as well as servicing costs) will continue to mount. In the current climate, global investors will continue to keep a watchful eye on Indias sovereign concerns, as high sovereign debt yields could start to push up borrowing costs across the board.© Business Monitor International Ltd Page 39
  • India Pharmaceuticals & Healthcare Report Q4 2010Table: India – Economic Activity 2005 2006 2007 2008 2009f 2010f 2011f 2012f 2013 2014 1,4Nominal GDP, INRbn 37,064.7 42,839.8 49,478.6 55,744.5 62,016.2 72,354.0 82,939.1 95,595.9 109,851.6 125,142.1 2,5Nominal GDP, US$bn 827.9 999.8 1,116.0 1,210.2 1,313.0 1,559.3 1,727.9 2,078.2 2,615.5 3,168.2Real GDP growth, % changey-o-y 3,5 9.5 9.7 9.2 6.7 7.4 7.8 7.8 8.5 8.2 7.7GDP per capita, US$ 5 756 901 992 1,062 1,136 1,332 1,456 1,729 2,149 2,571 6Population, mn 1,094.6 1,109.8 1,124.8 1,140.0 1,155.5 1,170.9 1,186.6 1,202.1 1,217.3 1,232.2Industrial production index, %y-o-y, ave 5 8.2 11.5 8.6 2.8 7.7 13.5 11.0 9.0 8.0 8.0Unemployment, % of labourforce, eop 7 8.1 8.1 8.0 9.0 10.0 9.0 8.5 8.3 8.1 8.1Notes: e BMI estimates. f BMI forecasts. 1 GDP at market prices, Fiscal years ending March 31 (1990=1990/91); 2 2008=FY2008/09,Factor Cost, f=BMI forecast; 3 Factor Cost, f=BMI forecast; Sources: 4 Central Statistics Organsation, BMI calculation. 5 Central StatisticsOrgansation; 6 World Bank/BMI calculation/BMI; 7 Oxford Economics.© Business Monitor International Ltd Page 40
  • India Pharmaceuticals & Healthcare Report Q4 2010Prescription Drug Market Forecast India’s prescription drug market Prescription Drug Market Forecast represents one of the most significant growth opportunities in the global 2005-2019 pharmaceutical industry. Sales of prescription medicines are forecast to increase from INR653.7bn (US$13.84bn) in 2009 to INR740.6mn (US$17.07bn) in 2010. Due to the strengthening rupee, this equates to growth of 13.3% in local currency terms and 23.3% in US dollar terms. A booming economy and greater state f = forecast. Source: IMS Health, AIOCD Pharmasofttech AWACS, involvement in healthcare will ensure this Organisation of Pharmaceutical Producers of India (OPPI), BMI growth trajectory continues over the medium term. BMI’s Pharmaceutical Expenditure Forecast Model reveals that sales of prescription drugs will post 2009-14 CAGRs of 12.06% in rupees and 16.9% in US dollars. The respective 10-year CAGRs are 10.2% and 12.8%. By 2019, the prescription drug sector will have reached a value of INR1,727bn (US$46.06bn). Prescription drugs account for the majority of India’s pharmaceutical market, which we define as sales of OTC medicines plus prescription drugs. As of year-end 2009, prescribed medicines accounted for 88.4% of the overall market. This share is expected to decrease gradually through to 2019, OTC medicines increase in popularity at the expense of traditional remedies. A key driver of prescription drug sales in India is the modernisation and expansion of the healthcare sector. According to the Central Bureau of Health Intelligence, the number of hospitals in the South Asian country increased from 5,479 in 2005 to 11,289 in 2008 – a rise of over 100%. A total of 6,298 hospitals with 142,396 beds are situated in rural areas while 2,774 hospitals with 324,206 beds are in urban zones. The number of doctors registered with state medical councils has increased from 560,000 in 2000 to 725,000 in 2008. More prescribers, combined with a larger and generally wealthier population, equates to higher prescription drug sales. However, this growth will be moderated by fewer dispensing doctors, a trend for rational prescribing, prosecution of quacks and less off-label prescribing.© Business Monitor International Ltd Page 41
  • India Pharmaceuticals & Healthcare Report Q4 2010Patented Drug Market Forecast Patented medicines will remain a Patented Drug Market Forecast marginal player in the overall market, having only posted around INR60.8bn 2005-2019 (US$1.29bn) in 2009 sales. The figure is likely to reach INR116bn (US$3.03bn) by the end of the five-year forecast period, although patented pharmaceuticals are predicted to gain some market share at the expense of generic drugs. International players will remain the leading suppliers of novel and hi-tech drugs, but some larger local companies will increasingly invest in f = forecast. Source: IMS Health, AIOCD Pharmasofttech AWACS, their own R&D activities as a means of Organisation of Pharmaceutical Producers of India (OPPI), BMI keeping their competitiveness in a strictly price-controlled market. As the disease profile of the Indian sub-continent becomes increasingly Western in style, sales of more advanced medicines, such as those to treat cardiovascular diseases, diabetes and cancer-related conditions will be key drivers. Most of the demand will be satisfied by imported novel medicines, especially on the hi-tech end of the scale. Ophthalmology medicines will be particularly profitable, given the high number of cataract sufferers in the country. A downside risk to BMI’s patented drug market forecast is state-mandated prescribing of generic drugs. In July 2010, doctors in all government-owned hospitals in Delhi, India, were instructed to prescribe medicines by their generic names and not by the costlier brands of any company. A directive by the state government stated that the officers of Drugs Control Department have been ordered to monitor the prescriptions of doctors in hospitals and dispensaries under the auspices of the Delhi government.© Business Monitor International Ltd Page 42
  • India Pharmaceuticals & Healthcare Report Q4 2010Generic Drug Market Forecast India’s INR592.9bn (US$12.55bn) Generic Drug Market Forecast generic drug market is characterised by healthy growth, low pack prices, 2005-2019 medicines that would be termed ‘patented’ in most other countries, and very few foreign players. BMI is forecasting a CAGR of 9.99% through to 2019, when the sector will have a value of INR1,536bn (US$40.95bn). Clearly there is significant potential, but we note that both OTC medicines (+13.51%) and patented products (+12.16%) will experience steeper sales trajectories in f = forecast. Source: IMS Health, AIOCD Pharmasofttech AWACS, India over the medium term. Organisation of Pharmaceutical Producers of India (OPPI), BMI The major driver of the country’s generic drug market is the patent regime, which does not meet international standards. Under Indian IP law, drugmakers can use a process called ‘reverse engineering’ to manufacture drugs patented before 1995. This means that many blockbuster medicines are available in India at very low prices. As with most other countries, generic drugs are predominantly sold in hospitals and pharmacies. Perhaps the most promising sales outlets are part of the Jan Aushadhi scheme. These stores sell unbranded generic medicines at prices that are affordable to the majority of the vast 1.17bn population. For example, a strip of the painkiller nimesulide is available for INR2.50 (US$0.05), which compares favourably to the INR32 (US$0.67) charged for the branded version. However, the Jan Aushadi programme is struggling to make an impact. As of August 2010, only 46 out of a planned 300 stores had opened since 2008. The slow pace of the programme was blamed on a lack of support from the Department of Pharmaceuticals. Later that month it was revelead that plans to source unbranded generic drugs from small- and medium-sized firms for Jan Aushadhi outlets had been dropped. The top 10 pharmaceutical firms in India are dominated by generic drug manufacturers. According to market research firm AIOCD Pharmasofttech AWACS, the leading domestic company is Mumbai- based Cipla, which generated sales of US$571mn INR3,007 crore (US$ mn)in the year to July 2010. Meanwhile, the best selling medicine is Pfizer’s antihistamine Corex (chlorphenamine). The fact that this product’s active ingredient was discovered nearly 60 years ago underlines the developing nature of India’s pharmaceutical market.© Business Monitor International Ltd Page 43
  • India Pharmaceuticals & Healthcare Report Q4 2010 Despite buoyant local demand, Indian generic drug manufacturers are increasingly looking at emerging markets. Africa is particularly attractive, as it has limited local manufacturing capacity and a great demand for low-cost generic preparations, especially HIV/AIDS drugs. In addition, markets in South America and South East Asia, where prices and volumes are higher, are also being targeted.© Business Monitor International Ltd Page 44
  • India Pharmaceuticals & Healthcare Report Q4 2010OTC Medicine Market Forecast Sales of OTC medicines in India are OTC Medicine Market Forecast forecast to increase from INR85.7bn (US$1.81bn) in 2009 to INR161.3bn 2005-2019 (US$4.21bn) in 2014, representing a CAGR of 13.49%. The review of the Schedule K Drugs (prescription-only products) and Cosmetics is presently under way, resulting in the likely liberalisation of OTC sales. The Schedule K notification (Ref. GSR No.471 (E)) dated August 4 2006 seeks to allow sale of ‘household remedies’ in general stores – much more common than pharmacies – f = forecast. Source: Organisation of Pharmaceutical Producers of but is only applicable to settlements India (OPPI), BMI; *advertised non-prescription drugs where the population is less than 1,000. Moreover, prescription-to-OTC switches have been encouraged through the revision of Schedule H, which lists drugs that can only be prescribed by a general practitioner or hospital doctor. Leading OTC categories include vitamins and minerals, cough and cold, gastrointestinal remedies, analgesics, dermatologicals and herbal medicines, according to AESGP data. However, many prescription drugs can be purchased without prescription, which has meant that OTC switching is not actively promoted. Nevertheless, progress has been slow as there are still hundreds of molecules on Schedule H that are safe, effective and classified as OTC in many other parts of the world. Two such examples are the antihistamine chlorpheniramine and the cough suppressant dextromethorphan. Both have been recommended for removal from Schedule H, but reclassification is still on the horizon. Signifying the scale of the problem, 534 other drugs are in the same position. Currently, about 80% of OTCs are sold through chemists and drugstores, with direct sales and sales through grocers only allowed in rural areas with fewer than 1,000 inhabitants. If the changes receive legislative approval, aspirin, acetaminophen, analgesic balms, antacids, oral dehydration solution, gripe water, cough and cold treatments including inhalers, tetracycline-based ophthalmic ointments and low- dose hormonal contraceptives will become available as OTCs, significantly boosting their respective therapeutic areas.© Business Monitor International Ltd Page 45
  • India Pharmaceuticals & Healthcare Report Q4 2010 However, the true OTC segment will continue to suffer strong competition from traditional medicines, including ayurveda, unani and siddha. According to official data, around 70% of all people in India use such remedies for primary healthcare that are not recorded in the pharmaceutical industry statistics. The traditional medicine sector is presently undertaking a US$2mn project to fund the creation of the Traditional Knowledge Digital Library in order to prevent companies and individuals from claiming patents and rights on such remedies. In a startling development, a remedy from the ancient ayurveda system became the top selling drug in India. The Himalaya Drug Company’s Liv 52, which is a mixture of botanicals, posted sales of over INR107 crore (US$20mn) in the year ended August 2007, according to market research firm ORG-IMS Health. Demonstrating the magnitude of this achievement, the product has overtaken well-known medicines such as Pfizer’s Corex (chlorpheniramine + codeine), Nicholas Piramal’s Phensedyl (promethazine + codeine + ephedrine) and Novartis’ Voveran (diclofenac) in revenue generation.© Business Monitor International Ltd Page 46
  • India Pharmaceuticals & Healthcare Report Q4 2010Pharmaceutical Trade Forecast Although export sector growth has been Pharmaceutical Trade Forecast (US$mn) rapid in recent times, BMI expects an even faster growth rate over the forecast 2005-2019 period, averaging more than 15% per year. By 2014, exports are expected to approach US$14.08bn, with most of the value generated by generic drugs and active pharmaceutical ingredients (APIs). The volumes should be boosted by the government’s proposal to build pharmaceutical zones in major international airports to facilitate the testing of drugs prior to exporting f = forecast. Source: United Nations Comtrade Database DESA/UNSD, BMI pharmaceutical products from the country. However, as larger domestic companies are increasingly investing in the development of their own R&D facilities for the development of new drugs, this may also result in exports of novel products towards the end of the forecast period. The recently signed FTA between India and the ASEAN has been warmly welcomed by generic drug manufacturers in the world’s second most populous country. Exports from India to South East Asia will rise, with the gradual abolition of trade tariffs on 80% of goods traded between India and the economic bloc over six years. However, the key development from the news is that a similar but more lucrative pact with Japan is now high on the agenda. In July 2008, the Pharmaceuticals Export Promotion Council (Pharmexcil), which represents major pharmaceutical companies in India, proposed the establishment of a registration office in Brussels for pharmaceutical companies that want to market their products in Europe. The move can be seen as a step to strengthen Indian pharmaceutical exports. However, around the same time, Indian exports received a blow, when the Pakistani government blocked the proposal to import around 400 drugs from India. Local drugmakers protested against the proposal by the commerce ministry saying that over 1mn jobs would be affected by the plan while over US$120mn worth of annual exports could also be threatened. Other negative developments for Indian exports include the recent spate of accusations of sub-standard manufacturing by the US FDA, levelled against Indian drugmakers’ facilities. Lupin (not for the first time) has become the third drugmaker from the country to be accused of sub-standard manufacturing by the US FDA in recent months, which will attract greater scrutiny on the sector as a result.© Business Monitor International Ltd Page 47
  • India Pharmaceuticals & Healthcare Report Q4 2010 After conducting a two-week evaluation of Lupin’s Mandideep factory in Madhya Pradesh, the FDA inspectors found 15 manufacturing deficiencies. The company has addressed eight of the problems and is investigating the remaining ones ‘expeditiously’. Given that the failures are not as serious as those found at Ranbaxy’s Dewas and Paonta Sahib plants or Sun Pharmaceuticals’ facility in Detroit, Lupin is allowed to continue manufacturing at Mandideep. However, if GMP is not reinstated, stronger sanctions will be imposed. In September 2008, the FDA blacklisted 30 Ranbaxy drugs that are sold in the US, following a two-year investigation. Shortly after, Sun Pharmaceuticals’ US-based subsidiary, Caraco Pharmaceutical Laboratories, received an FDA manufacturing warning. The agency will not approve any of the firm’s regulatory submissions until the problems are resolved, although applications from Sun Pharmaceuticals are unaffected. Other Indian companies to receive manufacturing warnings from the FDA in the past include Wockhardt and Granules India. Risks to BMI’s forecast for India’s pharmaceutical exports emerged in mid-2009. EU authorities had seized in-transit medicines made in India, believing them to be counterfeit. The reality was that the generic drugs were legal according to the country of desitnation. However, they breached EU IP rules. In order to control the threat of fake drugs and protect the pharmaceuticals sectors brand image, the Indian government is planning to introduce a unique identification system for pharmaceutical exports. The new system will ensure that an exported drug from India is manufactured in the country and is not counterfeit. The new system is expected to be launched by November 2010.© Business Monitor International Ltd Page 48
  • India Pharmaceuticals & Healthcare Report Q4 2010Medical Device Market Forecast Through to 2014, BMI is forecasting Medical Device Market Forecast 15.99% y-o-y growth for India’s 2005-2019 INR114bn (US$2.40bn) medical device market in 2009, which is more than both the pharmaceutical and overall healthcare industries, demonstrating the under- exploited nature of the sector. Imported, high-end goods will continue to account for the majority of sales, but domestic production will increase its share through to 2014. Other key trends include more transparent regulations, a reduction in levies and an influx of f = forecast. CER = constant exchange rate. Source: foreign firms. In 2005-2006, imports rose Association of Medical Devices and Suppliers of India (AMDSI), The Associated Chambers of Commerce and Industry of India by 23.0% to top US$365mn. In the same (Assocham), Central Drugs Standard Control Organization (CDSCO), BMI period, exports were up by 33.6%, with a similar pattern expected to persist throughout the forecast period. Regulations have improved significantly over the past 10 years and India is on the brink of forming the Medical Device Regulatory Authority (MDRA). The agency will ensure the quality, safety, efficacy and availability of healthcare equipment used in the country. It was expected be mandated by the Draft Medical Devices Regulation Bill 2006, but delays have hampered the legislation. In September 2008, local press revealed that medical devices in India may soon be recognised as a separate category by the DCGI. Presently, medical devices are regulated under the same directives as pharmaceuticals. The WHO and the US FDA are assisting the Indian regulators in framing guidelines for the medical device sector. The DCGI recently forced unlicensed medical device manufacturers to obtain the necessary documents from the state authorities and receive the appropriate clearance from the central government. In November 2008, the Parliamentary Standing Committee on Health and Family Welfare in India recommended a separate definition and chapter for medical devices in the Drugs and Cosmetics (Amendment) Bill, 2007. The panel has rejected the suggestion to redefine the term of ‘clinical trials’ to bring medical devices and cosmetics under its purview, along with new drugs.© Business Monitor International Ltd Page 49
  • India Pharmaceuticals & Healthcare Report Q4 2010 The last major change to the regulations was guidelines laid down by the CDSCO in March 2006. The rules covered the procedures and requirements for importing and manufacturing 10 selected sterile medical devices. These products, which had previously been classified as drugs in notification S.O. 1468(E) issued in October 2005, included cardiac stents, drug-eluting stents, catheters, intra-ocular lenses, intravenous cannulae, bone cements, heart valves, scalp vein sets, orthopaedic implants and internal prosthetic replacements. According to the new medical device regulations, all importers of these devices are required to apply for import licences and file product registrations with the DCGI. The application submission must include documentation pertaining to the master file, detailed product information, post-market surveillance procedures, biocompatibility, and quality system standards to which the device conforms. The application should also include the device’s regulatory status in other countries, such as US FDA, or CE certificates, as well as other countries where the device is being sold. If the device has been withdrawn from any country, the applicant should also provide this information along with a note explaining the reasons why. In the case of medical device manufacturers, all parties are required to apply for manufacturing licences from India’s State Licensing Authority (SLA). The application for a manufacturing licence must include details about the manufacturing process, including the site master file, description of the manufacturing process, GMP standards and copies of International Standards Organisation (ISO) or other certifications. The application should also include detailed product information. Any new medical device or device that does not carry benchmark certification will first be evaluated by an expert committee, which would then make recommendations to the SLA. The SLA, following joint inspection and verification of the recommendation, will subsequently forward the application to the Central Licensing Approval Authority (CLAA) for approval.© Business Monitor International Ltd Page 50
  • India Pharmaceuticals & Healthcare Report Q4 2010Other Healthcare Data Forecasts India will continue to struggle to provide adequate healthcare services to its rapidly growing population, which is also exhibiting signs of ageing. According to the statistics recently released by Population Statistics Bureau (PSB), India is predicted to overtake China by 2050 as the most populous country in the world, with just under 1.63bn people. Such demographic changes will significantly alter and increase India’s demand for pharmaceuticals and health services, the needs of which still remain unmet. Public funded healthcare will be the main provider for the bulk of the poor population, although people are increasingly turning to private providers offering better facilities and smaller waiting lists. Public facilities will continue to suffer personnel shortages, which the government has been unprepared to address in recent times. However, recurring public health emergencies (such as the recent SARS and avian flu outbreaks) will continuously highlight various healthcare system inadequacies. And this needs to be debated lest they become insurmountable obstacles to the country’s future performance.© Business Monitor International Ltd Page 51
  • India Pharmaceuticals & Healthcare Report Q4 2010Key Risks To BMI’s Forecast Scenario The domestic market growth could be adversely affected by the local industry’s escalating concentration on international markets. The local producers are increasingly targeting foreign markets over the domestic market as export trade offers better profit margins. Additionally, the government’s plan to place all essential medicines under the price control system and to reduce the price of about 8% of all medicine brands sold in the country will significantly decrease future revenues and market values. Although the government continues to modernise the domestic healthcare system, the domestic drug market could suffer as a result of its less lucrative status. In contrast to foreign sales, domestic performance is much poorer because of market uncertainties. A number of local producers have also acquired pharmaceutical operations overseas in order to minimise the negative impact of the domestic market performance. In the short term, the OTC market may expand more rapidly than forecasted with the local industry reportedly set to invest significantly in expanding facilities and product portfolios. Recent reports by Indian pharmaceutical manufacturers of their intention to switch at least 12 prescription drugs to OTC status should further raise growth within the sector. Although the drugs are currently included within the country’s prescription list, or ‘Schedule H’, the OPPI is in the process of submitting the 12 drugs to the DCGI for approval. Generally, positive political and economic developments are likely to boost India’s local and international potential as a pharmaceutical supplier. IP environment improvements will stimulate this trend and likely increase the country’s pharmaceutical output in the medium to long term, while exports should be boosted by the activities of the new US government. However, short-term economic slowdown and higher inflation may have a slightly negative effect on the overall industrial climate and consumer spending, as did the high price of energy.© Business Monitor International Ltd Page 52
  • India Pharmaceuticals & Healthcare Report Q4 2010Competitive Landscape India boasts of a diverse pharmaceutical industry portfolio, directly employing nearly 0.5mn people. It consists of pharma manufacturers in India (primarily research-based companies with international links) organised under the OPPI umbrella, and foreign players operating from abroad. The Indian pharmaceutical sector has seen tremendous growth in the last decades and is showing few signs of abating. Indeed, Indian drug companies are making their mark on the wide international market. The domestic market, estimated at more than INR770.8bn (US$16.32bn) in 2009, ranks high in quality, technology, organisation and range of products manufactured in comparison to other countries at a similar stage of development. However, it is fragmented, with more than 20,000 sites registered for production. Around 250 firms hold more than 70% of the market. The concentration in the hands of the top 10 players is more than 5%. Local producers supply 70%+ of the market for bulk drugs, intermediates, formulations, capsules and injectables. High output is guaranteed by a large and cheap labour force, low production and R&D costs, as well as a strong balance of trade. India is one of the regional leaders in biotech and similar advances, taking advantage of its internal resources and international connections. Drug manufacturing is one of the relatively few industries in India open to 100% foreign ownership. The situation will continue to encourage international interest in the local market, which continues to increase because of the growing population and economic improvements. Foreign interest will be a challenge to the local players, especially in the face of rising scrutiny of IP and manufacturing quality standards.Top 30 Pharmaceutical Companies In India According To Moving Average Total (MAT) Sales To July 2010 (US$mn)Company Sales (US$mn) Market share (%) Growth (%)Piramal + Abbott + Solvay 643.16 6.29 13.6Cipla 557.82 5.45 15.8GSK 481.89 4.71 7.6Ranbaxy 479.54 4.69 3.9Sun 434.19 4.24 13.5Zydus Cadila 398.90 3.9 11.2Alkem + Cachet + Indchemie 334.09 3.26 14.7Lupin 328.10 3.21 19.6Mankind 305.65 2.99 18.9Pfizer + Wyeth 304.15 2.97 17.1Aristo 254.95 2.49 11.6Intas 218.59 2.14 17.8© Business Monitor International Ltd Page 53
  • India Pharmaceuticals & Healthcare Report Q4 2010Top 30 Pharmaceutical Companies In India According To Moving Average Total (MAT) Sales To July 2010 (US$mn)Dr Reddys 207.90 2.03 17.2Wockhardt 199.77 1.95 9.7Sanofi-Aventis 198.49 1.94 21.7Micro 194.00 1.9 13.6Macloeds 189.29 1.85 28.1Novartis 174.32 1.7 7.8IPCA 165.55 1.62 15.5USV 158.92 1.55 23.7Emcure + Zuventus 158.92 1.55 14.3Glenmark 158.06 1.54 9Torrent 157.42 1.54 14.1Alembic 142.88 1.4 17.4FDC 135.82 1.33 5.6MSD + Organon + Fulford 128.97 1.26 25.2Unichem 128.55 1.26 10.5Elder 127.05 1.24 14.7Cadila Pharma 95.82 0.94 12.3Novo Nordisk 94.54 0.92 16.7Source: AIOCD Pharmasofttech AWACSKey Pharmaceutical Industry Developments ! In August 2010, India-based pharmaceutical company Lupin Pharma announced that it was seeking to expand its operations in emerging markets in order to generate revenues equal to those from the US and Japan combined by 2018. The company identified Brazil and Mexico as two of the emerging markets for an on-shore presence, said Chairman Desh Bandhu Gupta. The company registered combined sales of INR21.34bn (US$457.82mn) from the US and Japan in FY10, almost 45% of its total revenue. ! In August 2010, US pharmaceutical company Abbott Laboratories Indian subsidiary Abbot India was facing legal action over the violation of provisions of the Drugs and Cosmetics Act and Essential Commodities Act. The Drugs Control Department in Kerala has undertaken legal action against the company after its Thrissur-based C&F agent declined to supply essential drugs to a licensed stockist in Thiruvananthapuram, despite possessing sufficient stock of medicines.© Business Monitor International Ltd Page 54
  • India Pharmaceuticals & Healthcare Report Q4 2010 ! In July 2010, Tokyo-based Eisai revealed that it will start manufacturing its two leading medicines – Aricept (donepezil) for Alzheimers disease and the ulcer therapeutic AcipHex/Pariet (rabeprazole) – in India. Once regulatory approval has been received, production of the pharmaceuticals could start at a factory in Andhra Pradesh within 18 months. In June 2010, Eisai decided to invest INR250 crore (US$54mn) in a research and development (R&D) plant in Visakhapatnam. ! In June 2010, US drugmaker Bristol-Myers Squibb (BMS) launched diabetes drug Onglyza (saxagliptin), in India, priced at INR38, a fifth of the price in the US. The company stated that it will launch six more drugs on the Indian drug market in the next two to three years, all priced at a value lower than in BMSs developed markets. The company said that in order to increase sales in emerging markets, it will focus on differential pricing rather than developing a generic drugs portfolio.© Business Monitor International Ltd Page 55
  • India Pharmaceuticals & Healthcare Report Q4 2010 Company Profiles Leading Indigenous ManufacturersRanbaxy LaboratoriesStrengths ! Largest domestic pharmaceutical company and a leading global generic drugs player. ! Exports accounting for majority of sales, thereby insulating the company from fluctuating domestic market conditions. ! Considerable overseas presence.Weaknesses ! Harsh government pricing policy with the state keen to keep a downward pressure on prices. ! Considerable legal costs relating to numerous cases with multinationals, and most recently with US drug major Pfizer. ! Authorised generic drugs will affect anticipated sales from first-to-file opportunities in the US.Opportunities ! Development of generic drugs market presence in Europe and other markets following key acquisitions and the establishment of wholly owned subsidiaries. ! Increasing focus on the high-growth area of generic pharmaceuticals by divesting its non- core businesses. ! Growing research-based product pipeline. ! Rising local demand for generic drugs, especially in rural areas. ! Synergies expected from the involvement of Japanese major Daiichi Sankyo.Threats ! Increasingly competitive nature of both the domestic and global generic drugs market. ! Share price continues to fluctuate under pressure from alleged manufacturing wrongdoings. ! Increasing foreign competition in the domestic market. ! Government’s failure to revise its opaque and harsh pricing policy. ! Government’s plan to impose price controls on all essential medicines.Country Overview Founded in 1960, Ranbaxy is one of India’s leading pharmaceutical manufacturers, and among the world’s top 20 pharmaceutical firms. The company sells commodity generics, value-added generics, branded generics, intermediates and active pharmaceutical ingredients (APIs), Ranabaxy is also involved in original R&D. © Business Monitor International Ltd Page 56
  • India Pharmaceuticals & Healthcare Report Q4 2010Strategy Following its US$4.6bn acquisition by Japan’s Daiichi Sankyo, Ranbaxy introduced its Hybrid Business Model. This approach, which is also called the Innovator-Generics model benefits both companies. Ranbaxy gains as it product portfolio gets widened, while Daiichi Sankyo gets a launch pad in those markets where it is not present. In the 1990s, Ranbaxy crafted and executed an ambitious strategy to enter the multi-billion dollar US generic drug market. The Gurgaon-based firm initially sold active pharmaceutical ingredients (APIs) to other companies, which would re-formulate the raw materials and then market the medicines to prescribers. Demand was high because Ranbaxy was operating from a low-cost base. A major evolutionary step was taken in 1998, when the firm started selling finished drugs in the US under its own brand. In 2001, the company posted US sales of US$100mn for the first time and was also the fastest growing firm in the highly competitive sector. Risks to the current strategy include modernisation of India’s intellectual property regime, lack of first mover advantage in the high-growth biosimilar sector and increased regulation of India-based pharmaceutical manufacturers by the US FDA. To offset this potential downside, Ranbaxy is also looking at emerging markets to drive growth. Priority countries are Brazil, Russia, India, China and South Africa.Developments In July 2010, Ranbaxy announced the transfer of its new drug discovery research unit (NDDR) to Daiichi Sankyo India Pharma. The move, which comes as part of the companys strategy to strengthen the global research and development structure of the group, will result in the renaming of NDDR as Daiichi Sankyo Life Science Research Center (RCI). However, Ranbaxy will retain the R&D functions to manufacture generic drugs. Ranbaxys April 2010 decision to hire 1,500 additional medical representatives in India was in accordance with one of BMIs short-term core views: sales forces will contract in developed states and expand in emerging markets. By expanding its domestic sales force by 50%, Gurgaon-based Ranbaxy plans to penetrate Indias rural pharmaceutical market and become the leading drugmaker in terms of sales. This renewed focus on local growth, under a project named VirAAt (Sanskrit for giant), follows a disappointing couple of years for the firm in the US. In April 2010, Ranbaxy and US-based biotech company Pfenex finalised an agreement for a biosimilar protein. The agreement will enable Ranbaxy to develop an undisclosed biosimilar therapeutic produced using the Pfenex Expression Technology, which is a Pseudomonas fluorescens-based recombinant protein expression system. In February 2010, the US FDA released a warning letter dated December 24 2009 in which it asked Ranbaxy to carry out a comprehensive assessment of its global manufacturing operations to ensure that all sites manufacturing drugs for the US market are in line with US requirements. In January 2010, Ranbaxy entered into an agreement for the acquisition of product rights and the manufacturing facility of India-based biotechnology company Biovel Lifesciences. Ranbaxy Chief Executive Atul Sobti stated that the acquisition offered an entry platform on which the company can develop vaccines as well as biotherapeutics. In January 2010, Ranbaxy launched Lulifin (luliconazole) in India for the topical treatment of cutaneous mycoses. © Business Monitor International Ltd Page 57
  • India Pharmaceuticals & Healthcare Report Q4 2010Financial Performance In Q210, Ranbaxy recorded sales of US$458mn, which was a 22% decrease compared with the same period in the previous year. Profit after tax fell from US$139mn in Q209 to US$72mn in Q210, primarily due to foreign exchange losses of US$70mn. In Q110, Ranbaxy’s sales increased by 65% to US$542mn, up from US$313mn in Q109. Profit after tax was US$210mn, which compared favourably with the US$153mn loss in Q109. Ranbaxy posted a consolidated net profit of INR2.62bn (US$57mn) in Q409, compared with a net loss of INR6.8bn (US$147.9mn) in Q408. The improved results were primarily attributed to the launch of a generic anti-herpes medicine in the US. In February 2010, the company forecasted strong growth in 2010 from new product launches and expected a 48% growth in net profit in 2010 to INR4.6bn (US$100.1mn) and a 6% rise in sales to INR78bn (US$1.7bn). In Q309, Ranbaxy’s net sales consolidated net sales declined by 8.9% y-o-y to INR17.2bn (US$363.3mn), compared with INR18.88bn (US$398.8) in Q308. On standalone basis, the company earned a net profit of INR1.86bn (US$39.3mn) in Q309, compared with a loss of INR3.53bn (US$74.6mn) in Q308. Ranbaxy registered net profit of INR6.93bn (US$143.57mn) in Q209, compared with INR229mn (US$4.74mn) in Q208. The increase in profits was attributed to currency gains. The company maintained its full-year 2009 outlook of a net loss of US$150mn, compared with the net loss of US$198mn registered in 2008. Sales in India during Q109 reached US$70.3mn, which was a 5% increase compared to Q108. With the exception of Asia Pacific (+1%), no other region saw revenue growth in the first quarter of this year.Company Address ! Ranbaxy Laboratories Limited Corporate Office Plot 90, Sector 32, Gurgaon -122001 (Haryana), India Tel: 91- 124- 4135000 Fax: 91-124-4135001 ! Website: www.ranbaxy.com © Business Monitor International Ltd Page 58
  • India Pharmaceuticals & Healthcare Report Q4 2010CiplaStrengths ! One of the most prominent local pharmaceutical companies. ! Capable of new manufacturing investments. ! Wide range of products. ! Largest supplier of ARVs in India.Weaknesses ! Harsh government pricing policy with the state keen to keep downward pressure on prices. ! The impact of new WTO-compliant domestic drug patent law on a product portfolio built on weak patent legislation. ! Vulnerability to foreign competition in the domestic market. ! Lack of strong international presence.Opportunities ! Future approvals for generic HIV/AIDS drugs in the US market. ! Rising domestic and regional demand for cheaper generic products. ! Plans to launch four new products in the next few years. ! Partnership with Brazil’s state drugmaker to market malaria drug.Threats ! Increasingly competitive nature of both domestic and global generic drugs market. ! Increasing foreign competition in the domestic market. ! Government’s failure to revise its opaque and harsh pricing policy. ! Anticipated price cuts on about 8% of all medicines sold in the country. ! Government’s plan to impose price controls on all essential medicines.Company Overview Founded in 1935, Cipla is ranked among the leading 15 generic drug companies globally. The firm sells sells commodity generics, value-added generics, branded generics, intermediates and active pharmaceutical ingredients (APIs), Cipla is also involved in original R&D. As of mid-2010, the firm exported to 170 countries.Strategy Cipla is an archetypal generic drug manufacturer. Operating from a low-cost base, the company has expanded through pure organic growth. Exploitation of India’s patent regime between 1972 and 2005 allowed Cipla to reverse engineer patented products. These medicines were then sold domestically and to other unregulated markets. The company is currently targeting the local hospital markets, the promising biosimilar sector, forging strategic partnerships and the stem cells sector. Risks to Cipla’s strategy include non-availability of important raw materials, lower tender business in antiretrovirals, increased scrutiny from foreign regulators and unfavourable movements in foreign exchange rates. © Business Monitor International Ltd Page 59
  • India Pharmaceuticals & Healthcare Report Q4 2010Developments In September 2010, Cipla intended to confirm the acquisition of a 25% stake in its South African partner, Cipla Medpro, in its next board meeting scheduled for October 2010, according to Ciplas CFO S Radhakrishnan. He added that Cipla Medpros board had already approved the acquisition. In August 2010, Cipla was looking to buy local pharmaceutical company Meditab Specialties for INR1.33bn (US$28.4mn) as it attempts to expand its API and intermediates international business. In June 2010, Cipla entered the biosimilar sector through the purchase of a 40% stake in Goa- based Mabpharm for US$40mn and a 25% holding in Shanghai-based BioMab for US$25mn. In April 2010, Cipla introduced Soranib, a generic version of liver cancer drug Nexavar (sorafenib) developed by German drugmaker Bayer, in the Indian market. Soranib is priced at INR28,000 (US$627.81) per month dosage, compared with Bayers price of INR2,80,000 (US$6,278.60). In March 2010, Indian pharmaceutical healthcare company Piramal Healthcare purchased the rights to pharmaceutical company Ciplas emergency contraceptive drug brand i-pill for INR950mn (US$21mn). In March 2010, Cipla replaced Sun Pharmaceuticals in the Bombay Stock Exchange (BSE)s benchmark 30-share Sensex. In November 2009, Cipla launched Antiflu (oseltamivir) in India for the treatment of swine flu. In August 2009, Cipla received approval for its generic version of German drugmaker Bayer’s cancer drug Nexavar (sorafenib tosylate). The Delhi High Court dismissed Bayer’s plea to prevent the Drugs Controller General of India (DCGI) from approving Cipla’s low-cost generic version. In May 2009, Cipla benefited from the US FDA’s decision to authorise emergency use of generic versions of Roche’s Tamiflu (oseltamivir) as a treatment for swine flu. Cipla said in April 2009 that it can supply 1.5mn doses of generic oseltamavir to help fight an outbreak of swine flu. In February 2009, Cipla filed a grant opposition in the Kolkata patent office againsts GSK’s newly launched breast cancer drug Tykerb (lapatinib) on the grounds of obviousness and lack of inventiveness.Financial Performance In the three months to June 30 2010, Cipla recorded sales of INR1,441 crore (US$311mn), which was 7.6% increase compared with the same period in the previous year. Net profit after increased by 6.5% to INR257 crore (US$55.6mn). In the nine months to December 31 2009, Cipla posted sales of INR4,081 crore (US$830mn), which was a 7.8% increase compared with the same period in the previous year. Net profit increased from INR515 crore (US$113mn) in 9M08 to INR806 crore (US$177mn) in 9M09.Company Address ! Cipla Ltd, Mumbai Central 400 008 Mumbai, India ! Tel: +91 22 2308 2891 ! Fax: +91 22 2307 0013 ! www.cipla.com © Business Monitor International Ltd Page 60
  • India Pharmaceuticals & Healthcare Report Q4 2010Dr Reddy’s LaboratoriesStrengths ! Leading Indian generic drugs manufacturer. ! Diverse and prominent global presence, including the developed Western markets. ! A significant number of recent product launches.Weaknesses ! Exposed to increasingly tough generic competition in the US in the key product lines. ! Undergoing costly restructuring in an attempt to boost R&D and increase generic filings with the US FDA. ! Authorised generic drugs will affect anticipated sales from first-to-file opportunities in the US.Opportunities ! New ANDA financing potentially boosting development pipeline. ! Authorised generic drugs likely to deliver new opportunities in the US. ! Heavy R&D spending potentially yielding new drug discoveries. ! Rising regional demand for cheaper generic products amid cost-containment pressures. ! Focus on fast-growing diabetes segment and partnership with Novo Nordisk likely to boost revenues in the medium to longer term. ! The acquisition of Betapharm in Germany to boost short-term revenue growth.Threats ! Limited room for expansion in mature European generic drugs markets threatening this high-growth area. ! Unstable environments in Russia and Latin America threatening development in those parts of the world. ! Government’s failure to revise its opaque and harsh pricing policy. ! Government’s plan to impose price controls on all essential medicines. ! Anticipated price cuts on some 8% of all medicines sold in the country.Company Overview Founded in 1984, Dr Reddy’s Laboratories is among the top 20 companies domestically and ranked in the leading 10 generic drug companies in the US. The company sells commodity generics, branded generics, authorised generics, active pharmaceutical ingredients (APIs) and is also involved in original R&D.Strategy The main focus for Dr Reddy’s Laboratories is the US, which has the world’s largest generic drug market. Demand for the company’s products is high due to their low cost. Dr Reddy’s is also present in other developed states such as Germany and the UK. To maintain its impressive sales growth trajectory (20% compound annual growth between 2000 and 2010), Dr Reddy’s expanding into emerging markets, including Brazil and Russia. To ensure long-term growth, the company has a pipeline of new molecular entities (NMEs). © Business Monitor International Ltd Page 61
  • India Pharmaceuticals & Healthcare Report Q4 2010Recent Activities In August 2010, Dr Reddy’s launched the worlds first biosimilar darbepoetin alfa under the brand name Cresp in India. The product is also the only darbepoetin alfa in India and will be prescribed for the treatment of anaemia due to chronic kidney disease and anaemia due to chemotherapy. In February 2010, Dr Reddy’s announced that it was shifting production of more drugs from Betapharm to India, in order to remain competitive. In July 2009, Dr Reddy’s drug discovery operations were absorbed into Aurigene, a wholly-owned subsidiary of the company. In June 2009, GSK and Dr Reddy’s agreed to develop and market selected product across and extensive range of emerging markets, excluding India. In May 2009, Dr Reddy’s introduced Nexret (0.04% tretinoin and 0.1% as microspheres), a drug used for the treatment of skin diseases, in India. Nexret is an anti-acne formulation, developed using a proprietary non-porous microsphere technology that helps to minimise irritation experienced from other drugs. In February 2009, Dr Reddy’s revealed it was scaling back its operations in small distributor markets to maintain its profit margin. These countries – which include Trinidad, Fiji and Haiti – only contribute US$1-2mn in cumulative sales, so the impact on overall turnover will be minimal. Despite this retraction of global operations, the company has a bullish outlook.Financial Results In May 2010, Dr Reddys was expecting significant growth during FY11 as a result of its plans to introduce 12-13 new drugs on the US market, said Chief Executive G.V. Prasad. This announcement was despite the companys Q4 results for the fiscal year missing market expectations. The company posted a net profit of INR1.7bn (US$37mn) during Q4 ended March 31 2010, compared with a loss of INR9.8bn (US$213.3mn) the previous year. However, revenue stood at INR16.4bn (US$356.9mn), down by 18% year-on-year, during the same period. In March 2010, the Custom Pharmaceutical Services (CPS) business of Dr Reddys Laboratories started producing pharmaceutical grade methoxypolyethylene glycol (mPEG) alcohols at its commercial-scale manufacturing plant in Cuernavaca, Mexico. In January 2010, Dr Reddy’s announced that during Q309 ended December 2009, it registered an unexpected loss of INR5.22bn (US$113.2mn), compared with a profit of INR2.45bn (US$53.1mn) in Q308. This followed a write-off-related loss of US$174mn at its German unit. G.V. Prasad, Dr Reddy’s CEO, said the company was likely to record a low single-digit growth in revenues in the 2009/2010 fiscal year ending March 2010, which was due to a higher than expected contraction in its German business, along with a slight slowdown in the US business. In July 2009, Dr Reddy’s announced that it foresaw revenue growth to be on track for the fiscal year ending March 2010. The company had set a target of 10% revenue growth for 2009-10 in May 2009. The announcement came after the company released its quarterly results ending June 2009, which exceeded market expectations.Company Address ! Dr Reddy’s Laboratories, 7-1-27 Ameerpet , 500 016 Hyderabad, India ! Tel: +91 40 2373 1946 ! Fax: +91 40 2373 1955 ! www.drreddys.com © Business Monitor International Ltd Page 62
  • India Pharmaceuticals & Healthcare Report Q4 2010Aurobindo PharmaceuticalStrengths ! One of the largest companies in India. ! Strong manufacturing capacity with 12 facilities holding GMP and ISO certification. ! Exports accounting for 55% of company sales, thereby insulating the company from fluctuating domestic market conditions. ! Expansion through acquisition of international facilities.Weaknesses ! Harsh pricing policy, with the state keen to keep downward pressure on prices. ! The impact of new WTO-compliant domestic drug patent law on a product portfolio built on weak patent legislation. ! Vulnerability to foreign competition on the domestic market.Opportunities ! Robust generic drug market growth, both on a national and on a wider global level. ! Further focus on exports as well as expansion abroad through acquisition. ! The development of market presence in the US and the UK. ! Increasing involvement in the global HIV/AIDS market.Threats ! Increasingly competitive nature of both the domestic and global generic drug market. ! Increasing foreign competition in the domestic market. ! Government’s failure to revise its opaque and harsh pricing policy. ! Government’s plan to impose price controls on all essential medicines. ! Anticipated price cuts on about 8% of all medicines on sale in the country.Company Overview Founded in 1986, Aurobindo Pharma is a leading Indian pharmaceutical company. Employing over 8,000 people, the company sells generic drugs and active pharmaceutical ingredients (APIs). Aurobindo is also involved in Contract Research And Manufacturing Services (CRAMS)Strategy The aim of Aurobindo is to become the Asia’s leading generic drug manufacturer by 2015. It is involved in the leading therapeutic categories and is committed to quality production processes. Aurobindo has a diverse range of customers in both developed and emerging markets. In order to maintain its competitive position: the company listed four main strategies in its 2009/10 Annual Report: accelerate top-line growth, accelerate efficiencies, accelerate speed of implementation, and focus on select opportunities.Developments In February 2010, the US FDA approved Aurobindo’s cetirizine hydrochloride syrup 1mg/ml, which is bioequivalent to McNeil Consumer Healthcare’s Zyrtec (cetirizine). In June 2009, Australia’s Therapeutic Goods Administration (TGA) approved Aurobindo’s amlodipine for the treatment of hypertension. This was the company’s fourth registration received from the TGA. © Business Monitor International Ltd Page 63
  • India Pharmaceuticals & Healthcare Report Q4 2010 Pfizer entered a licensing agreement with Aurobindo in March 2009. The Indian firm agreed that Pfizer would market 82 of its generic pharmaceutical products within Europe and the US. In September 2008, Aurobindo received US approval for its delayed-released Didanosine capsule in the 125mg, 200mg, 250mg and 400mg strengths. The product will rival the originator brand Videx EC (didanosine), which is manufactured by US-based BMS. The drug is indicated for the treatment of HIV-1 infections in adults. The development illustrates an increase in penetration of advanced markets by Indian generics companies.Financial Performance In the three months to June 30 2009, Aurobindo posted sales of INR7,667 (US$169mn), which was a 14% increase compared with the same period in the previous year. Net profit increased from INR399mn (US$9mn) in Q308 to INR1,261mn (US$28mn) in Q309.Company Address ! Aurobindo Pharma Ltd, Plot 2, Maitri Vihar, Ameerpet 500 038 Hyderabad, Andhra Pradesh Tel: +91 40 5563 1083 Fax: +91 40 2374 1080 ! www.aurobindo.com © Business Monitor International Ltd Page 64
  • India Pharmaceuticals & Healthcare Report Q4 2010Venus RemediesStrengths ! One of the nascent local pharmaceutical companies. ! Capable of new manufacturing investments. ! Strong oncology portfolio. ! Manufacturing plant in the EU.Weaknesses ! Harsh government pricing policy, with the state keen to keep downward pressure on prices. ! The impact of new WTO-compliant domestic drug patent law on a product portfolio built on weak patent legislation. ! Vulnerability to foreign competition in the domestic market. ! Lack of strong international presence.Opportunities ! Robust generic drug market growth, both at a national and wider global level. ! Rising demand for biological products. ! Rising domestic and regional demand for cheaper generic products. ! GMP certification for a number of African plants to boost export potential.Threats ! Increasingly competitive nature of both the domestic and global generic drug market. ! Increasing foreign competition in the domestic market. ! Government’s failure to revise its opaque and harsh pricing policy. ! Anticipated price cuts on around 8% of all medicines on sale in the country. ! Government’s plan to impose price controls on all essential medicines.Company Overview Founded in 1991, Venus Remedies is one of the top 50 domestic pharmaceutical firms in India. It is particularly prominent in the therapeutic areas of oncology and antibiotics, focusing on injectables. The company operates two manufacturing locations in India and one in Germany (all WHO- and EU-GMP compliant), and exports to all major South East Asian markets, as well as Canada, South Africa and some European countries. As of March 2010, Venus Remedies employed 1,375 people and sold 75 products.Strategy Aside from sales in the US, Germany and Canada, Venus Remedies is targeting emerging markets and frontier markets for growth. Differentiating itself from other Indian generic drug firms, Venus Remedies is involved in the relatively high margin speciality injectables sub-sector. The company is also increasingly involved in patented drugs.Developments In August 2008, Venus received a GMP certificate from Kenya’s Pharmacy & Poisons Board (PPB). An assessment carried out by the Inspectorate of the Ministry of Health earlier in 2008, approved the company’s facility at the Baddi Campus in India, which was deemed to meet PPB and WHO GMP standards. The company has filed 28 oncology products for registration in the country, of which eight have already been approved. © Business Monitor International Ltd Page 65
  • India Pharmaceuticals & Healthcare Report Q4 2010 The company revealed that its Zimbabwe manufacturing facilities received a good GMP certification from the Medicines Control Agency (MCA) in August 2007. This enabled the company to begin the registration of its portfolio of products in Zimbabwe. The company’s entry into Zimbabwe is already at an advanced stage after signing a strategic marketing tie-up with a leading local distribution firm and receiving registry approval for two products.Company Address ! Venus Remedies , 51-52 Industrial Area Phase 1 134 113 Panchkula Haryana, India ! Tel: +91 172 259 0113 ! Fax: +91 172 256 5566 ! www.venusremedies.com © Business Monitor International Ltd Page 66
  • India Pharmaceuticals & Healthcare Report Q4 2010Granules IndiaStrengths ! Nascent local pharmaceutical company. ! Strong API portfolio. ! Internationally certified manufacturing plants. ! Manufacturing plant in China. ! Strong export record.Weaknesses ! Harsh government pricing policy, with the state keen to continue downward pressure on prices. ! The impact of new WTO-compliant domestic drug patent law on a product portfolio built on weak patent legislation. ! Vulnerability to foreign competition in the domestic market. ! Lack of strong international presence.Opportunities ! Robust generic drug market growth, both at a national and worldwide level. ! Rising domestic and regional demand for cheaper generic products. ! Recent formation of a joint venture with one of the leading global ibuprofen suppliers.Threats ! Increasingly competitive nature of both the domestic and global generic drug market. ! Increasing foreign competition in the indigenous market. ! Government’s failure to revise its opaque and harsh pricing policy. ! Anticipated price cuts on around 8% of all medicines on sale in the country. ! Government’s plan to impose price controls on all essential medicines.Company Overview Established in 1984, Granules is primarily involved with the manufacture of compressible granules as a value-added product to the pharmaceuticals formulations segment. The company has three manufacturing plants in India. Its pharmaceutical formulation intermediates (PFI) plant – one of the largest in the world, with annual capacity of 7,200 mega-tonnes – has been approved by international standard authorities. The company has also built a tablet facility with an annual capacity of 12bn tablets, which became operational in early 2007.Strategy The company currently supplies APIs and PFIs for use in the OTC segment, with some of its customers including German Merck and Ratio Pharma, US BMS (UPSA), Australian Herron Pharmaceuticals, and GSK in India. Granules has been exporting to the US since 1987 and has a local fully-owned marketing subsidiary. The company opened a European office in FY06/07, with its major markets being the UK, Germany and France. Granules is also committed to expanding its umbrella to Latin America and the Asia Pacific. © Business Monitor International Ltd Page 67
  • India Pharmaceuticals & Healthcare Report Q4 2010Financial Performance In the three months to December 31 2010, Granules recorded sales of INR12,240 lakh (US$30.0mn). This represented at 39% increase compared with INR9,814 lakh (US$21.6mn) posted in the same period in the previous year. Net profit increased from INR49 lakh (US$0.1mn) to INR656 lakh (US$14mn).Company Address ! Granules India, Temple Road Bonthapalli Jinnaram Mandal, 501 313 Mandak District , India ! Tel: +91 84 5827 5362 ! www.granulesindia.com © Business Monitor International Ltd Page 68
  • India Pharmaceuticals & Healthcare Report Q4 2010Piramal HealthcareStrengths ! India’s second-largest generic drugg manufacturer with a strong product portfolio. ! Strong and numerous alliances with international drug distributors and research-based manufacturers such as AstraZeneca. ! Tradition of expansion through acquisition of facilities abroad.Weaknesses ! Significant reliance on the tough Indian market. ! Lack of R&D division prevents company from enjoying the high margins that patented drugs bring.Opportunities ! Strength in drug-delivery systems implies potential in Asian drug markets, where demand for hospital-use products is positive. ! Rising regional and global demand for cardiovascular products. ! Development of new therapeutic strengths, including anti-diabetes products.Threats ! Failure by the Indian government to revise its harsh price controls policy. ! Continued threat from counterfeit industry. ! Competition from larger local rivals.Company Overview Piramal Healthcare, formerly known as Nicholas Piramal India (NPIL), is one of India’s leading healthcare companies. It is is the flagship company of the INR25bn (US$550mn) Piramal Enterprises (PEL), one of India’s largest diversified business organisations. NPIL formed in 1988 when it acquired Nicholas Laboratories from Sara Lee. Since then, it has grown rapidly through a series of acquisitions, mergers and alliances. Some of NPIL’s major acquisitions include the Indian operations of Roche Products, Boehringer Mannheim India, Hoechst Marrion Roussel’s Research Centre, Rhone Poulenc India, ICI India’s Pharma Division and Aventis’ research facilities.Company Overview Piramal Healthcare is growing sales through new product launches and expansion of its sales force. The company is also increasingly penetrating tier-II/III cities. Risks to Piramal Healthcare’s strategy include government price controls, volatitlity in the Contract Research And Manufacturing Services (CRAMS) sector and foreign exchange fluctuations. In June 2010, the company said it would continue with its acquisition strategy to achieve growth and become one of the top five contract manufacturing firms by 2015. The company is aiming to generate more than US$1bn in revenues, according to Chairman Ajay Piramal. He added that the company would target companies that are technically advanced and have a strong customer base, especially in the US and Europe. © Business Monitor International Ltd Page 69
  • India Pharmaceuticals & Healthcare Report Q4 2010Developments In September 2010, US pharmaceutical major Abbott Laboratories concluded the acquisition of the healthcare solutions business of Piramal Healthcare. In January 2010, Ajay Piramal, chairman of Piramal Healthcare, said that the company was re- considering its plans to open a new drug unit. He added that the company was considering a detailed cost benefit analysis of the project and would decide on it by the end of 2010. The company planned to invest INR1,000mn (US$21.76mn) in setting up the facility to manufacture codeine, the basic chemical used in cough syrups. In December 2009, Piramal Healthcare announced plans to expand its business presence in smaller cities in the country to serve the rural Indian market Despite the global economic downturn, chief operating officer of Piramal Healthcare, N Santhanam, told The Hindu newspaper in March 2009, ‘It is a great time for custom manufacturing companies.’ This is because large drugmakers are moving away from basic manufacturing and concentrating on their core competencies of R&D and sales and marketing. ‘They don’t want to get into production,’ Santhanam points out. Over the upcoming 12 months, a 10% increase in Piramal’s custom production revenue is anticipated, despite innovative firms correcting inventory levels. In terms of strategic moves, Piramal plans to increase its presence in female healthcare and mass market branded formulations. This latter sector is the fastest growing in the Indian pharmaceutical industry and is expected to see a 13% increase in value during 2009. It was revealed in April 2009 that the company would hire 300-400 people in the coming year.Financial Performance Piramal Healthcare registered a 5.1% y-o-y drop in consolidated net profit to INR807mn (US$17.3mn) in Q111 ended June 2010. The drop in net profit was attributed to uncertainty over the sale of Piramals healthcare solutions business and the transition cost associated with the deal. However, net sales stood at INR8.42bn (US$180.6mn), up 2.5% y-o-y, during the same period.Company Address • Piramal Healthcare Limited • 1st floor D-Mart building Goregaon Mulund Link Rd Mulund (W) Mumbai 400080 Tel: +91 22 3953 6666 • http://piramalhealthcare.com/ © Business Monitor International Ltd Page 70
  • India Pharmaceuticals & Healthcare Report Q4 2010Zydus CadilaStrengths ! Manufactures own active pharmaceutical ingredients. ! Expansionist strategy. ! Present in high-margin markets.Weaknesses ! Competes directly with other enlightened Indian drugmakers. ! R&D division could drain resources for no guaranteed return.Opportunities ! Recently entered Japan’s under-penetrated generic market. ! Numerous regulatory filings are under review. ! Development of innovative pharmaceuticals could result in substantial sales.Threats ! Emerging low-cost bases could erode India’s current advantage. ! Amendments to India’s patent legislation could radically alter the company’s business model.Company Overview Ahmedabad-based Zydus Cadila is focused on generic medicines and an interest in innovative drugs. It is also involved in diagnostics, herbal products, skin care and other OTC products. Zydus Cadila also promotes food products.Strategy Zydus Cadila is targeting both emerging markets and developed states to boost revenue. In addition to selling generic drugs – specficially active pharmaceutical ingredients (APIs) and formulations – the company is seeking both in-licensing and out-licensing opportunities. Zydus Cadila is targeting sales of US$3bn by 2015 and hopes to become a research-based drugmaker by 2020.Developments In May 2010, Zydus Cadila received a US$10mn milestone payment from US-based Abbott Laboratories. The two companies signed a licensing and supply agreement on May 11 2010 to sell Zyduss 24 products in 15 emerging markets. The agreement included drugs for pain, cancer, cardiovascular, neurological and respiratory diseases. Zydus Cadila acquired the remaining 30% stake of South Africa’s Simayla Pharmaceuticals during December 2009, following its 2008 purchase of 70% of the firm. Cadila hopes to use Simayla to market 50 of its own products in South Africa and across the SADAC member states – Namibia, Angola, Botswana, Swaziland and Mozambique – over the next three years. Its manufacturing facility in Moraiya, Ahmedabad, has already been accredited by South Africa’s Medicines Control Council (MCC), paving the way for exports from India’s substantially lower cost base. Cadila will also benefit from Simayla’s product range, which includes generic prescription drugs and OTC medicines manufactured under contract for a number of foreign drugmakers, including Novartis’ generic drug arm, Sandoz. © Business Monitor International Ltd Page 71
  • India Pharmaceuticals & Healthcare Report Q4 2010 In April 2009, Zydus Cadila signed a deal with US-based Eli Lilly related to the development of new drugs for the treatment of cardiovascular diseases. The drug development agreeement includesdpreclinical, clinical and human clinical trials. Zydus would get up to US$300mn as well as sales royalty during commercialisation. In July 2008, Cadila Healthcare (parent company) announced that it is to demerge its consumer products arm into Carnation Nutura. As a part of the demerger, Zydus Hospital & Medical Research will be merged with Cadila. In July 2007, Zydus Cadila bought Nikkho do Brasil for US$25mn. According to Brazilian news agency EFE, Nikkho posted sales of US$26mn in 2006 on sales of prescription medicines. The privately owned company, founded in the 1960s, has an annual production capacity of nearly 5mn ampoules and 96mn pills, and sells 22 products under 13 brand names.Financial Zydus Cadila reported an 18% y-o-y rise in net profit to INR3.03bn in FY09. The company hasPerformance reported a 26% y-o-y rise in total income to INR29.5bn. The company’s growth in net income was mainly attributed to a 50% growth in formulation exports, a 34% rise in active pharmaceutical ingredients’ exports and a 27% increase in consumer business.Company Address ! Zydus Tower, Satellite Cross Roads 380 015 Ahmedabad, India ! Tel: +91 79 2686 8100 ! Fax: +91 79 2686 8365 ! www.zyduscadila.com © Business Monitor International Ltd Page 72
  • India Pharmaceuticals & Healthcare Report Q4 2010 Leading Multinational ManufacturersPfizerStrengths ! Largest global pharmaceutical company. ! Well-established market presence in India. ! Financial capability, business portfolio and industry experience to exploit the local drug market. ! Diverse local manufacturing presence, based on a broad portfolio of antibiotics, vitamins and OTC pharmaceuticals, consumer and healthcare products.Weaknesses ! Weak domestic patent law previously a major barrier to market investment for the company. ! Opaque government drug-pricing policy favouring local drug manufacturers. ! Time lag between global and local launches due to subsidiary/parent company misalignment.Opportunities ! The alignment of drug-patent legislation with WTO standards in January 2005. ! Robust branded drug market growth. ! Strong OTC drug market growth. ! Plans to launch three new products each year. ! Potential for R&D activity expansion, drawing on a highly skilled, yet low-cost pool of local scientists and low operational costs.Threats ! Government failure to enforce WTO-compliant drug patent legislation properly. ! Government failure to revise its opaque and discriminatory pricing and reimbursement policy. ! Fragile domestic economy, remaining susceptible to wide fluctuations based on agricultural performance. ! Anticipated price cuts.Company Overview Pfizer India is a 40%-owned subsidiary of US-based Pfizer. The company in turn fully owns Duchem Laboratories, which markets some of Pfizer’s formulations including the Becosules vitamin B complex supplement and Corex cough syrup. The company is one of the leading drug manufacturers in India and has been active in the country since 1950. Pfizer India has approximately 950 employees. Between January 2007 and June 2010, Pfizer Indias share price on the BSE increased from INR769 (US$16.65) to INR1,005 (US$21.77). Although this represents a seemingly impressive rise of 44%, it is below what was recorded by many of its direct rivals operating in India. The jump, however, is above the 26.1% increase seen over the same period with the Bombay Stock Exchange Sensitivity Index (BSE Sensex) – a value-weighted index composed of the 30 largest and most actively traded stocks, representative of various sectors. © Business Monitor International Ltd Page 73
  • India Pharmaceuticals & Healthcare Report Q4 2010Strategy It is BMIs view that Pfizer India needs to enhance its strategy to further improve its financial results. Although the company outpaced some of its multinational rivals in terms of sales over the past 12 months, Pfizer India generally underperformed compared with local drugmakers. The Mumbai-based firms share price on the Bombay Stock Exchange (BSE) has also underwhelmed. We would encourage Pfizer India to increase the promotion of its innovative products to those on middle to high incomes and expand its presence in rural areas. To boost sales, Pfizer India rolled out its Branded Value Offering strategy in 2009. This project promotes medicine for chronic diseases in fast growing therapeutics segment. Targit (telmisartan) was launched in July 2009 for hypertension and Above 5 (rabeprazole) was introduced in October 2009 for stomach ulcers. BMI notes that up to 2009, Pfizer India had mainly concentrated on therapeutics for acute conditions such as coughs and bacterial infections. According to Pfizer Indias managing director, Kewal Handa, the company expects to post double- digit sales growth in 2010. To achieve this goal, the firm has launched six branded generic drugs and recruited 100 female sales representatives to promote female healthcare products.Recent Activities In July 20101, Pfizer introduced a new variant of the pneumonia-prevention vaccine Prevanar-13 in India. Pfizers managing director, Kewal Handam, said that the vaccine has scope in the Indian market, which records 25mn births and more than 0.37mn infant deaths due to the disease every year. He added that Pfizer is trying to include the vaccine in the national immunisation programme, which is likely to uplift its sales in the country. In April 2010, Pfizer Investments Netherlands along with Pfizer Inc increased its stake in the Indian pharmaceutical company Pfizer Ltd to 70.75% through an open offer. Previously, the companies held a 41.23% stake in Pfizer Ltd. In January 2010, Pfizer aimed to become one of the top five pharma companies in the Indian pharmaceutical market and was seeking potential strategic partners. Pfizer entered a licensing agreement with Aurobindo in March 2009. The Indian firm agreed that Pfizer would market 82 of its generic pharmaceutical products including solid oral doses and injectables covering cardiovascular disorders, central nervous system treatments and antibiotics within Europe and US. Earlier that month, Pfizer announced that it would set up 600 smoking cessation clinics across India before the end of 2011. Pfizer markets Champix (varencicline) for the treatment of nicotine dependence. The patent covering Champix was challenged by Dr Reddy’s in May 2009. In January 2008, Pfizer contracted Hikal to manufacture and supply APIs. By outsourcing this stage of the production process, costs would be dramatically reduced for the world’s largest, but currently embattled, pharmaceutical company. Few details of the deal were released. The APIs would be made at Hikal’s US FDA-approved plant in the Jigani industrial zone. © Business Monitor International Ltd Page 74
  • India Pharmaceuticals & Healthcare Report Q4 2010Financial Pfizer India reported net sales of INR2.03bn (US$45.1mn) and net profit of INR424.5mnPerformance (US$9.44mn) in Q110. Sales increased from the INR1.86bn (US$41.4mn) reported in Q109, while profits were up from INR390.1mn (US$8.68mn) in Q109. For the year ended November 30 2009, Pfizer India’s sales increased from INR67,771 lakh (US$149mn) to INR77,160 lakh (US$162mn). However, net profit fell from INR29,912 lakh (US$63mn) to INR13,718 lakh (US$30mn). Q309 sales and profit were US$43.9mn and US$8.8mn, respectively. Q209 sales and profit were US$39.8mn and US$6.7mn, respectively. Q109 sales and profit were US$39.9mn and US$8.4mn, respectively. Sales in 2008 were US$161.7mn, a 1% decrease on the 2007 figure of US$163.4mn. Profit after taxation also fell from US$71.6mn to US$63.2mn.Leading Products ! Celebrex (celecoxib) ! Exubera (insulin) ! Lipitor (atorvastatin calcium) ! Norvasc (amlodipine besylate) ! Viagra (sildenafil) ! Zoloft (sertraline) ! Corex (cough syrup) ! Becosules (vitamins)Company Address ! Pfizer Limited, Pfizer Centre, Patel Estate, S V Road Jogeshwari West, 400 102 Mumbai, India ! Tel: +91 22 6693 2000 ! Fax: +91 22 6693 2444 ! www.pfizerindia.com © Business Monitor International Ltd Page 75
  • India Pharmaceuticals & Healthcare Report Q4 2010GlaxoSmithKline (GSK)Strengths ! Possesses financial capability, business portfolio and industry experience to exploit the Indian pharmaceutical market. ! Diverse pharmaceutical portfolio, including OTCs. ! Strong political and historical ties between India and the UK.Weaknesses ! Opaque government drug-pricing policy continuing to favour local manufacturers. ! Counterfeit industry activity in the country.Opportunities ! Alignment of drug patent legislation with WTO standards. ! Robust branded drug market growth. ! Strong OTC drug market growth. ! Potential for R&D activity expansion, drawing on a highly skilled, yet low-cost talent of local scientists, together with low operational costs. ! In-licensing and out-licensing arrangements with Indian pharmaceutical companies. ! Likely liberalisation of OTC retail channels.Threats ! Government failure to enforce WTO-compliant drug patent legislation. ! Anticipated price cuts on about 8% of all medicines on sale in the country. ! Government failure to revise its discriminatory pricing and reimbursement policy. ! Traditionally fragile domestic economy, which remains susceptible to wide fluctuations based on agricultural performance.Company Overview GSK, present in India since 1919, is the leading foreign pharmaceutical company engaged in R&D, additionally employing more than 2,000 marketing representatives to deal with 4,000 businesses countrywide. GSK deals with a number of medicines and vaccines, and consumer health items. Consumer health medicines and nutritional goods are produced at three local sites, involving more than 2,700 staff. An additional 40 employees are engaged in clinical data management, supporting GSK’s global biologicals R&D activities. Until recently, GSK was the most prominent local manufacturer of animal health and fine chemical products. However, in April 2006, the company sold its veterinary business, which accounts for more than 10% of the local market, to French firm Virbac. The move follows the company’s wider intention to exit animal health business and to focus on human pharmaceuticals.Strategy GSK is outpacing the Indian pharmaceutical market through the consistent introduction of high- priced innovative pharmaceuticals that address unmet medical needs. It is also investing in its sales department and looking towards rural areas for growth opportunities. © Business Monitor International Ltd Page 76
  • India Pharmaceuticals & Healthcare Report Q4 2010Developments In January 2010, the Drug Controller General of India (DCGI) issued a show-cause notice to GSK for advertising its cervical cancer vaccine Cervarix. The DCGI asked GSK to explain in 10 days the reasons for not abandoning its licence. Under the Drugs and Cosmetics Act of India, advertising is banned for prescription drugs and vaccines. In February 2009, GSK revealed that it would launch a basket of patented products in India and, significantly, expand the size of its sales force in the South Asian country by 100 individuals, adding to 200 new positions created in 2009. Marketing representatives will educate Indian doctors on the benefits of the vaccines Infrarix-Hexa and Synflorix, the thrombocytopenia therapeutic Promacta (eltrombopag), the leaukaemia drug Arzerra (ofatumumab), and Votrient (pazopanib), indicated for the treatment of kidney cancer. In June 2009, GSK and Dr Reddy’s agreed to develop and market selected products across an extensive range of emerging markets, excluding India. The company revealed in April 2009 that it would be targeting tier-2 cities, which account for 40% of the pharmaceutical market, but has over 60% of the population. In April 2009, GSK ended production of its cold and cough medicines Actifed and Actified Plus. In January 2009, Indian authorities uncovered a group, including two GSK officials, that was illegally extracting pseudoephedrine, a narcotic chemical, from the drugs to sell it in foreign market. In February 2009, Indian drugmaker Cipla filed a grant opposition in the Kolkata patent office againsts GSK’s newly launched breast cancer drug Tykerb (lapatinib) on the grounds of obviousness and lack of inventiveness.Financial Performance GSK registered a 4% y-o-y increase in net profit to INR1.29bn (US$27.63mn) in Q210 ended June 30 2010. In the same period, the company also reported a 9% y-o-y rise in sales to INR4.98bn (US$106.65mn), compared with INR4.57bn (US$97.89mn) in Q209. The results have been attributed to the supply constraints in the vaccines segment. In April 2010, GSK’s OTC subsidiary GlaxoSmithKline Consumer Healthcare (GSKCH) reported a 15% y-o-y surge in net profit in Q110 (ended March 31 2010). The companys net profit stood at INR961.6mn (US$21.66mn) in Q110, compared with INR838.9mn (US$18.89mn) in Q109. In the same period, the company recorded a 20% y-o-y growth in net sales to INR6.48bn (US$146mn), compared with INR5.39bn (US$121mn) in Q109. In Q409, the company recorded sales of INR453 crore (US$98.2mn), which was an 18% increase compared with the previous year. The company’s net profit declined from INR208 crore (US$45.1mn) in Q408 to INR103 crore (US$22.3mn) in Q409 – a drop of 50%. However, it must be noted that Q408 net profit was inflated by an exceptional inflow of INR119 crore (US$25.8mn). GSK registered a net profit of INR1.24bn (US$25.6mn) in Q209, a rise of 8.2% y-o-y compared with INR1.15bn (US$23.71mn) in Q208. Revenues were also up 9.7% y-o-y to INR4.57bn (US$94.3mn), compared with INR4.17bn (US$86mn) in Q208. The positive results were attributed to the launches of new products. © Business Monitor International Ltd Page 77
  • India Pharmaceuticals & Healthcare Report Q4 2010Company Address ! GlaxoSmithKline, Dr Annie Besant Road Worli, 400 025 Mumbai, India ! Tel: +91 22 2495 9595 ! Fax: +91 22 2495 9494 ! www.gsk-india.com © Business Monitor International Ltd Page 78
  • India Pharmaceuticals & Healthcare Report Q4 2010NovartisStrengths ! One of the leading and fastest-growing global pharmaceutical manufacturers. ! Financial capability, business portfolio and industry experience to exploit the Indian drug market. ! Diverse local manufacturing presence, including branded prescription pharmaceuticals, generic drugs and OTCs. ! Strong presence in the global generic drugs market.Weaknesses ! Weak domestic patent law previously representing a major barrier to market investment for the company. ! Opaque government drug-pricing policy favouring local drug manufacturers.Opportunities ! Alignment of drug patent legislation with WTO standards. ! Strong branded drug market growth. ! Strong OTC drug-market growth. ! Expansion and modernisation of the pharmaceutical sector. ! Potential to expand presence in the generic drugs sector. ! Likely liberalisation of OTC retail channels. ! Potential for R&D activity expansion, drawing on a highly skilled and low-cost pool of local scientists, together with low operational costs.Threats ! Government failure to enforce WTO-compliant drug patent legislation properly. ! Government failure to revise its opaque and discriminatory pricing and reimbursement policy. ! Fragile domestic economy reliant on agricultural performance. ! Anticipated price cuts.Company Overview Novartis (India) was formed through the merger of Sandoz (India) with Hindustan Ciba-Geigy in April 1996. Novartis India is now a 51% subsidiary of Novartis AG, Switzerland. The company employs over 2,700 staff in India.Strategy Novartis India maintains its full-spectrum approach in India, selling patented drugs, generic drugs, OTC medicines and animal health products. It targets urban, semi-urban and rural areas. Novartis India is perhaps the most vocal proponent of India’s improving its intellectual property regime, specifically insisting that patent offices acknowledge incremental innovations.Developments In May 2010, it was revealed that Novartis intended to enter the ayurvedic business. The company initially planned to concentrate on areas of skincare, fungal infection and lifestyle category. It would also assess both allopathic and ayurvedic segments based on key consumer requirements. © Business Monitor International Ltd Page 79
  • India Pharmaceuticals & Healthcare Report Q4 2010 In June 2009, the open offer price for Novartis India was raised to INR450 (US$9.57) per share from INR351 (US$7.46) by the parent company. The new price is at 15.6% premium over the Indian arm’s stock closing price at INR389.60 (US$8.28) per share on the Bombay stock exchange (BSE) on May 27 2009. It was revealed in March 2009 that Novartis wanted to increase its stake in Novartis India from 51% to nearly 90%. The subsidiary was valued at US$87mn. Novartis introduced Khatika Churna-Calcium Sandoz@250 in April 2009, and is promoting the product to doctors as an ‘ayurvedic proprietary medicine’. Despite the presence of ‘calcium’ in the brand name, there appears to be no active pharmaceutical ingredients in the chewable tablets. In December 2008, Novartis tied up with India-based USV to sell its oral anti-diabetic agent Galvus (vildagliptin) in India. In mid-2008 Novartis India unveiled ‘Arogya Parivar’, which is a programme that aims to address the health needs of rural people. The scheme will be initially rolled out in the states of Maharashtra, Gujarat, Madhya Pradesh and Uttar Pradesh. If it proves successful, expansion throughout India will follow. In July 2010, Novartis said it would double the number of its employees involved in Arogya Parviar. At that that time, the scheme covered 202 districts and 11 states (just over a third of the total) in the South Asian country. In February 2006, Indian pharmaceutical regulators rejected a patent application by Novartis for its cancer drug Glivec. The patent was declined after the novelty of the drug was challenged by a number of Indian drug manufacturers. However, the company won an appeal, becoming the first company in India to gain exclusive marketing rights (EMRs) for its product. Novartis was originally granted exclusive marketing rights for Gleevec in 2004 – a decision that saw the price of the drug leap from INR10,000 (US$226) per month to INR1.2mn (US$2,710). The situation deteriorated in early 2007 when Novartis sought to overturn India’s IP laws after the local patent office decided to decline the patent for Gleevec. The Gleevec patent was turned down once again in July 2009.Financial Novartis registered a marginal decline in net profit in Q110 ended June 30 2010. The net profit fellPerformance to INR315.3mn (US$6.83mn) in Q110 compared with INR317.6mn (US$6.87mn) in Q109. Net sales decreased to INR1.68bn (US$36.37mn) in Q110, compared with INR1.53bn (US$33.11mn) in the same quarter of 2009.Company Address ! Novartis India Ltd, Pharmaceutical Division 6th Floor , Royal Insurance Building 14 J Tata Road, 400 020 Mumbai , India ! Tel: +91 22 2285 1111 ! Fax: +91 22 2204 7857 ! www.novartis.co.in © Business Monitor International Ltd Page 80
  • India Pharmaceuticals & Healthcare Report Q4 2010Sanofi-AventisStrengths ! Financial capability, business portfolio and industry experience to exploit the Indian drug market. ! Third largest drug producer in the world and one of the largest foreign producers in India. ! Broad portfolio of products including vaccines, antibiotics, vitamins and OTC pharmaceuticals. ! Already identified India as a market with vast potential.Weaknesses ! Weak domestic patent law previously representing a major barrier to market investment for the company. ! Opaque government drug-pricing policy favouring local drug manufacturers. ! Underdeveloped healthcare services.Opportunities ! Alignment of drug patent legislation with WTO standards. ! Strong branded drug-market and OTC market growth. ! Expansion and modernisation of the pharmaceutical sector. ! Potential to expand its presence in the generic drugs sector. ! Likely liberalisation of OTC retail channels. ! Potential for R&D activity expansion, drawing on a highly skilled and low-cost pool of local scientists with low operational costs.Threats ! Government failure to enforce WTO-compliant drug patent legislation properly. ! Anticipated price cuts on about 8% of all medicines on sale in the country. ! Government failure to revise its opaque and discriminatory pricing and reimbursement policy. ! Fragile domestic economy reliant on agricultural performance.Company Overview Sanofi-Aventis’s predecessor companies have been operating in India since 1956. As a result of the merger between Sanofi-Synthelabo and Aventis in the second half of 2004, Sanofi-Aventis improved its position on the Indian pharmaceutical market. The company operates locally through Aventis Pharma (of which it holds a 51% share) and Sanofi-Synthelabo (India), a fully-owned subsidiary. The remaining shares in Aventis are divided between mutual funds and United Trust of India (UTI), Indian promoters, foreign institutional investors (each holding over 10%), financial institutions, private corporate bodies and public shareholders (about 8.5%). The company currently employs 1,300 people at six regional offices located in Mumbai, Kolkata, Delhi, Hyderabad, Lucknow and Chennai. It also has two state-of-the-art manufacturing sites at Ankleshwar for APIs and formulations; and Goa for formulations. © Business Monitor International Ltd Page 81
  • India Pharmaceuticals & Healthcare Report Q4 2010Strategy BMI expects robust performance from Sanofi-Aventis India because it was among the first multinational pharmaceutical companies to announce a specific strategy for penetrating India’s rural areas. The company’s main competitive advantage is that it commercialises products that address chronic disease endemic in India, specifically Lantus (insulin glargine) for diabetes and Cardace (ramipril) for cardiovascular diseases.Developments In August 2010, WHO delisted the Shan5 combination vaccine from its pre-qualified medicines list. Shan5, developed by French drugmaker Sanofi-Aventis Indian subsidiary Shantha Biotech, is used to prevent infants against diphtheria, hepatitis B, whooping cough, tetanus and Haemophilus influenzae type B. The WHO took the decision after manufacturing defects were found in vaccine samples produced at a Hyderabad plant. In June 2010, Sanofi-Aventis was told by the Indian government to pay a capital gains tax of INR6.5bn (US$139.83mn), related to its acquisition of Shantha Biotechnics. The drugmaker acquired Shantha Biotechnics through Shan H, a special purpose vehicle (SPV) incorporated in France by Merieux in 2006, which mandates Sanofi to pay tax under Section 195 of the Income Tax Act. The department has claimed that the acquisition has involved the transfer of Shantha, an Indian asset, which makes Sanofi liable to pay the tax. In May 2010, Sanofi-Aventiss Indian subsidiary Shantha Biotech initiated a worldwide recall of various lots of its 24mn five-in-one vaccines. The recall came after the World Health Organization (WHO) found that some white particles in the vaccine were not dissolving, raising concerns for its usage and safety. In April 2010, Sanofi-Aventis entered an agreement with privately held US-based AgaMatrix to develop and commercialise blood glucose monitoring devices. Sanofi expects to launch the products in India during 2011. In December 2009, Sanofi-Aventis announced that it intends to sell a range of generic drugs throughout India’s towns, villages and agricultural areas. The initiative has been named ‘Prayas’, which is a Hindi word, derived from Sanskrit, meaning ‘endeavour’. A key thrust of the strategic plan is educating doctors on the benefits of prescribing Sanofi-Aventis products. The affordable products will treat easy-to-diagnose conditions, such as coughs and colds, acute pain, and non- complicated infections. Four local manufacturing firms will be contracted to produce the medicines for Sanofi-Aventis. Through Prayas, the company is targeting additional annual sales of INR500 crore (US$107mn) by 2014. In July 2009, Sanofi-Aventis acquired Indian vaccine manufacturer Shantha Biotechnics for US$781mn. Annual sales recorded by Shantha were approximately US$90mn.Financial For the full-year ended December 2009, sales recorded by Aventis Pharma were INR974.4 croreResults (US$207.9mn), down from INR983.3 crore (US$209.8mn) in the previous year. Profit dropped from INR166.2 crore (US$35.5mn) to INR157.4 crore (US$33.6mn).Company Address ! Sanofi-Aventis Pharmaceuticals India 54a Sir Mathurdas Vasanji Rd Andheri East, 400 093 Mumbai, India ! Tel: +91 22 2827 8000 ! www.sanofi-aventis.in © Business Monitor International Ltd Page 82
  • India Pharmaceuticals & Healthcare Report Q4 2010Merck & CoStrengths ! Financial capability, business portfolio and industry experience to exploit the Indian drug market. ! Broad portfolio of products including prescription medicines and OTC pharmaceuticals.Weaknesses ! Opaque government drug-pricing policy continuing to favour local manufacturers. ! Strong competition from both local and foreign manufacturers. ! Widespread counterfeiting in the pharmaceutical sector. ! Relatively recent entry in to the Indian market.Opportunities ! The alignment of drug patent legislation with WTO standards. ! Robust branded drug market growth. ! Four new products currently undergoing registration studies. ! Potential for R&D activity expansion, drawing on a highly skilled and low-cost pool of local scientists with low operational costs. ! In-licensing and out-licensing arrangements with Indian pharmaceutical companies enhancing research potential. ! Likely liberalisation of OTC retail channels.Threats ! Government failure to enforce WTO-compliant drug patent legislation. ! Anticipated price cuts on about 8% of all medicines sold in the country. ! Government failure to revise its opaque and discriminatory pricing and reimbursement policy. ! Traditionally fragile domestic economy, susceptible to wide fluctuations based on agricultural performance.Company Overview MSD Pharmaceuticals, the local subsidiary of US drug major Merck & Co, commenced operations in India during January 2005. The move followed the Indian government’s accession to WTO, and its subsequent approval of TRIPS-compliant patent law in March 2005, allowing product patents for pharmaceuticals. In April 2005, the company established its operations at its new Indian headquarters located in Delhi. Over the next five years, MSD Pharmaceuticals’ new premises would house up to 120 staff from areas such as sales and marketing, medical and regulatory affairs, external affairs and human resources. The company, which has a US$15mn commitment for investment following Foreign Investment Promotion Board (FIPB) approval, also plans to invest in sales, marketing and research operations on site. In addition, 50 new high-level jobs are also planned over the next 12 months. © Business Monitor International Ltd Page 83
  • India Pharmaceuticals & Healthcare Report Q4 2010Strategy Although MSD Pharmaceuticals has ruled out any plans to set up a manufacturing unit in India in the near future, it is nevertheless looking at India for R&D purposes, starting with clinical trials and progressing upstream towards drug discovery activities. The company is currently establishing an Indian medical and clinical research division, which will coordinate research projects with clinical investigators at India’s leading hospitals and universities. By employing differential pricing for one of its leading products, the Indian subsidiary of Merck & Co is looking to become a major player in one of the world’s fastest growing markets. MSD Pharmaceuticals is currently outside the top 100 pharmaceutical firms in India, but by 2015 it hopes to achieve annual sales of INR1,800 crore (US$388mn) and thereby become one of the top five players. In May 2010, MSD was planning to transfer its Indian headquarters from Delhi NCR to Mumbai. The shift is part of an integration process associated with the global merger of Merck & Co and US healthcare company Schering-Plough.Developments In August 2009, MSD planned to expand its business in India through joint ventures and possible acquisitions. Naveen A Rao, the managing director, disclosed that the company aimed to launch four drugs per year from its international patented drugs portfolio. The company also decided to launch an osteoporosis drug during October 2009. In October 2008, MSD launched its human papillomavirus (HPV) vaccine, Gardasil, in India. The vaccine is used to prevent cervical cancer, abnormal and precancerous cervical lesions, vaginal lesions, vulvar lesions and genital warts, caused by various types of HPV. In October 2008, Merck contracted India’s Orchid Chemicals & Pharmaceuticals to conduct drug discovery and early stage research in the anti-infectives field. In return for an undisclosed upfront payment, Orchid will discover and develop compounds for the treatment of bacterial and fungal infections. The Indian firm will leverage its expertise in the antibiotic field – especially cephalosporins, penicillins and carbapenems – and push these product candidates through to phase IIa trials.Company Address ! MSD Pharmaceuticals Pvt Ltd Suite No. 1001, 1 Mansingh Road 110 011 New Delhi, India ! Tel: +91 11 2302 6086 ! Fax: +91 11 2302 6072 ! www.msd.in © Business Monitor International Ltd Page 84
  • India Pharmaceuticals & Healthcare Report Q4 2010Country Snapshot: India Demographic DataSection 1: Population Population by age, 2005 Population by age, 2005:2030 (total) 75+ 75+ 70-74 70-74 65-69 65-69 60-64 60-64 55-59 55-59 50-54 50-54 45-49 45-49 40-44 40-44 35-39 35-39 30-34 30-34 25-29 25-29 20-24 20-24 1 9 5-1 1 9 5-1 1 4 0-1 1 4 0-1 5-9 5-9 0-4 0-4 -60.0 -40.0 -20.0 0.0 20.0 40.0 60.0 -150.0 -100.0 -50.0 0.0 50.0 100.0 150.0 Male Female 2030 2005Figures in millions. Source: UN Population DivisionTable: Demographic Indicators, 2005-2030 2005 2010f 2020f 2030fDependent population, % of total 36.8 35.0 33.4 31.7Dependent population, total, ‘000 402,947 409,342 461,380 477,392Active population, % of total 63.1 64.9 66.5 68.3Active population, total, ‘000 691,636 757,201 917,819 1,028,356Youth population*, % of total 31.6 29.7 26.7 22.8Youth population*, total, ‘000 346,631 347,406 368,798 344,299Pensionable population, % of total 5.1 5.3 6.7 8.8Pensionable population, total, ‘000 56,316 61,936 92,582 133,093f = forecast. * Youth = under 15. Source: UN Population Division© Business Monitor International Ltd Page 85
  • India Pharmaceuticals & Healthcare Report Q4 2010Table: Rural/Urban Breakdown, 2005-2030 2005 2010f 2020f 2030fUrban population, % of total 28.7 30.3 34.3 40.6Rural population, % of total 71.3 69.7 65.7 59.4Urban population, total, ‘000 317,131 358,076 473,065 611,334Rural population, total, ‘000 786,240 825,216 906,133 894,414Total population, ‘000 1,103,371 1,183,292 1,379,198 1,505,748f = forecast. Source: UN Population DivisionSection 2: Education and HealthcareTable: Education, 2002-2005 2002/03 2004/05Gross enrolment, primary 116 115Gross enrolment, secondary 54 54Gross enrolment, tertiary 12 11Gross enrolment is the number of pupils enrolled in a given level of education regardless of age expressed as apercentage of the population in the theoretical age group for that level of education. Source: UNESCOTable: Vital Statistics, 2005-2030 2005 2010f 2020f 2030fLife expectancy at birth, males (years) 61.7 63.2 66.6 69.3Life expectancy at birth, females (years) 64.7 66.7 70.4 73.6Life expectancy estimated at 2005; f = forecast. Source: UNESCO© Business Monitor International Ltd Page 86
  • India Pharmaceuticals & Healthcare Report Q4 2010Section 3: Labour Market And Spending PowerTable: Employment Indicators, 1996-2001 1996 1997 1998 1999 2000 2001Economically active population, ‘000 na na na na na 402,235– % change y-o-y na na na na na 38.2– % of total population 347,060 350,402 340,596 na 368,966 naEmployment, ‘000 0.9 0.9 -2.8 na na na– % change y-o-y 257,598 261,862 259,706 na 262,484 na– male 89,462 88,540 80,890 na 106,482 na– female 25.7 25.2 23.7 na 28.8 na– female, % of total 7,564 9,323 12,542 na 16,634 naTotal employment, % of labour force 6,428 7,107 9,489 na 11,838 naUnemployment, ‘000 1,136 2,217 3,052 na 4,797 na– male 2.1 2.6 3.6 na 4.3 naf = forecast. na = not available. Source: ILOTable: Consumer Expenditure, 2000-2012 (US$) 2000 2007e 2008e 2009e 2010f 2012fConsumer expenditure per capita 292 502 594 701 793 994Poorest 20%, expenditure per capita 118 203 241 284 321 403Richest 20%, expenditure per capita 662 1,138 1,346 1,588 1,796 2,252Richest 10%, expenditure per capita 910 1,563 1,848 2,181 2,466 3,093Middle 60%, expenditure per capita 227 390 461 545 616 772Purchasing power parityConsumer expenditure per capita 1,482 2,296 2,488 na na naPoorest 20%, expenditure per capita 600 930 1,008 na na naRichest 20%, expenditure per capita 3,357 5,200 5,635 na na naRichest 10%, expenditure per capita 4,609 7,140 7,738 na na naMiddle 60%, expenditure per capita 1,151 1,783 1,932 na na nae/f = BMI estimate/forecast. na = not available. Source: World Bank, Country data; BMI calculation© Business Monitor International Ltd Page 87
  • India Pharmaceuticals & Healthcare Report Q4 2010Table: Average Annual Manufacturing Wages, 2000-2012 2000 2006 2007e 2008e 2009e 2010f 2012fLocal currency 15,370 24,351 26,974 29,665 32,435 35,428 42,013Wage growth, % y-o-y -17.2 8.83 10.7 9.9 9.3 9.2 8.9US$ 354 551 616 723 842 937 1,131e/f = BMI estimate/forecast. Source: ILO, BMI© Business Monitor International Ltd Page 88
  • India Pharmaceuticals & Healthcare Report Q4 2010BMI MethodologyHow We Generate Our Pharmaceutical Industry Forecasts Pharmaceutical sub-sector forecasts are generated using a top-down approach from BMI’s Drug Expenditure Forecast Model. The semi-automated tool incorporates historic trends, macroeconomic variables, epidemiological forecasts and analyst input, which are weighted by relevance to each market. The following elements are fed into the model: ! BMI’s historic pharmaceutical market data, which has been collected from a range of sources including: – regulatory agencies – pharmaceutical trade associations – company press releases and annual reports – subscription information providers – local news sources – information from market research firms that is in the public domain. ! Data that has been validated by BMI’s pharmaceutical and healthcare analysts using a composite approach, which scores data sources by reliability in order to ensure accuracy and consistency of historic data. ! Five key macroeconomic and demographic variables, which have been demonstrated, through regression analysis, to have the greatest influence on the pharmaceutical market. These have been forecast by BMI’s Country Risk analysts using an in-house econometric model. ! The burden of disease in a country. This is forecast in disability-adjusted life years (DALYs) using BMI’s Burden of Disease Database, which is based on the WHO’s burden of disease projections and incorporates World Bank and IMF data. ! Subjective input and validation by BMI’s pharmaceutical and healthcare analysts to take into account key events that have affected the pharmaceutical market in the recent past or that are expected to have an impact on the country’s pharmaceutical market over the next five years. These may include policy/reimbursement decisions, new product launches or increased competition from generics.© Business Monitor International Ltd Page 89
  • India Pharmaceuticals & Healthcare Report Q4 2010Pharmaceuticals Business Environment RatingsRisk/Reward Ratings Methodology BMI’s approach in assessing the risk/reward balance for Pharmaceutical & Healthcare Industry investors globally is fourfold. First, we identify factors (in terms of current industry/country trends and forecast industry/country growth) representing opportunities to would-be investors. Second, we identify country and industry-specific traits which pose or could pose operational risks to would-be investors. Third, we attempt, where possible, to identify objective indicators that may serve as proxies for issues/trends to avoid subjectivity. Finally, we use BMI’s proprietary Country Risk Ratings (CRR), ensuring that only the aspects most relevant to the Pharmaceutical & Healthcare Industry are incorporated. Overall, the system offers an industry-leading, comparative insight into the opportunities and risks for companies across the globe.Ratings Overview Ratings System Conceptually, the ratings system divides into two distinct areas: Rewards: Evaluation of the sector’s size and growth potential in each state, as well as broader industry/state characteristics that may inhibit its development. Risks: Evaluation of industry-specific dangers and those emanating from a state’s political/economic profile that call into question the likelihood of anticipated returns being realised over the assessed time period. Indicators The following indicators have been used. Overall, the ratings use three subjectively measured indicators and 41 separate indicators/datasets.© Business Monitor International Ltd Page 90
  • India Pharmaceuticals & Healthcare Report Q4 2010Table: Pharmaceutical Business Environment IndicatorsIndicator RationaleRewardsIndustry RewardsMarket expenditure, US$bn Denotes breadth of pharmaceutical market. Large markets score higher than smaller onesMarket expenditure per capita, US$ Denotes depth of pharmaceutical market. High value markets score better than low value onesSector value growth, % y-o-y Denotes sector dynamism. Scores based on annual average growth over five-year forecast periodCountry RewardsUrban-rural split Urbanisation is used as a proxy for development of medical facilities. Predominantly rural states score lowerPensionable population, % of total Proportion of the population over 65 years of age. States with ageing populations tend to have higher per-capita expenditurePopulation growth, 2003-2015 Fast-growing states suggest better long-term trend growth for all industriesOverall score for Country Structure is also affected by the coverage of the power transmission network across the stateRisksIndustry RisksIntellectual property (IP) laws Markets with fair and enforced IP regulations score higher than those with endemic counterfeitingPolicy/reimbursements Markets with full and equitable access to modern medicines score higher than those with minimal state supportApprovals process High scores awarded to markets with a swift appraisal system. Those that are weighted in favour of local industry or are corrupt score lowerCountry RisksEconomic structure Rating from CRR evaluates the structural balance of the economy, noting issues such as reliance on single sectors for exports/growth, and past economic volatilityPolicy continuity Rating from CRR evaluates the risk of a sharp change in the broad direction of government policyBureaucracy Rating from CRR denotes ease of conducting business in the stateLegal framework Rating from CRR denotes the strength of legal institutions in each state. Security of investment can be a key risk in some emerging marketsCorruption Rating from CRR denotes the risk of additional illegal costs/possibility of opacity in tendering/business operations affecting companies’ ability to competeSource: BMI© Business Monitor International Ltd Page 91
  • India Pharmaceuticals & Healthcare Report Q4 2010Weighting Given the number of indicators/datasets used, it would be inappropriate to give all sub-components equal weight. Consequently, the following weight has been adopted.Table: Weighting Of ComponentsComponent WeightingRewards 60%– Industry Rewards – 75%– Country Rewards – 25%Risks 40%– Industry Risks – 60%– Country Risks – 40%Source: BMISources Sources used include national industry associations, government ministries, global health organisations, officially released pharmaceutical company results and international and national news agencies.© Business Monitor International Ltd Page 92
  • Table: India Pharmaceutical Sales Market Indicators, Historical Data and Forecasts 2005 2006 2007 2008 2009 2010f 2011f 2012f 2013f 2014f 2015f 2016f 2017f 2018f 2019f Pharmaceutical sales (US$bn) 9.177 11.161 12.404 13.729 15.653 19.304 22.992 26.880 30.680 34.371 38.229 42.292 46.339 50.314 54.171 Pharmaceutical sales (US$bn), % 16.5 21.6 11.1 10.7 14.0 23.3 19.1 16.9 14.1 12.0 11.2 10.6 9.6 8.6 7.7 chg y-o-y Pharmaceutical sales (INRbn) 410.891 478.202 549.899 632.389 739.340 837.805 942.663 1057.727 1182.711 1316.414 1452.699 1594.394 1740.021 1886.760 2031.406 Pharmaceutical sales (INRbn), % 19.3 16.4 15.0 15.0 16.9 13.3 12.5 12.2 11.8 11.3 10.4 9.8 9.1 8.4 7.7 chg y-o-y Pharmaceutical sales at constant 8.699 10.124 11.642 13.388 15.653 17.737 19.957 22.393 25.039 27.870 30.755 33.755 36.838 39.945 43.007© Business Monitor International Ltd exchange rate (US$bn) Pharmaceutical sales, per capita 8.4 10.1 11.0 12.0 13.5 16.5 19.4 22.4 25.2 27.9 30.7 33.5 36.3 39.0 41.6 (US$) Pharmaceutical sales, % of GDP 1.11 1.12 1.11 1.13 1.19 1.16 1.14 1.11 1.08 1.05 1.02 0.99 0.96 0.92 0.88 Pharmaceutical sales, % of health 27.11 28.00 28.34 28.77 30.47 31.06 31.59 31.99 32.27 32.44 32.33 32.05 31.57 30.92 30.07 expenditure f = forecast. Source: IMS Health, AIOCD Pharmasofttech AWACS, Organisation of Pharmaceutical Producers of India (OPPI), BMI Table: India Healthcare Expenditure Indicators, Historical Data and Forecasts 2005 2006 2007 2008 2009 2010f 2011f 2012f 2013f 2014f 2015f 2016f 2017f 2018f 2019f Health expenditure (US$bn) 33.858 39.854 43.766 47.713 51.378 62.144 72.772 84.017 95.071 105.957 118.253 131.965 146.771 162.702 180.129 Health expenditure (US$bn), % India Pharmaceuticals & Healthcare Report Q4 2010 10.6 17.7 9.8 9.0 7.7 21.0 17.1 15.5 13.2 11.5 11.6 11.6 11.2 10.9 10.7 chg y-o-y Health expenditure (INRbn) 1515.916 1707.597 1940.293 2197.765 2426.799 2697.051 2983.671 3306.084 3664.973 4058.153 4493.615 4975.099 5511.266 6101.315 6754.832 Health expenditure (INRbn), % 13.3 12.6 13.6 13.3 10.4 11.1 10.6 10.8 10.9 10.7 10.7 10.7 10.8 10.7 10.7 chg y-o-y Health expenditure at constant 32.094 36.152 41.078 46.529 51.378 57.100 63.168 69.994 77.592 85.916 95.135 105.329 116.680 129.172 143.008 exchange rate (US$bn) Health expenditure per capita 30.9 35.9 38.9 41.9 44.5 53.1 61.3 69.9 78.1 86.0 94.8 104.6 115.0 126.1 138.2 (US$) Health expenditure (% GDP) 4.09 3.99 3.92 3.94 3.91 3.73 3.59 3.46 3.34 3.24 3.16 3.10 3.03 2.98 2.94 f = forecast. Source: World Health Organization, BMIPage 93
  • Table: India Prescription Drug Sales Indicators, Historical Data and Forecasts 2005 2006 2007 2008 2009 2010f 2011f 2012f 2013f 2014f 2015f 2016f 2017f 2018f 2019f Prescription drug sales (US$bn) 7.934 9.789 10.913 12.090 13.839 17.065 20.301 23.699 26.994 30.160 33.412 36.780 40.057 43.172 46.064 Prescription drug sales (US$bn), % chg y-o-y 18.5 23.4 11.5 10.8 14.5 23.3 19.0 16.7 13.9 11.7 10.8 10.1 8.9 7.8 6.7 Prescription drug sales (INRbn) 355.2 419.4 483.8 556.9 653.7 740.6 832.4 932.5 1,040.6 1,155.1 1,269.6 1,386.6 1,504.1 1,619.0 1,727.4 Prescription drug sales (INRbn), % chg y-o-y 21.4 18.1 15.3 15.1 17.4 13.3 12.4 12.0 11.6 11.0 9.9 9.2 8.5 7.6 6.7 Prescription drug sales, % of total sales 86.45 87.71 87.98 88.06 88.41 88.40 88.30 88.16 87.99 87.75 87.40 86.97 86.44 85.81 85.03 f = forecast. Source: BMI© Business Monitor International Ltd Table: India Patented Drug Market Indicators, Historical Data and Forecasts 2005 2006 2007 2008 2009 2010f 2011f 2012f 2013f 2014f 2015f 2016f 2017f 2018f 2019f Patented drug sales (US$bn) 0.717 0.882 0.992 1.115 1.288 1.610 1.943 2.303 2.665 3.028 3.416 3.833 4.260 4.693 5.109 Patented drug sales (US$bn), % chg y-o-y 17.7 23.0 12.5 12.3 15.5 25.0 20.7 18.5 15.7 13.6 12.8 12.2 11.2 10.2 8.9 Patented drug sales (INRbn) 32.091 37.778 43.992 51.350 60.834 69.863 79.676 90.631 102.748 115.969 129.790 144.491 159.970 175.997 191.604 Patented drug sales (INRbn), % chg y-o-y 20.5 17.7 16.4 16.7 18.5 14.8 14.0 13.7 13.4 12.9 11.9 11.3 10.7 10.0 8.9 Patented drug sales, % of prescription sales 9.034 9.007 9.093 9.221 9.306 9.433 9.572 9.719 9.874 10.039 10.223 10.421 10.635 10.871 11.092 Patented drug sales, % of total sales 7.81 7.90 8.00 8.12 8.23 8.34 8.45 8.57 8.69 8.81 8.93 9.06 9.19 9.33 9.43 f = forecast. Source: IMS Health, AIOCD Pharmasofttech AWACS, Organisation of Pharmaceutical Producers of India (OPPI), BMI India Pharmaceuticals & Healthcare Report Q4 2010 Table: India Generic Drug Market Indicators, Historical Data and Forecasts 2005 2006 2007 2008 2009 2010f 2011f 2012f 2013f 2014f 2015f 2016f 2017f 2018f 2019f Generic drug sales (US$bn) 7.217 8.908 9.920 10.975 12.551 15.455 18.358 21.395 24.329 27.132 29.996 32.947 35.797 38.479 40.954 Generic drug sales (US$bn), % chg y-o-y 18.6 23.4 11.4 10.6 14.4 23.1 18.8 16.5 13.7 11.5 10.6 9.8 8.6 7.5 6.4 Generic drug sales (INRbn) 323.1 381.7 439.8 505.5 592.9 670.7 752.7 841.9 937.9 1,039.2 1,139.9 1,242.1 1,344.2 1,443.0 1,535.8 Generic drug sales (INRbn), % chg y-o-y 21.5 18.1 15.2 14.9 17.3 13.1 12.2 11.9 11.4 10.8 9.7 9.0 8.2 7.4 6.4 Generic drug sales, % of prescription sales 90.966 90.993 90.907 90.779 90.694 90.567 90.428 90.281 90.126 89.961 89.777 89.579 89.365 89.129 88.908 Generic drug sales, % of total sales 78.64 79.81 79.98 79.94 80.19 80.06 79.85 79.60 79.30 78.94 78.46 77.90 77.25 76.48 75.60Page 94 f = forecast. Source: IMS Health, AIOCD Pharmasofttech AWACS, Organisation of Pharmaceutical Producers of India (OPPI), BMI
  • Table: OTC Drug Market Indicators, Historical Data and Forecasts 2005 2006 2007 2008 2009 2010f 2011f 2012f 2013f 2014f Analgesic OTC medicine sales (US$mn) 178.80 192.90 201.70 223.40 258.60 319.38 383.67 453.69 525.62 600.48 Cough & cold OTC medicine sales (US$mn) 227.20 250.70 269.70 295.10 318.10 392.87 471.95 558.08 646.55 738.64 Digestive OTC medicine sales (US$mn) 231.40 256.70 281.00 301.20 332.60 410.78 493.46 583.52 676.02 772.31 Skin treatment OTC medicine sales (US$mn) 144.10 160.30 181.90 212.40 236.50 292.09 350.88 414.92 480.70 549.16 Vitamin and mineral OTC medicine sales (US$mn) 447.10 494.30 538.60 583.00 634.50 783.64 941.38 1113.18 1289.65 1473.34 Other OTC medicine sales (US$mn) 14.80 16.40 18.10 23.90 33.10 783.64 941.38 1113.18 1289.65 1473.34 f = forecast. Source: Organisation of Pharmaceutical Producers of India (OPPI), BMI; *advertised non-prescription drugs© Business Monitor International Ltd Table: OTC Drug Market Indicators, Historical Data and Forecasts 2005 2006 2007 2008 2009 2010f 2011f 2012f 2013f 2014f Analgesic OTC medicine sales (INRmn) 8,005 8,265 8,942 10,290 12,215 13,861 15,731 17,853 20,262 22,998 Cough & cold OTC medicine sales (INRmn) 10,172 10,742 11,957 13,593 15,025 17,051 19,350 21,961 24,925 28,290 Digestive OTC medicine sales (INRmn) 10,360 10,999 12,458 13,874 15,710 17,828 20,232 22,962 26,061 29,580 Skin treatment OTC medicine sales (INRmn) 6,452 6,868 8,064 9,784 11,171 12,677 14,386 16,327 18,531 21,033 Vitamin and mineral sales OTC medicine sales (INRmn) 20,018 21,179 23,878 26,854 29,970 34,010 38,597 43,804 49,716 56,429 Other OTC medicine sales (INRmn) 663 703 802 1,101 1,563 34,010 38,597 43,804 49,716 56,429 India Pharmaceuticals & Healthcare Report Q4 2010 f = forecast. Source: Organisation of Pharmaceutical Producers of India (OPPI), BMI; *advertised non-prescription drugsPage 95
  • Table: Romania Pharmaceutical Trade Indicators, Historical Data and Forecasts (US$mn) 2005 2006 2007 2008 2009 2010f 2011f 2012f 2013f 2014f Pharmaceutical exports (US$mn) 2,292.3 2,943.9 3,736.7 4,907.1 4,903.7 6,488.5 8,242.5 10,171.5 12,133.7 14,080.9 Pharmaceutical exports (US$mn), % chg y-o-y 22.8 28.4 26.9 31.3 -0.1 32.3 27.0 23.4 19.3 16.0 Pharmaceutical exports (INRmn) 102,632 126,134 165,663 226,031 231,622 281,603 337,944 400,250 467,755 539,298 Pharmaceutical exports (INRmn), % chg y-o-y 25.8 22.9 31.3 36.4 2.5 21.6 20.0 18.4 16.9 15.3 Pharmaceutical imports (US$mn) 346.1 513.3 657.8 847.4 1,003.4 1,403.9 1,901.7 2,523.9 3,266.5 4,149.3 Pharmaceutical imports (US$mn), % chg y-o-y 33.4 48.3 28.1 28.8 18.4 39.9 35.5 32.7 29.4 27.0© Business Monitor International Ltd Pharmaceutical imports (INRmn) 15,496 21,995 29,162 39,032 47,392 60,928 77,969 99,317 125,924 158,917 Pharmaceutical imports (INRmn), % chg y-o-y 36.7 41.9 32.6 33.8 21.4 28.6 28.0 27.4 26.8 26.2 Pharmaceutical trade balance (US$mn) 1,946.2 2,430.5 3,078.9 4,059.7 3,900.4 5,084.7 6,340.9 7,647.6 8,867.2 9,931.6 Pharmaceutical trade balance (INRmn) 87,135 104,139 136,501 186,999 184,230 220,675 259,975 300,933 341,831 380,382 f = forecast. Source: United Nations Commodity Trade Statistics Database, BMI Table: India Medical Device Market Indicators - Historical Data and Forecasts India Pharmaceuticals & Healthcare Report Q4 2010 2005 2006 2007 2008 2009 2010f 2011f 2012f 2013f 2014f 2015f 2016f 2017f 2018f 2019f Medical device sales (US$bn) 1.197 1.441 1.750 2.093 2.404 3.087 3.814 4.607 5.414 6.225 7.091 8.010 8.930 9.821 10.647 Medical device sales (US$bn), % chg y-o-y 37.4 20.3 21.5 19.6 14.9 28.4 23.5 20.8 17.5 15.0 13.9 13.0 11.5 10.0 8.4 Medical device sales (INRbn) 53.608 61.730 77.602 96.424 113.560 133.994 156.365 181.289 208.724 238.421 269.439 301.959 335.312 368.287 399.251 Medical device sales (INRbn), % chg y-o-y 40.7 15.1 25.7 24.3 17.8 18.0 16.7 15.9 15.1 14.2 13.0 12.1 11.0 9.8 8.4 Medical device sales at constant exchange rate 1.135 1.307 1.643 2.041 2.404 2.837 3.310 3.838 4.419 5.048 5.704 6.393 7.099 7.797 8.453 (US$bn) Medical device sales, % of GDP 0.14 0.14 0.16 0.17 0.18 0.19 0.19 0.19 0.19 0.19 0.19 0.19 0.18 0.18 0.17 Medical device sales, % of total healthcare sales 3.54 3.61 4.00 4.39 4.68 4.97 5.24 5.48 5.70 5.88 6.00 6.07 6.08 6.04 5.91Page 96 f = forecast. Source: Association of Medical Devices and Suppliers of India (AMDSI), The Associated Chambers of Commerce and Industry of India (Assocham)
  • Table: India – Other Healthcare Indicators, Historical Data and Forecasts 2005 2006 2007 2008 2009 2010f 2011f 2012f 2013f 2014f Hospitals, total 5,479 7,663 9,923 11,289 12,192 13,046 13,828 14,520 15,101 15,838 Hospital beds, per 000 population 0.34 0.44 0.42 0.42 0.43 0.45 0.46 0.47 0.48 0.49 Doctors, per 000 population 0.59 0.60 0.60 0.61 0.62 0.63 0.63 0.64 0.65 0.65 Births, per 000 population 24.5 24.3 24.2 24.0 23.8 23.7 23.5 23.3 23.2 23.0 Deaths, per 000 population 7.60 7.50 7.30 7.20 7.07 6.94 6.82 6.71 6.59 6.48 f = forecast. Source: Ministry of Health & Family Welfare, Central Bureau Of Health Intelligence, BMI© Business Monitor International Ltd Table: India Clinical Trial Data 2006 2007 2008 2009 Total clinical trials 209 221 304 255 Phase I clinical trials 12 11 14 29 Phase II clinical trials 46 63 71 60 Phase III clinical trials 128 128 162 96 Phase IV clinical trials 17 18 25 42 f = forecast. Source: BMI India Pharmaceuticals & Healthcare Report Q4 2010Page 97