Thought Note on Emerging Opportunities in the Indian Pharmaceutical Industry. Published in Pharma BioWorld and a variant was also published in Express Pharma magazine.

1. Cover Story
Pratik Kadakia, Jeffry Jacob
Emerging Opportunities
and Ankur Singhai of
Tata Strategic Management Group
In The Indian
Pharmaceutical Industry
Global pharmaceutical companies are increasingly under
pressure due to a host of factors, including relatively dry
pipeline for new drugs, higher R&D costs and increasing
pressure from Governments for reduced healthcare costs. The
industry is bracing itself for some fundamental changes in the
market place and is looking at newer ways to drive growth.
These global trends will have serious implications for domestic
pharmaceutical companies. However with the right strategy,
Indian companies are very well poised to take advantage of
these changes and successfully navigate the future.
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2. Cover Story
Global Pharma under pressure traditional acute segments. Crisil forecasts
Even before the current economic the Anti Diabetic segment to have a
downturn set in, global pharmaceutical CAGR of 19% over the period 2008-13
companies were under pressure. Global compared to 14% for the Anti-Infective
pharma majors are hit by a double segment. This has led to MNCs such as
whammy of drying New Chemical Entities Pfizer, GSK, Roche and Sanofi Aventis
(NCE) pipeline and patent expiry of top launching almost 15 on-patent products
selling drugs over the next few years. in India with an eye on high value life style
In 2007, the FDA approved just 19 new related therapeutic segments.
drugs, the lowest in over two decades. Indian companies are well positioned
Declining productivity, relatively dry t o p a r t a ke o f t h i s h u g e d o m e s t i c
pipeline for new drugs, higher cost of opportunity. Indian companies need to
approval for new drugs, and a host of broaden their product portfolio to include
other factors have been leading to lower growing therapeutic segments such as
profitability. anti-diabetics, central nervous system
The developed markets comprising and cardiovascular. Companies can now
of US, Europe and Japan, which have sell premium products to aspiring Indian
traditionally been the stronghold of middle and high class, while at the same
patented drugs, are expected to witness time continue their focus on low value
lower growth going forward. Impending looking at outsourcing all non-critical but high volume bottom of the pyramid
policy changes promoting use of generics elements of the value chain. class
is expected to further dent the top- Opportunities for Indian
line and bottom-line of global pharma pharmaceutical companies  Moving up the value chain in
majors. These global trends have far reaching CRAMS
The global companies have responded implications for Indian pharmaceutical India is today recognized as a global
to the dwindling sales and dry product companies across the entire value chain, manufacturing hub, with nearly 40-50%
pipelines by acquiring their peers and from generic players like Dr. Reddy’s lower production costs than the US and
in the process creating global pharma to contract manufacturers like Piramal the largest number of FDA approved
goliaths. In order to sustain growth, most Healthcare. Indian companies need to facilities outside the US. Several Indian
companies are looking at M&A as the re-look at their strategies carefully and companies jumped on to the CRAMS
way forward. Innovator companies are see how best they can respond to the bandwagon during the first phase, which
increasingly buying out generic companies new scenario. Some of the ways the was characterized by manufacturing low
(e.g. Daiichi Sankyo’s acquisition of Indian players can take advantage of the value high volume intermediates, APIs
Ranbaxy) or entering into strategic emerging opportunities are: and carrying out clinical trials. Strong
alliances (eg. GSK-Aspen) to participate  Leveraging the domestic market domestic and international competition
in the fast growing generics market. As opportunity has already brought down margins in
per Merck Chairman and CEO Mr. Richard With the growth in US and developed these traditional segments. The global
T Clark, the USD 41 billion acquisition economies expected to taper off, emerging consolidation may trigger optimization
of Schering Plough will provide Merck economies like India are expected to drive of assets both in manufacturing and
“benefit from a formidable research and future growth. The key growth drivers in research thus affecting the future business
development pipeline, a significantly these countries are increasing per capita of contract service providers. CRAMS
broader portfolio of medicines and an income, growing insurance penetration, companies could be at a disadvantage
expanded presence in key international better health awareness, higher during negotiation of contracts with the
markets, particularly in high growth government expenditure, adherence to consolidated entity as the quantum of
emerging markets”. IPR norms and shift in disease profiles. work offered by a single entity would
Leading pharma companies are also The Indian market was estimated at potentially increase.
looking at newer areas like biologics and USD 8 billion in FY2008 and is expected Indian companies need to sustain their
increasing their presence in emerging to grow at 10-12% CAGR for the next competitive advantage by consistently
economies to fuel future growth. Cost five years. Life style related or chronic focusing on reducing costs and moving
competitiveness has become more therapeutic segments are expected to up the value chain. CRAMS players need
important than ever and companies are grow at a much faster pace than the more to look at niche areas such as oncology
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3. Cover Story
and other high-potency APIs. Antibody entry barriers are very high in this drugs going forward. Domestic pharma
drug conjugates (ADCs), which are space due to the investment involved. companies should continue their focus
monoclonal antibodies linked to cytotoxic Biologics based companies in the west, on innovation to develop New Chemical
small molecules, is another area where which have previously received funding Entities/ New Molecular Entities (NCEs/
contract manufacturers could look to from venture capitalists may now find it NMEs) which offer sustainable revenues
expand. Increased outsourcing in the difficult to raise cash under the current going forward. Increasing collaboration
biopharmaceutical space also presents economic scenario. This presents a good with global pharma companies help in
the contract manufacturing companies opportunity for Indian pharma companies sharing costs and risks, while ensuring
with new avenues for growth. Finished with significant cash on their balance better results. In-licensing/ out-licensing
product/ Dosage form, injectables sheet to scout for suitable targets to gain by pharma companies is an area that
manufacturing and lypholization services market and technology access. should be actively considered.
are the other promising areas for contract Indian companies need to develop
manufacturers.  Opportunities for M&A and their long term strategy in international
Focusing on meeting end to end needs strategic tie-ups markets on an individual country basis.
of innovator companies and venturing Increasing number of global Their decision to compete either in
into new areas in the CRAMS space would acquisitions have been made in the high value markets like US or in volume
allow Indian companies to differentiate recent past by Indian companies markets like Russia, Brazil will determine
from other low cost manufacturing for strategic objectives like market their options, whether it is physically
nations and provide it the ability to give entry, technological or manufacturing setting up operations in these countries or
better value and charge higher margins. expertise and distribution facilities. The operating through strategic and marketing
global market continues to offer these alliances.
 Increasing foothold in Biologics opportunities for domestic companies Higher value segments like cancer
The biologics market was estimated looking to expand their international related drugs or high potency APIs in the
to be nearly USD 70 billion in 2008. presence. bulk drug space are other areas Indian
Though this appears small compared to Strategic tie-ups with global companies drug manufacturers could look at. The
the overall pharma market, there were offer several opportunities for Indian Indian industry needs to develop and
150 deals announced in 2008 alone companies to create ‘win-win’ situations, improve capabilities in novel drugs and
worth nearly USD 94 billion. These particularly in R&D and distribution. delivery mechanisms. Biologics is another
deals mostly involved pharma majors The consolidation amongst global area where Indian companies can look at
like Roche (Genentech), Eli Lilly & Co. majors is expected to translate into actively serving the market.
(ImClone Systems), etc. Closer home, stronger competition for Indian companies, In CRAMS, India has already made
global majors GSK and Sanofi Aventis especially in the global market. This a mark with contract manufacturing of
were in detailed discussions to acquire may result in more frequent and longer generic drugs. Contract manufacturing of
Shantha Biotech. Four biologics made litigations for generic drug manufactures, innovator drugs is an area that offers great
the top ten and seven biologics made it thereby increasing costs and making them potential for the future. Indian CRAMS
into the top twenty selling drugs of 2008. financially vulnerable. With increasing companies need to continue focusing on
US biopharma companies alone spent interest in the generics portfolio of these cost competitiveness, but at the same
over USD 65 billion in R&D last year. companies, global majors will look at time they should increasingly move up
This has lead to a very robust product acquisition opportunities. This may the value chain and offer higher value
pipeline with several drugs in late stages provide financially lucrative opportunities added products.
of development. Even with the current for domestic companies looking to cash The current environment is
debate on Biosimilars (generic version of out. challenging, but at the same time it throws
biologics), the market opportunity post up several new opportunities for the
patent expiry for most biologics in 2017 Strategy: Key to successfully compete Indian pharmaceutical companies. What
is expected to be immense. in the new environment worked in the past may not necessarily
Indian companies cannot afford to R&D divisions of Indian pharma hold them in good stead in the future.
miss the bus on biologics. This market companies have started making the move Companies which take cognizance of
is still in nascent stage and offers a first from reverse engineering to development the fundamental changes the industry is
mover advantage to companies which of new molecules. India is developing its going through and re-jig their strategies
can get their strategy right. However capability in New Chemical Entities and accordingly will be able to successfully
unlike the traditional pharma segment, is looking to launch its own patented navigate the future.
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