Getting into the Indian pharma market

*Multinational pharma firms need local networks of collaboration and discovery to succeed in India. Rajesh Chhabara reports*

Multinational pharma firms need local networks of collaboration and discovery to succeed in India. Rajesh Chhabara reports

Indias pharmaceutical industry is already the worlds 14th largest, with $19 billion in sales in 2009, including $8 billion from exports.

The country is also the third largest pharma market in the world by volume, according to research firm Frost & Sullivan, making it an attractive growth market for multinational companies.

An April report by PricewaterhouseCoopers estimated that the Indian pharmaceutical market will be one of the top ten sales markets by 2020, with a total value of $50 billion, including $30 billion from domestic sales.

Demographics for growth

A growing population (1.6 billion people by 2050), rising incomes, a swelling middle class, and an ageing population present the perfect demographics for sustained pharma growth in India.

Indias GDP is expected to grow at a healthy annual rate of 7.8 percent for the next ten years, according to forecasts by the Reserve Bank of India.

The middle class is expected to increase from 13 percent in 2008 to over 30 percent by 2050.

A larger population with higher income is a potential target market for multinational companies as more people are willing to pay more for quality medication and the latest available treatment, says Dipta Chaudhury, South Asia and Middle East program manager for the pharma and biotech practice at Frost & Sullivan.

The government has pledged to increase healthcare spending from the current one percent of GDP to two to three percent by 2012.

Last year, the government announced a five-year tax holiday for hospital construction in order to encourage private sector investment.

Other initiatives include $51 million for a health insurance scheme for the poor and the National Rural Health Mission, aimed at improving healthcare access in rural areas, which will receive slightly under $3 billion this year, an increase of 15 percent over last year.

The regulatory regime in India has also improved since the government passed a bill in 2005 allowing product patents, resulting in better protection of intellectual property rights.

The previous policy permitted only process patents, which made multinational drug firms hesitant to invest in India.

Domestic manufacturers benefited from the previous policy by reverse engineering patented products, then using a different process make the drug, thus creating a thriving generics industry.

With the new rules in place, though, local companies can no longer manufacture generic versions of patented products.

This enables the originator company to promote its own developed brands at a premium, Chaudhury explains.

Western lifestyles = growth opportunities

Growing affluence and the increasing popularity of Western lifestyles are changing Indians therapeutic needs.

According to PricewaterhouseCoopers, 41 million Indians have diabetes, the largest number in the world.

The number of diabetics is projected to reach 73.5 million by 2025.

The share of anti-infective and gastrointestinal drugs and vitamins has fallen from 50 percent in 2001 to 38 percent in 2006.

Its expected to drop to 36 percent in 2012, according to IMS Health statistics.

But the share of drugs for cardiovascular diseases, central nervous system disorders, respiratory problems, diabetes, pain and other chronic diseases has climbed from 50 percent in 2001 to 62 percent in 2006.

Its estimated to rise to 64 percent by 2012.

India also supports a fast growing over-the-counter (OTC) market worth some $3 billion, according to PwC estimates.

The government plans to expand the list of products that can be sold over-the-counter without prescriptions.

Contract manufacturing is one of the key segments in India, which has 100 FDA-approved manufacturing sitesthe most in the world outside the US.

The cost of setting up and operating plants is relatively low.

The large number of patent expirations over the next five years will likely further boost Indias contract manufacturing sector.

India is also the worlds largest vaccine producer, exporting to around 150 countries.

The industry is well placed for continued growth as new vaccines are launched and risks of pandemics increase.

Fragmented market

The Indian pharma industry is unique in its modus operandi, Chaudhury points out.

The industry is highly fragmented, with an estimated 17,000 companies producing more than 40,000 brands.

The fragmented market means small companies with small product portfolios can be cost competitive, since they have lower overheads and focus on selected geographical regions.

It is difficult for larger companies with higher overheads to compete on cost basis, Chaudhury says.

But India is a vast country, and that makes distribution a big challenge.

So Chaudhury says new players need to develop brand awareness across the whole country, educate physicians on products, and ensure efficient distribution.

This is a major challenge for new entrants in the market, she says.

Plus, India-specific strategies are essential: Alliances, product tie-ups, and distribution partnerships with local companies can help multinationals gain valuable insight into the market.

While acquisitions can provide easy entry, post-acquisition integration is key.

The companies that will be most successful in doing business in India will be those that are most adept at managing and mixing a range of contractual relationships and partnership strategies to create networks of collaboration and discovery, says Sharat Bansal, pharmaceutical and life sciences leader at PricewaterhouseCoopers in India.

For more on pharmerging markets, see The Middle East: A pharma market in the making, Reassessing Russia's pharma market; Breaking into the Brazilian pharma market; Cracking the Chinese pharma market; and How to get ahead in 'pharmerging' markets.

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