January 1, 2005 ushered in a paradigm shift in the Indian Pharmaceutical Industry with the new product patent regime. Future of the industry, thereafter, will never be the same again as what we have been witnessing since 1970.
Gradually India, which was synonymous to cheaper copycat generic versions of products patented in most of the developed and emerging pharmaceutical markets of the world, is expected to transit through a relatively ‘lull period’ for a shorter duration, before it starts helping to establish India as a force to reckon with, in the pharmaceutical research and development (R&D) space of the world. We have seen some glimpses of the era to come by through initial basic research initiatives of companies like, Ranbaxy, Dr. Reddy’s Laboratories (DRL), Piramal Life Science and Glenmark. All such companies are gradually transforming their R&D focus from reverse-engineering to developing new chemical/molecular entity (NCE/NME) or novel drug delivery systems (NDDS).
Opportunities during the paradigm shift:
The low cost base, large English speaking technical talent pool and development of world class R&D facilities of the country will play the role of catalysts in this fast changing process and throw open many new vistas of opportunities for the industry to cash on.
At the same time, generic companies will play even more important global role than ever before. Many of them will no longer remain a local branded generic or generic player, they will open their wings to fly down to the important global destinations. Some others will collaborate with multi-national pharmaceutical companies (MNCs) in their contract research and manufacturing services (CRAMS) initiatives. For others, the domestic pharmaceutical market will still remain big and lucrative enough to grow their business.
However, those companies, which will not be able to effectively combat the ‘challenge of rapid changes’ will either perish or be gobbled-up by the big fishes in the consolidation process of the local and global pharmaceutical industry.
Though the domestic Indian pharmaceutical industry caters to around 70% of the requirements of pharmaceuticals of the nation, is highly fragmented. The industry manufactures 8% of the global production being the fourth largest producer of pharmaceuticals in terms of volume and employs over half a million people, mostly by around 300 large to medium sized companies in their local and global operations. Although around 6000 companies are engaged in manufacturing, many of them are third party manufacturers. Small manufacturers, who do not conform to ‘Schedule M’ requirements of the Drugs & Cosmetics Act will face or have already started facing trying times.
In terms of value, at present, India with around U.S 7.8 billion turnover, shares just around 2% of the global market with 14th in ranking. McKinsey forecasts that by 2015 India will record a turnover of U.S$ 20 billion and will improve its rank in the global pharma league table to 10th.
Key markets of the domestic Indian companies:
Although India still remains one of the major markets of the domestic Indian pharmaceutical companies, many of them have already established their business in the US, Europe, Latin America, Russian Federation, Africa, Middle East, South East Asia and even in Japan and Australia.
Contribution of India business of different Indian pharmaceutical companies to their global business varies based on their respective business strategies, from 63% of Zydus Cadila to around 16% of DRL, in 2007-08.
US market followed by Europe, is the main revenue earner for most of the large Indian companies. For example Ranbaxy generated around 27% and 20% of their global turnover from the US and Europe, respectively in 2008.
However, for some other companies like Wockhardt, Europe is a more important market than USA. Wockhardt generated around 54% of their global turnover from Europe, in 2007.
Global market entry strategy:
Different Indian companies adopted different market entry and expansion strategies in their globalization process. However, these have been mostly driven mergers and acquisitions.
Is the Indian pharmaceutical industry facing a dire need for an image makeover?
Despite significant contribution of the Indian pharmaceutical industry to provide relatively cheaper generic medicines to address a wide array of ailments of a vast majority of the population, the image of the industry to its stakeholders or even to public at large, is far from satisfactory.
There are some key perceptual reasons for the same. Some of these are as follows:
1. Pharmaceutical industry is making exorbitant profits at the cost of the basic healthcare needs of the common man.
This perception gets further strengthened when, for example, the National Pharmaceutical Pricing Authority (NPPA) demands crores of rupees from many pharmaceutical companies for overcharging to the patients and notices are served even attaching their properties to recover these dues.
2. The quality of all medicines is not reliable.
This gets vindicated when, for example, the government for its ‘Jan Aushadhi’ program refuses to buy from certain groups of licensed pharmaceutical manufacturers, predominantly on product quality parameters.
3. Some questions, do the pharmaceutical manufacturers in India manufacture medicines following the highest quality norms?
To answer to this question some people argue; if so, why will Indian manufacturers need stringent manufacturing quality certification of the drug regulators of the developed markets to export medicines in the those countries? Why the manufacturing quality certification given to these exporters by the Indian drug regulator is not accepted in those countries?
Moreover, when medicines are imported into India, we accept the quality norms of the drug regulators of the developed countries.
4. Some sections of the media highlight the alleged malpractices by the Indian pharmaceutical companies to promote their mediciness to the medical profession. Such alleged high expenditure towards product promotion is considered by many as avoidable wasteful expenses, the benefit of which can easily be passed on to the patients.
Indian pharmaceutical industry is yet to develop a uniform code of marketing practices, which will be applicable to all the pharmaceutical companies across the board and implement the same effectively, to address such allegations.
Multinational Companies – friends or foes?
To partly salvage the situation, at the same time, one notices open attempts are being made to project the multinational drug companies as demons, the exploiters with a suspicious agenda of thwarting the growth of the domestic companies. In such a scenario, it is indeed perplexing, when one sees the names of the Indian companies at the top of the NPPA lists who allegedly overcharged maximum amount of money to the common man.
What the industry should do jointly:
Under such sad circumstances, the entire industry should come together, take a hard look on itself first and extend its helping hands in public private partnership (PPP) initiatives for the benefit of the civil society.
Such PPP may not necessarily be charitable. It could focus on developing a robust healthcare financing model with industry expertise, for implementation with the government involvement for all strata of society. Or, for example, the industry should come out with a plan, which the US Pharmaceutical trade association – PhRMA has recently proposed to the Obama administration voluntarily on their ‘Medicare’ program, for the senior citizens of America.
For image makeover the name of the game is actual ‘demonstration’ of the good intent and NOT ‘pontification’ of what others should do, highlighting the identified loopholes in the government machineries.
B. GLOBAL PHARMACEUTICAL INDUSTRY PERSPECTIVE:
In the midst of the global financial meltdown, beginning 2009, no one is still able to fathom what impact, if at all, will it leave on to the global pharmaceutical industry.
In the most populous country of the world – China, in April 2009, the government unfolded the blueprints of new healthcare reform measures, covering the entire nation.
Similarly, in the oldest democracy and the richest country of the world – United States of America, President Barak Obama administration expressed their resolve to address important healthcare related issues, as an integral part of the economic reform of the country.
In other developed markets of the world like Europe and Japan intense cost containment pressure is in turn creating significant pricing pressure on pharmaceuticals, triggering the demand of greater use of cheaper generic formulations.
Financial meltdown though eroded the market capitalization of most of the companies; the growth of the global pharmaceutical industry remained unabated till 2008, albeit at a slower pace though. Many markets of the world witnessed a faster generic switch, fuelling higher volume growth of the generic segment of the industry.
In 2008 the global pharmaceutical market size was of U.S$ 780 billion, which is expected to grow to U.S$ 937 billion in 2012 registering a 5 year CAGR of around 5.5%. Sales worth U.S$ 253 billion came from just 100 blockbuster drugs, contributing around one third of the global pharmaceutical market.
USA with a retail revenue turnover of U.S$ 206 is the largest market of the world, though currently showing a sharp decline in its growth rate. The growth rate of the US is expected to drop further along with the patent expiry of other blockbuster drugs.
Just three countries of Europe, U.K, France and Germany contributed to 50% of pharmaceutical sales of entire Europe.
Doctors’ are no longer the sole decision maker to prescribe a medicinal product:
Just like in the US, one witnesses a change in the role of the medical professionals as a key decision maker to prescribe medicines for the patients in Europe, as well. More and more, payors like health insurance companies, NHS are assuming that role.
A shift from small molecule pharmaceuticals to large molecule biotech products:
As small molecule pharmaceuticals are coming under intense pricing pressure, the focus of new drug launches is shifting towards more expensive large molecule biotech drugs with much higher margins of profit increasing the treatment cost further.
The brighter side:
Growing middle class population with higher disposable income together with increase spending of the government towards healthcare, in most of these countries, are making the pharmaceutical industry grow at a much faster pace in the emerging markets like, Brazil, Venezuela, Russia, China, India, Turkey, Mexico and Korea. However, the revenue and profit earned by the global companies from the developed markets are still far more than the emerging markets of the world.
Access to healthcare still remains a global issue:
Despite so much of progress of the global pharmaceutical industry, access to healthcare still remains an issue, besides others, even in some of the developed markets of the world. The waiting period of a patient just to get an appointment of the doctor is increasing fast. Even in the US about 47 million of US citizens still are not covered by insurance, besides many more of them who remain underinsured.
Global pharmaceutical industry is still considered a part of the problem:
Despite meeting the unmet needs of the patients through intensive research and development initiatives and various global access programs for the needy and the downtrodden, the civil society all over the world, including in the developed countries, still believes that the pharmaceutical industry is a part of the global healthcare problems, though relatively more in the developing and the least developed economies of the world. These perceptions are mainly due to high costs of patented drugs, high research expenditure for low value added drugs and seemingly unethical marketing practices of the industry across the board with varying degree.
The pharmaceutical industry, the ultimate savior in the battle against disease, is now passing through a critical phase both locally and globally and both in terms of its image and capacity to deliver newer medicines ensuring their affordable access, the reason of which may vary from country to country.
Be that as it may, the industry has been making significant contribution to the humanity to meet the ever increasing unmet needs of the patients. However, expectations of the stakeholders are also growing and justifiably so. There is no time for the industry, in general, to ponder much now or rest on the past laurels. It is about time to walk the never ending extra mile, for the global patients’ sake.
By Tapan Ray
Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.