PWC CII-pharma-summit-capitalising on indias growth potential


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PWC CII-pharma-summit-capitalising on indias growth potential

  1. 1. PharmaInc.: Capitalisingon India’sGrowth Potential
  2. 2. Foreword Sujay Shetty Jai Hiremath Director Chairman, India Pharmaceuticals & CII Pharma Summit 2010 & Life sciences leader, PwC Vice Chairman & Managing Director, Hikal Ltd.The global Pharma industry is under serious pressure from a large number of innovator molecules facing patent expiration,a thin pipeline of new drugs, regulatory challenges and pricing pressures. This has led to a directional shift towards theemerging markets of Asia, Australia, Africa and Latin America, which are growing three times faster than the currentgrowth rates experienced in the industry’s leading markets of North America, Japan and Europe. We expect over 40% ofthe global Pharma industry’s incremental growth over the next decade to come from the emerging markets.The Indian Pharma industry is on the threshold of becoming a major global market by 2020. Many experts believe thatthe Industry has the potential to grow at an accelerated 15 to 20% CAGR for the next 10 years to reach between US$49billion to US$74 billion in 2020.The Indian pharmaceuticals market is witnessing dynamic changing trends such as large acquisitions by multinationalcompanies in India, increasing investment by domestic and international players in India, deeper penetration into the ruralmarkets, growth and availability of healthcare and incentives for setting up special economic zones (SEZ’s). We believethese trends combined with increased purchasing power and access to good quality medical care will continue to propelthe domestic pharmaceutical industry to new heights.Indian Pharma companies are already major outsourcing partners of global Pharma companies. Research & Developmentin India is getting more innovative. Domestic companies have strengthened their position in the world for supplyingsolutions across the pharmaceutical value chain. They are likely to become a competitor of global Pharma in the areasof manufacturing and R&D, and a potential partner in others.In this report, we look at developments in the branded generics market, over-the-counter products (OTC), vaccines andrural markets, and analyse what lies ahead for the industry as it aims to capitalise on the promise of the domestic marketplace. We believe that the domestic Indian pharmaceutical market has a positive growth trajectory but will also face majortransformational challenges in the next decade. We address some of these challenges and identify key imperatives toaccelerate the domestic market’s growth.
  3. 3. ContentsBackground 6The Indian Domestic Pharma Market 14Indian Pharma Market Segments 18Rural markets 28Vaccines 34Changing Tax Environment 38Challenges 44The Road Ahead - Imperatives for Growth 48Profiles 52References 60About Confederation of Indian Industry 62About PricewaterhouseCoopers 63Contacts
  4. 4. Executive SummaryThe global pharmaceutical market is industry has a favourable macro- Currently, around 67% of India’sundergoing rapid transformation. As environment to grow in. The Indian population, or 742 million people liveblockbuster drugs come off patent, there economy has rebounded from the global in rural areas (6), but rural marketsare fewer new products in the pipeline to economic downturn, with real gross contribute to only 17% (7) of the overallreplace them. This is due to declining domestic product (GDP) growth reaching market’s sales. This represents a hugeR&D productivity and rising regulatory 9.66% in 2010.(4) The Indian middle opportunity for pharmaceuticalcosts. In PwC Pharma 2020 series of class is also expanding rapidly, with companies, as we expect these marketsreports, we have examined in detail the affordability of medicines increasing, to be the future growth drivers for thechallenges faced by Big Pharma in this and an increased percentage of industry. The rural market has severalregard. There has been a dramatic shift disposable income being spent on challenges, and in order to tap the fulltowards emerging markets as western healthcare. The government has made potential of this opportunity, companiesmarkets slow down. Global Pharma public healthcare one of its top priorities should:multinational corporations are looking by launching policies and programmes • create demand by increasingat new growth drivers such as the Indian that are aimed at making healthcare awareness and education;domestic market to capitalise on the more affordable and accessible, especially • work with the government throughgrowing opportunity. in rural markets. public-private partnerships (PPP),The paradigm faced by the leading The industry is witnessing trends in order to improve hygiene andeconomies of the US, Europe and Japan such as acquisition activity, increasing infrastructure conditions;are significantly different from those in investment, deeper penetration into • mobilise primary care givers andthe emerging markets of India, China, the tier I to tier VI and rural markets, paramedics through health andSouth America and Russia. According growth in insurance coverage and diagnostic camps;to IMS Health, the emerging markets innovation in healthcare delivery. • bring specific product solutions toof Asia/Africa/Australia grew at a rate Taken together, these trends are leading the market and use local languages;of 15.9% in 2009, as compared to much to increased affordability of services • improve accessibility of medicinesslower growth rates in North America to patients and access to quality medical by innovative distribution channels(5.5%), Japan (7.6%) and Europe care. We believe these trends, along and(4.8%).(1) Emerging markets will be the with the favourable macro environment • make products affordable, throughnext major growth drivers for the global will propel the industry to the next level appropriate pricing and packaging.Pharma industry, with more than 40% of growth. Top Indian and foreign companies willof incremental growth of the industry At the moment, approximately 90% of look to increase their market share bycoming from emerging economies in India’s pharmaceutical market is made entering into strategic alliances,the next decade.(2) up of branded generics.(5) We estimate strengthening their sales forces andIn our report, “Capitalising on India’s that this segment will grow at a CAGR increasing penetration into newergrowth potential”, we analyse the of 15% - 20% for the next five years.(5) markets.immense potential of India’s domestic Generic generics’ and patented products’ The potential that the Indian PharmaPharma market, which was valued at contributions to the market as a whole is industry holds is unquestionable. Indiaapproximately US$12 billion in 2010, currently very low. Although this is the is home to approximately 1/6th of theand showed a strong growth of 21.3% expected model of the future, we do not world’s population, and is expected tofor the twelve months ending September foresee a significant increase in the next become the most populous nation in the2010.(3) PwC estimates that over the next five years; the market is expected to world by 2050.(8) Demand for10 years, the domestic market will grow remain comprised predominantly of pharmaceuticals will grow US$49 billion - a compounded annual branded generics. By 2020 though, Government must continue to invest ingrowth rate (CAGR) of 15%, with the patented drug sales are expected to healthcare and medical infrastructure inpotential to reach US$74 billion – a increase, owing to an improvement in rural markets, raise healthcare spending,CAGR of 20%, if aggressive growth the implementation of patent laws and encourage innovation, contain healthcaredrivers kick in. spread of health insurance. We also costs and work with private players toOne of the reasons behind this expected expect the OTC segment to be a strong take the market to the next level.growth rate is that India’s pharmaceutical growth driver for the industry.
  5. 5. BackgroundStrong macroeconomicsover the next decade The Growing Indian Economy Growing Middle Class With Higher Purchasing Power Changing Disease Profile Government Policies Healthcare Insurance
  6. 6. Large numbers of forthcoming patentexpiries, a dry pipeline of new drugs, Figure 1: Emerging markets (Asia/Australia/Africa & Latinregulatory challenges and pricing America) growing faster than developed marketsrestrictions have collectively contributedto low growth rates for prominent global 15.90%pharmaceutical markets. As global 18.00%markets such as North America, Europe 16.00%and Japan continue to slow down (See 14.00%figure 1), pharmaceutical companies are 10.60% Growth Rate (%) 12.00%scanning markets for new growthopportunities to boost drug discovery 10.00% 7.60%potential, reduce time to market and 8.00% 5.50%squeeze costs along the value chain. The 6.00% 4.80%Industry is beginning to realize that some 4.00%of the most promising opportunities will 2.00%come from emerging markets (Asia/Australia/Africa & Latin America). 0.00% North America Europe Japan Asia/Australia/ Latin 1 2 3 4 5IMS Health and other sources suggest Africa Americathat emerging markets (China, India,Brazil, Russia, Turkey, Mexico and South Source: IMS Health market prognosis, March 2010Korea) will contribute to over 40% of theincremental growth of the globalPharmaceutical industry over the nextdecade.(2) In this report, we will look at Figure 2: Emerging markets drive industry growththe domestic Indian Pharma market, andthe opportunities it holds. 100%The huge potential of the Indian 7pharmaceutical industry is impossible for 90% 22 11 22 23 32global Pharma companies to ignore, 80% 35 1given that India will be one of the top 10 9 3 9 70% 9sales markets in the world by 2020. 9 10 7 6 60% 9 2 2Some of the largest Pharma companies in 3 2 10the world have been in the Indian market 50% 2 63since the 1970s, and 5 out of the top 10 40%domestic Pharma companies are already 42 44 48 46 30%foreign owned, with a consolidated share 37of 22 – 23%. 20%India’s domestic pharmaceutical market 10% 12 12 15 11 12 9has recorded a CAGR of 13.5% over the 0%past five years.(5) With considerable 2009 (f) 2010 (f) 2011 (f) 2012 (f) 2013 (f) 2008-2013 (f)expertise in manufacturing of genericsand vaccines, Indian companies have Rest of World Emerging markets South Korea, Canada Japan EU USnow also started significant researchand development (R&D). India has the Source: IMS Health, Market Prognosis, October 2009world’s second biggest pool of Englishspeakers and a strong system of highereducation, all this has well-positioned PwC 7
  7. 7. India to become an outsourcing partner changing disease profile. Increase in growth of the industry, such that it is on in manufacturing and R&D, and as a insurance coverage, aggressive market the threshold of becoming a competitor location for clinical trials. creation, growth in the income of the of global Pharma companies in some key The Indian economy is growing strongly Indian population and steady areas, and a potential partner in others. and healthcare is expanding to meet the government investment into medical needs of a growing population with a infrastructure has further propelled the Macro factors pushing the industry The Growing Indian Economy Figure 3: India’s strong GDP growth rate The Indian economy is growing fast, 12 and is valued at US$1.430 trillion in 10 2010.(4) GDP growth, calculated on GDP growth (%) a Purchasing Power Parity basis has 8 reached 9.66% in the year 2010, and 6 the International Monetary Fund (IMF) expects it to remain consistently above 4 8% till 2015. Furthermore, India’s share 2 in the world GDP has been steadily increasing, and is expected to reach 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 6.28% in 2015, up from 4.17% in 2005.(4) GDP growth % 9.167 9.658 9.886 6.396 5.678 9.668 8.373 7.976 8.174 8.148 8.128 Source: International Monetary Fund, World Economic Outlook, (October 2010) Figure 4: Growing global share of India’s GDP (%) 7 India’s share of the World’s GDP (%) 6.074 6 5.677 5.276 5.873 6.28 5 4.74 5.486 4.365 5.051 4 4.544 4.173 3 2 1 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: International Monetary Fund, World Economic Outlook, (October 2010)8 India Pharma Inc.: Capitalising on India’s Growth Potential 2010
  8. 8. Growing middle class with higher purchasing power India’s population is currently just at 2001-02 prices), which has grown is rapidly acquiring the purchasing over 1.1 billion and is projected to rapidly, from 25 million people in 1996 power necessary to afford quality rise to 1.6 billion by 2050 – a 45.5% to 153 million people in 2010.(11) If the western medicine due to an increase increase that will see it outstrip China economy continues to grow fast and in disposable income. The Indian as the world’s most populous state.(9) literacy rates keep rising, around a third population spent 7% of its disposable Besides, India has a huge middle class of the population (34%) is expected income on healthcare in 2005; this population (households with annual to join the middle class in the near number is expected to nearly double, to incomes of US$4762 to US$23,810 future. The middle class population 13%, by 2025.(12) Figure 5: Population growth projections Figure 6: Ascent of the Indian Middle Class - Percentage of the population 1326.1 1311.6 1296.8 1281.9Million Persons 1266.9 1251.7 1236.3 34% 1220.8 13% 1205.1 • 2020 1189.2 • 2009-10 (Forecast) 11.7% • 2007-08 6% • 2001-02 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 Source: ISI analytics (2010) Source: Economic Times (April 2009), PwC analysis Figure 7: Indian population’s expenditure break up as a % of overall disposable income 4% 100% 7% 9% 13% 90% Healthcare Education & 80% Recreation Communication 70% Tranportation Percentage spend 60% Personal products 50% and services Household products 40% Housing & utilities 30% Apparel 20% Food, beverages and tobacco 10% 0% 1995 2005 2015F 2025F Year Source: IDFC Institutional Securities, Indian Pharma (June 2010) PwC 9
  9. 9. Changing Disease Profile The Indian population is experiencing IMS Health indicates that some of the Along with chronic, in the last year there a shift in disease profiles (Figure 8). fastest growing therapeutic segments has been a rebound in sales in the acute Traditionally, the acute disease segment in the Indian Pharma space today are diseases segment. This trend is likely to held a significant share of the Indian chronic disease-related therapeutic continue over the next few years, as we pharmaceutical market. This segment segments. The anti-diabetic segment see companies widening their reach into will continue to grow at a steady rate, grew 29% in the 12 months ending July newer markets, which have a relatively due to issues relating to public hygiene 2010. Cardio-vascular medication and higher number of treatment naïve and sanitation. But, with increase in nervous system disorder medication patients requiring basic treatment, thus, affluence, rise in life expectancy and grew at 22% for the same period of time, creating new demand for drugs of the the onset of lifestyle related conditions, indicating rapid growth.(13) acute therapies segment. the disease profile is gradually shifting The growing size of the Indian geriatric towards a growth in the chronic diseases population will be a key factor in segment. India has the largest pool of influencing the growth of the chronic diabetic patients in the world, with more segment. By 2028, an estimated 199 than 41 million people suffering from the million Indians will be age 60 or older, disease; this is projected to reach 73.5 up from about 91 million in 2008.(9) million in 2025.(10) Figure 8: Shift in Disease Profile toward Chronics 100% 1 2 3 4 3 2 5 90% 2 2 5 2 80% 6 11 Cancer 70% 5 12 Heart diseaseDisease Prevalence (%) 7 Other circulatory 60% 2 8 CNS Disorders Diabetes 50% 12 Asthma 2 40% Others Sense organs 30% 57 Muscoloskeletal Accidents 20% 41 Acute Infections 10% 0% 2001 2012 Source: IDFC Institutional Securities, Indian Pharma (June 2010)
  10. 10. Government policiesThe Indian government has been plans to spend US$293 million on India’s healthcare expenditure ismaking efforts to improve nationwide the promotion of healthcare through financed out of pocket. This limitsprovision of healthcare. It has launched programmes for the prevention and the propensity of Indians to spend onpolicies that are aimed at: cure of diseases such as cancer, diabetes, healthcare, particularly in lower and• building more hospitals, heart ailments and stroke in 2011-12. middle income groups which comprise• boosting local access to healthcare, Diabetes, hypertension and non- around 95% of population.(8)• improving the quality of medical communicable disease patients will be The small percentage of Indians who training, screened under the National Programme do have some insurance, the main• increasing public expenditure on for Prevention and Control of Cancer, provider is the Government-run healthcare to 2-3% of GDP, up from a Diabetes, Cardiovascular Diseases and General Insurance Company (GIC). current low of 1%.(14) Stroke (NPCDCS). The programme is Private insurance only came into theSome of the significant government likely to cover more than 70 million market post 2007, when the Insuranceallocations on healthcare spend include adults across 100 districts in 15 states Regulatory and Developmenta five year tax break for opening and union territories of the country.(15) Authority (IRDA) eliminated tariffshospitals anywhere in India, with on general insurance. Apollo wasan added focus on tier II and tier III Healthcare Insurance the first private healthcare insurancemarkets, both in the 2008-09 Union India’s healthcare insurance industry provider in the country; other privateBudget. is currently very small and limited, entrants are ICICI Lombard, Tata AIG, but is expected to grow at a CAGR of Royal Sundaram, Star Allied Health 15% till 2015. Around 80% of Insurance, Cholamandalam DBS and Bajaj Allianz Apollo.Going forward, the Indian government
  11. 11. Figure 9: Healthcare expenditure break up 2009 Local 11% Social Insurance 6% State 71% 12% Centre Government 17% 3% Insurance Out of Pocket 80% Source: ISI Analytics, Healthcare Industry (2010) Figure 10: Increase in penetration of Healthcare Insurance 90000 81000 80000 Size of the Healthcare Insurance Industry 70000 66000 70 60000 60 INR Million Million Persons 50000 50 40000 32090 40 No. of People 30000 30 covered by 22220 Health Insurance 20000 17320 20 (Million) 13540 10040 10000 7610 10 0 0 2002 2003 2004 2005 2006 2007 2008 2009 2006 2015 Source: ISI Analytics, Healthcare Industry (2010), General Insurance Council of India (2010)12 India Pharma Inc.: Capitalising on India’s Growth Potential 2010
  12. 12. “In terms of factors that could drive the market up, I think insurance would be a major factor. Insurance penetration numbers should go up dramatically, because out of pocket payment for medications is not a model anywhere in the world, as it cannot drive a large part of the market. A lot of countries have gone through this change; it is imperative to take us to the next level.” – Achin Gupta , Sr. V.P, Corporate Strategy, GlenmarkThe government runs a programme The government, along with many Overall, lack of insurance coverage stillcalled the National Rural Health in the industry believes that increase in remains a challenge. Widespread useMission (NRHM), for the development insurance coverage is essential of health insurance could take manyof the poor, allocating US$2920 million to take the market forward. But, years, not least because insurancein the 2008-09 budget, under the other experts believe that the spread companies lack the data they requireNRHM.(16) A health insurance scheme of health insurance could lead to to assess health risks accurately andcalled Rashtriya Swasthya Bima Yojna a market wherein there is minimal the only products they sell work on(RSBY) that provided US$745 worth differentiation between branded an indemnity basis – that is, theyof cover for every worker was also generics. An important success factor reimburse the patient after he or sheincluded. The total allocation of this for generic makers is differentiation of has paid the healthcare provider’s bill,inclusion was US$51 million(17), which their products. While increased health making such policieswas then increased in the subsequent insurance coverage may benefit generic less attractive.budgets. The latest budget, 2010-11, drug manufacturers by increasing theincorporated a further 20% of the market’s affordability for medicines,population covered under the NREGA it may, in combination with increased(National Rural employment Guarantee institutional sales cause a reduction inAct).(18) prices, owing to the rising influence of insurance companies. Key takeaways 1. The Indian economy is growing strongly, and will continue to provide a conducive macro-environment for the industry to grow in. 2. The government is increasing spend on healthcare; and the Indian population is spending an increased amount of money on healthcare as a percentage of disposable income. 3. The disease profile is changing with an increase in acute diseases along side growth of chronics. 4. Health insurance is growing. PwC 13
  13. 13. The Indian DomesticPharma marketSet for robust growth Key Players Industry SWOT Key Recent Trends Investment Scenario
  14. 14. According to IMS Health, in domestic market size to be US$12September 2010, on a Moving annual billion. We estimate that by 2020,total (MAT) basis, the Indian Pharma it will grow to US$49 billion - amarket grew at 21.3%, reaching conservative CAGR of 15%, witha size of US$10.9 billion.(3) Taking the potential to reach US$74 billion –into account generic medicines sold at an aggressive CAGR of 20%, ifdirectly to institutions and OTC drugs growth drivers kick in.sold through non-pharmacy retailers,PwC and IMS Health estimate theKey PlayersThere is a high level of market Figure 11: India Pharma top 10 players: 12 month growthfragmentation. As of 2009, there rate ending July 2010 (09/10 Revenues in US$ millions)were more than 10,000 firms in themarket, of which, around 200 of themcollectively controlled about 70% of Cipla 19% (1276.1)the market share.(19)Most of the top 10 players in the Ranbaxy 15.5% (1125.45)market had growth rates of over 18% GSK India 19% (445.87)for the 12 months ending July 2010. Piramal Healthcare 18.6% (631.18)Of these, Cipla continued to have thelargest market share of 5.2%, followed Sun Pharma 25.7% (600.65)by Ranbaxy (now a subsidiary of Zydus cadila 24.1% (436.40)Daiichi-Sankyo), with a 4.7% share.(13) Alkem Labs 23.3% (276.49) Pfizer India 23.6% (192.59) Mankind Pharma 37.20% (200.06) Abbott 25% (189.07) Source: Business Standard (October 2010), IMS Health, Capitaline PwC 15
  15. 15. Industry SWOT Figure 12: Indian Pharma Industry SWOT analysis Strengths Weaknesses • Higher GDP growth leading to increased disposable • Poor all-round infrastructure is a major challenge income in the hands of general public and their • Stringent price controls positive attitude towards spending on healthcare • Lack of data protection • Cost Competitiveness • Poor health insuracnce coverage • Low-cost, highly skilled set of English speaking labour force • Growing treatment naive patient population Opportunities Threats • Global demand for generics rising • Labour shortage • Rapid OTC and generic market growth • Wage inflation • Increased penetration in the non - metro markets • Government expanding the umbrella of the Drugs • Large demand for quality diagnostic services Price Control Order (DPCO) • Increase in healthcare insurance coverage • Considerable counterfeiting threat • Significant investment from MNCs • Competition from other emerging economies • Public-Private Partnerships for strengthning infrastructure Source: PwC analysis, Industry & Company interviews Key Recent Trends Figure 13: Industry trends and implications Increase Increasing Goods & Investments reach in Growing Changing Healthcare Services Tax & MNC Non-Metro Insurance disease profile innovation (GST) activity markets Shift towards a Seen as the Though More numbers • Shift towards • Use of Networked next volume delayed from of patients will biotech & technology & business model driver, though its April 2010 be coming in speciality IT for innovation Increasing M&A costs of implementation for treatment. therapies, in healthcare and aliiances operation is date, GST will • increased delivery high due to add significant investment • e.g. Mobile Consolidation poor health efficiencies to in R&D and clinics in the market infrastructure economy and acute disease lead to an segment will overhaul of sustain strong supply chain growth Source: PwC analysis, Industry & Company interviews16 India Pharma Inc.: Capitalising on India’s Growth Potential 2010
  16. 16. Investment ScenarioThe Indian Pharma industry has then, there has been a trend of higher rapid rate in the recent past. Dealsattracted US$1707.52 million worth valuations of Indian Pharma companies, between Pfizer and Aurobindo, andof foreign direct investment (FDI) in culminating with a new benchmark: in GlaxoSmithKline and Dr. Reddy’s Labsthe period between April 2000 and 2010, Abbott bought Piramal Healthcare are recent examples of out-licensingApril 2010.(20) This FDI is exclusive of in a deal worth US$3.7 billion(22), a deals where generic makers are signinginvestments in shares of Indian firms. valuation that was nine times the value distribution and marketing contracts,Acquisitions of local players by large of Piramal’s sales revenue.(12) so their products reach foreign regulatedMNCs illustrate the increasing level and developing markets. Due to theof interest that they have shown in Partnerships and large number of drugs going off-patentthe Indian market. Licensing deals in the next few years, this trend isMNC acquisitions in the Indian expected to increase even further.Pharma space took off in 2008 with Although long-term supply dealsthe acquisition of Ranbaxy by Japanese between innovators and generic-drug maker, Daiichi Sankyo for US$4.6 producers have been taking place for abillion.(21) This deal was valued at while now, the frequency of these dealsfive times Ranbaxy’s sales.(12) Since has been growing at an increasingly Table 1: Key recent mergers & acquisitions Year Indian Player MNC Nature of deal Details 2010 Piramal Abbott Sale of domestic Abbott acquired Piramals domestic branded Healthcare branded formulations division, along with its 350 brands, formulations Baddi facility and about 5,200-strong sales force for US$3.72 billion 2010 Strides Pfizer Licensing To supply 40 off patent products, mainly oncology Acrolabs and supply ingestables that would be commercialised by Pfizer arrangement 2009 Shantha Sanofi- Acquisition Acquired for about US$820mn and got access to Biotech Aventis Shanthas vaccines pipeline and access to emerging India’s domestic markets market is poised for 2009 Aurobindo Pfizer Dossier Formulations and injectables for US,EU and ROW strong growth on the licensing & markets on exclusive and co-exclusive basis back of increased supply contract foreign investment 2009 Biocon Mylan Development & To develop, manufacture, supply and commercialise in the region, an supply contract many high-value generic biologic compounds for the increased reach in global markets. non-metro markets, the implementation of 2009 Dr. Reddy’s GSK Supply contract To develop and market more than 100 branded GST, growing insurance Labs Pharma products on an exclusive basis across an extensive number of emerging markets, excluding India. coverage, a change in the population’s disease 2008 Strides-Aspen GSK Upfront To manufacture and supply branded generics to GSK profile and increase in JV Pharma milestone & which would be marketed in about 80 emerging healthcare innovation, supply contract markets. in combination with 2008 Ranbaxy Daiichi Acquisition Daiichi acquired Ranbaxy and got access to Ranbaxys growth of key segments Sankyo diversified product portfolio and vast geographical – branded generics, presence. OTC, rural markets and vaccines.Source: Centrum. Pharmaceuticals update, (June 2010). PwC 17
  17. 17. Indian PharmaMarket SegmentsA market dominatedby branded generics Branded Generics Generic Generics Over-The-Counter Products Patented Products Retail vs. Institutional sales Road ahead
  18. 18. It is difficult to track and estimate the of total sales, and represents one products.(5) The branded genericsexact composition of India’s domestic of the key strengths of the market, segment is expected to grow at a CAGRPharma market; but industry experts encompassing the OTC segment as of 15% - 20% for the next decade.(5)believe that this market is largely well. Only about 10% of the marketdominated by branded generics. constitutes commodity generics soldThis segment contributes around 90% through institutional sales and innovator Figure 14: Indian Pharma market is predominantly a branded generics marketOther drugs: 10% 10%Branded Generics: 90% 90%Source: Industry & Company interviewsBranded genericsIn the global context, IMS Health, made by or under license from the an innovator product goes off-patent -which began tracking and reporting innovator company and sold without a is the key driver for generics. In India,on branded generics in 2002, defines brand name. it’s about driving a difference usingthe category as including “prescription In India, any non patented molecule the core equity of a brand, over aproducts that are either novel dosage with a brand name other than the competitor’s product.forms of off-patent products produced by innovator’s name is termed as aa manufacturer that is not the originator branded generic. Chemically, brandedof the molecule, or a molecule copy generics are identical, or bioequivalentof an off-patent product with a trade to innovator drugs. It is the share ofname.” This definition is used by both Any non patented molecule voice the brand commands by getting with brand name, which isthe United States of America’s Food repeatedly prescribed by the physicians,and Drug Administration (FDA) and other than the innovator’s due to some degree of recall and name, is termed as athe United Kingdom’s National Health preference over the other brands. InService (NHS). It does not include branded generic. the global context, substitution – whenauthorized generics, which are drugs PwC 19
  19. 19. “India has a very large acute segment growing at strong double digits, which is expected to continue. While the chronic market is relatively small, it is on a rapid growth path due to an ageing population and changing lifestyles. Therefore, both markets will be attractive.” - Vivek Mohan, MD, Abbott India Top Brands Table 2 gives the top 20 brands in the The last few years has seen aggressive increasing level of awareness is Indian market, as tracked by IMS Health. new brand launches. However, not many leading to a greater propensity to self The leading brand, according to of these have made it to the top 20 medicate, thus further increasing the September 2010 sales (MAT) is Corex®, ranking, indicating that some of the older uptake of these brands. Finally, many followed by Phensedyl® both of which are brands have created a strong equity, of the classic chronic brands are finding cough preparations.(23) Figure 15 shows a enabling them to maintain market share. a wider prescription base from general direct correlation between the age of a Older brands have been creating newer physicians. brand and its ranking - 19 of the top 20 opportunities in the tier II to tier VI and An example of this is pain management brands are over a decade old. rural markets, where demand is mainly brand Aspirin, which is over a 100 for acute therapies. In addition, an years-old and still enjoys strong sales. Table 2: Top 20 Brands Rank Top Brands MAT 2010 Company Year of Market launch Share (%) 1 COREX (CRX) Pfizer 1993 0.5 2 PHENSEDYL COUGH Piramal 1996 0.4 (PHNSL) Healthcare 3 VOVERAN (VVR) Novartis 1986 0.4 4 HUMAN MIXTARD (HMIX) Abbott 1994 0.4 5 AUGMENTIN (AUG) GlaxoSmithKline 1992 0.4 6 REVITAL (REV) Ranbaxy 1989 0.4 7 ZIFI FDC 1999 0.3 8 MONOCEF (MCF) Aristo Pharma 2001 0.3 9 DEXORANGE (DEX) Franco Indian 1990 0.3 10 TAXIM (TAX) Alkem 1990 0.3 11 BECOSULES (BEC) Pfizer 1989 0.3 12 LIV-52 (LIV) Himalaya 1989 0.3 13 MOX Ranbaxy 1997 0.3 14 ASTHALIN (ASN) Cipla 1993 0.3 15 BETADINE (BET) Win Medicare 1990 0.3 16 TAXIM-O (TAX-O) Alkem 1998 0.3 17 AZITHRAL (AZL) Alembic 1994 0.2 18 CALPOL (CAL) GlaxoSmithKline 1995 0.2 19 ZINETAC (ZNC) GlaxoSmithKline 1986 0.2 20 STORVAS (SVS) Ranbaxy-Stancare 1999 0.2 Source: IMS Health, MAT, (August, September 2010)20 India Pharma Inc.: Capitalising on India’s Growth Potential 2010
  20. 20. Figure 15: Older brands are higher ranked 25 20 SVS ZNC CAL AZL TAX-O 15 BET Brand Rank ASN MOX LIV Series1 BEC 10 Linear (Series1) TAX DEX MCF ZIFI REV 5 AUG HMIX VVR PHNSL CRX 0 0 5 10 15 20 25 30 Brand AgeSource: PwC Analysis.Brand PremiumBrands have always been synonymous over the next-in-line brand, Moxikind-with quality. This often makes leading CV, and 101% over the third ranked “Brand premium differs frombrands command a price remium brand, Clavam A.K. But, in the case therapeutic area to therapeuticover the next ranked brands in their of the molecule Cefixime, the leading area. There are instances where thecategories. This premium can be brand, Zifi, commands a price premium price of the brand leader is 3 timesnegligible or as high as 300%.(5) For of just 2% over the second ranked, and the price of the cheapest brand,example, in figure 16, the number 24% over the third-ranked brand. and others where there is a 30%1 ranked brand for the molecule increase.”Amoxicillin clavulanate, Augmentin,commands a premium as high as 260% – Dr. Hasit Joshipura, MD, GSK PwC 21
  21. 21. Figure 16: Leading brands command a price premium Amoxicillin clavulanate Cefixime Price of 200 mg, 10 tablets (Rs.) 300 Price of 625 mg, 10 tablets (Rs.) 120 250 Rs. 241 Rs. 99 2% premium Rs. 97 100 24% premium 101% Rs. 80 200 80 premium 150 260% Rs. 119.7 60 premium 100 Rs. 67 40 50 20 0 0 Augmentin (1) Moxikind-CV (2) Clavam (3) Zifi (1) Cefolac (2) Mahacef (3) Brands (2010 ranking based on revenue) Brands (2010 ranking according to revenue) Atorvastatin 100 Rs. 96 0.1% premium Rs. 95.9 Price of 10 mg, 10 tablets (Rs.) 95 90 16% premium 85 Rs. 83 80 75 Storvas (1) Atorva (2) Aztor (3) Brands (2010 ranking according to revenue) Source: IMS Health, MAT, (August 2010) Premium charged by innovator brands Innovator brands can command high premiums over branded generics. For example, in table 3, Risperdal, an innovator brand, commands a 1048% premium over Risdone (generic brand).22 India Pharma Inc.: Capitalising on India’s Growth Potential 2010
  22. 22. Table 3: Innovator brands command a large price premium Drug Brand Manufacturer Quantity Price (US$) Risperidone Risperdal Johnson & Johnson (Innovator) 2 mg, 10 tablets 6.54 Risdone Intas Pharma 2 mg, 10 tablets 0.57 Risedronate Actonel Sanofi Aventis (Innovator) 35 mg, 4 tablets 50.28 Risofos Cipla 35 mg, 4 tablets 2.97 Clopidogrel Plavix Sanofi Aventis (Innovator) 75 mg, 10 tablets 38.45 Noklot Zydus 75 mg, 10 tablets 2 Pregabalin Lyrica Pfizer (Innovator) 75 mg, 10 tablets 18.28 Pregabit Intas Pharma 75 mg, 10 tablets 1.76 Levofloxicin Tavanic Sanofi Aventis (Innovator) 500 mg, 5 tablets 11.48 Leevoflox Cipla 500 mg, 5 tablets 2.07Source: PwC Analysis, Primary ResearchBrand premium is dependent on1. First mover advantage representative quality by improvingFirst mover brands always have an their interpersonal skills for customer 4. Appropriate pricing strategyadvantage over late entrants. If a brand targeting and maintaining a strong India is a price sensitive market. Pricingis built over 3 to 5 years before doctor-rep relationship, strategies for both the rural and tier IIcompetition intensifies, it can command • strong life-cycle management to tier VI markets, should be based ona price premium of close to 100% over programme by launching line market affordability.the later entrants.(5) Once competition extensions,increases, it will have to cut prices to i. For drugs that are not under the • quality of formulation,sustain market share. government’s price control • attractive packaging, mechanism, companies can charge2. Creating a value proposition • cost competitiveness, any amount as base price, and canCreating a value proposition can help • company name and reputation. increase it annually by up to 10%.(24)build brand names, thus increasing the ii. For drugs covered by the Drugs Pricebrand’s longevity. This value proposition 3. Being the innovator drug Control Order (DPCO), Nationalis created by: Industry experts believe that if a Pharmaceutical Pricing Authority company launches an innovator drug in• offering value added services, such (NPPA) norms must be adhered to. the market late, it can still enjoy a price as backing up the brand with scientific premium, and it will not lose out to the iii. Another pricing strategy is the data, continuous medical education first mover brand. The reason being differential pricing of Merck’s and a strong portfolio of products, there will always be a certain percentage diabetes drug Januvia, which is priced• doctor – representative relationship: of the population that would be willing at approximately US$1 per dose in continuous improvement in sales to pay a premium for innovator drugs. India – a fifth of its price in the US.(25) PwC 23
  23. 23. Maximising the focus on branded generics - For example: Abbott- Piramal deal for branded generics An excellent example of a deal that was carried out on the back of the value of branded generics is the Abbott acquisition of Piramal Healthcare. Abbott was looking to increase its stake in the Indian branded generics sector, and agreed to pay US$3.72 billion, a valuation that was 9-times that of Piramal’s sales. The deal included Piramal’s domestic formulations business, including its branded formulations business and its manufacturing facility at Baddi. The valuation of the deal was unprecedented in the Indian Pharma market, and is a signal of interest that large Pharma companies have in the Indian branded generics market. Maximising focus on branded generics Both multinational companies and for its strong sales force and branded leading pharmaceutical companies domestic firms are taking steps generics portfolio (Refer pull out). adding to their sales forces by nearly towards maximising potential returns Domestic firms are also looking to 50% in 2010 (Figure 17).(26) from branded generics. For example, increase their share of the branded Abbott acquired Piramal Healthcare generics market, with some of the Figure 17: Leading Indian firms are ramping up sales forces Sales forces numbers 2010 (% increase from 2009) 6000 (28.6%) Sales force numbers 5000 Sales for numbers (17.6%) (60%) (52%) 4000 (22.7%) (47.8%) (50%) 3000 (0%) (20%) (25%) 2000 1000 0 Cadila DRL Cipla Ranbaxy Sun Lupin Torrent Glenmark Ipca Unichem Source: Emkay research (August, 2010) Generic generics Currently, the market share of generic (ANDA) guidelines that exist run ‘Jan Aushadi’. This programme generics is very low. We see two main in the U.S. provides no-name generic drugs at hurdles to pure genericisation of the 2. Doctor comfort derived from subsidized prices in 24-hour pharmacies Indian market: prescribing medications on the that are located all over the country. 1. Lack of generic generics regulations basis of brand name. and guidelines for the establishment A good example of a generic generics of bio-equivalence, for example the programme in India is the government- Abbreviated New Drug Application24 India Pharma Inc.: Capitalising on India’s Growth Potential 2010
  24. 24. Over-the-counter productsThe OTC segment has been identified as grow to US$11 billion - a CAGR of 18%, Although the phrase ‘OTC’ has no legalone of the potential growth drivers for with the potential to reach US$13 billion recognition in India, all the drugs notthe Indian Pharma industry, as the sale of – at an aggressive CAGR of 20%. included in the list of ‘prescription-onlyOTC drugs in India has been increasing ‘OTC Drugs’ means drugs legally allowed drugs’ are considered to be non-over the years. The OTC market was to be sold ‘Over The Counter’ by prescription drugs (or OTC drugs).worth about US$1.8 billion in 2009(27), pharmacists, i.e. without the prescriptionand PwC estimates that by 2020, it will of a Registered Medical Practitioner. “The OTC segment is going to grow faster. We are looking at a growth rate of around 25%, more than that of the overall market growth of around 15%.” – Sanjeev I. Dani, Sr. V.P.& Regional Director (Asia, CIS & Africa), Ranbaxy PwC 25
  25. 25. Key drivers behind the growth of the OTC segment: Figure 18: OTC segment growth drivers Wider Direct to Increased Low distribution consumer consumer price channel advertisements awareness controls Companies can sell their The government allows There is an increased Other than acetylsalicylic products outside of public advertising of these reliance on self-medication acid and ephedrine and pharmacies, for example in products, giving drug as public awareness of its salts, very few of the post-offices and makers greater freedom to common ailments goes up. OTC active ingredients fall department stores use more creative methods under the current DPCO while marketing their price controls. products. Magic Remedies (Objectionable Advertise- ments) act prescribes a negative list of diseases for which medication cannot be publicly advertised. The above factors have meant that there examples of Indian companies that have Pfizer and Johnson & Johnson are are a large number of Indian companies done well in the OTC segment. The examples of MNCs that have a strong that manufacture and sell OTC products. attractiveness of the Indian OTC market presence in the Indian OTC segment. Cipla, Ranbaxy and Zydus Cadila are has extended to MNCs as well. Novartis, Patented Products The market size for patented drugs impact on the industry. Industry In the future, with growing as of today is very small. Only about experts believe that the current size of affordability, deepening of health 1-2% of the market is made up of the patented drug market is estimated insurance and steady improvement patented drugs, which are being sold at US$120-130 million.(5) in Intellectual Property Rights (IPR), by multinational innovators. There are Due to weak patent laws in the past, patented product launches should multiple Indian companies that have and multiple, cheap generic versions increase. drugs in the pipeline, with a greater of drugs present in the market, focus on R&D, but estimates suggest multinational players were hesitant that it would be at least 7 to 10 years to introduce their patented products. before these begin to have a serious26 India Pharma Inc.: Capitalising on India’s Growth Potential 2010
  26. 26. Retail vs. Institutional salesCurrently, majority (91%) of drug sales institutional sales will be marginal in be driven by the increase in theis through the retail markets, while the next 5 years, and will only show penetration of insurance, and theinstitutional sales are very low (9%).(5) significant impact between 2015 and growing number of government andWe believe that the increase in 2020. Increased institutional sales will private hospitals. Figure 19: Institutional sales increase marginally over the next 5 years 91% 88% Retail Retail 12% 9% Institutional InstitutionalRoad aheadThe branded generics segment has Generic generics’ and patented affluence, decreasing generic launches,been the key driving force behind the products’ contributions to the increasing number of patented productgrowth of the pharmaceutical market. market as a whole is expected to rise. launches from foreign companies, andIn the next 5-10 years, the market Although this is the expected model potential releases of novel drugs willis expected to remain comprised of the future, we do not foresee impact the share of branded genericspredominantly of branded generics. a significant challenge to the significantly.We also expect the OTC segment domination of branded generics in theto be a strong volume driver for next 5 years. By 2020, improvementpharmaceutical companies. in the implementation of patent laws, spread of health insurance, rising PwC 27
  27. 27. Rural MarketsThe next frontier Market Sizing Key Challenges The Government’s Role Pharmaceutical companies entering rural markets Novartis Arogya Parivar Case Study Road ahead
  28. 28. Figure 20: Geographical split of the Indian population 27 Cities (11%)33% of Market(cities & towns) 398 Towns (9%) 4,738 Periurban (13%) Bottom of 600,000 Villages (67%) the PyramidSource: Novartis, Arogya Parivar: Health for the poor (April 2010)Market SizingMajority of the Pharma market’s PwC estimates that over the next ten in villages that require treatment, andgrowth is driven by the urban markets, years, rural markets will grow at a quality treatment and medicinesthat is, areas that are classified as CAGR ranging from a conservative reaching these villages. Accessibility ofmetros or tier I cities (Refer figure 20). 15% to an aggressive 20%, reaching medication in rural areas is very poor,Tier II to tier VI is classified as peri an expected valuation of between with less than 20% of the populationurban, while rural is the bottom of the US$8 billion and US$12 billion, having access.(6) This gap represents apyramid, which constitutes 67% of depending on the implementation huge opportunity for pharmaceuticalIndia’s population (600,000 villages). of growth drivers. companies to expand, and we believeAs per IMS Health, peri-urban markets that these markets will be the futureaccount for 38% of total industry sales, The opportunity volume drivers of the industry.being valued at US$3.4 billion(28),while, rural markets account for 17% Around 742 million people reside inof total industry sales, being valued at rural areas.(6) There is a significant gapUS$2 billion, in 2010.(7) between the number of people residing PwC 29
  29. 29. Key challenges of the market Low government spend on healthcare India has a low level of government significantly low levels of public increase from US$49.7 billion to spending on healthcare, at 1% of spending to health.(14) Business US$86.9 billion between 2009 the GDP, putting the country in the Monitor International forecasts that and 2014, a rise of 75%.(29) lowest 20% of those that contribute healthcare expenditure in India will Poor Infrastructure Healthcare infrastructure is poor, norm].(6) Doctors are not qualified, as counterfeiting and spurious drugs compared to urban areas. The doctor most of them in villages have Bachelor of that have been exposed. Majority of patient ratio in rural areas is 1:20,000, Health Sciences (BHS) & Bachelor of the patients earn a basic daily wage, versus the urban ratio of 1:2000 [India Ayurvedic Medicine and Surgery and affordability is very low. requires 600,000 doctors in order to (BAMS) degrees. The quality and meet the statutory 1:250 ratio that is a availability of medicines in rural areas is World Health Organisation (WHO) dubious, as there are many cases of Table 4: Healthcare penetration in rural areas is significantly lower than in urban areas Population Rural (72%) 742 Million Population Urban (28%) 285 Million Population Hospital % 31 69 Hospital Bed % 20 80 Doctors % 08 92 Doctors/100,000 people 05 50 Spurious Pharma sales % 75-80 20-25 Source: Novartis, Arogya Parivar: Health for the poor (April 2010)30 India Pharma Inc.: Capitalising on India’s Growth Potential 2010