By 2020, global integration of most sectors in the world economy would be much more pronounced, and the pharma industry will not be an exception. In fact the Indian pharma industry, which currently has strong linkages with the global pharma market, will become even more strongly integrated. Globally the pharma market is undergoing a transformation led by change in demand patterns, realignment of supply chains, and global regulatory shifts. In order to predict the state of the Indian pharma market in 2020, it is useful to understand the current global environment of the pharma market and its key trends and analyse the implications that these factors will have on the global as well as on the domestic pharma market.
Global pharma industry—current scenarioThe global pharma industry, valued at $ 607.9 billion in 2006, has been growing at a CAGR of around six-seven percent over the last three-four years. In 2006, the top three regions—North America, Europe and Japan accounted for approximately 87 percent of the total pharma market. In terms of growth, the Latin American market, which constitutes approximately five percent of the total market, grew by 13 percent. Asia, Africa and Australia collectively account for 8.5 percent of the market and achieved the second highest growth rate of 9.8 percent. Approximately 31 new molecules were launched in key global markets in 2006 and with over 2,075 molecules under development; the global R&D pipeline has grown by over 35 percent since 2003.
Global pharma industry—key trendsDeclining R&D productivity Even though the global R&D pipeline has grown at an attractive rate, the industry is facing severe pressure on account of reducing number of blockbuster drugs coming into the market coupled with declining R&D productivity on the back of steeply rising drug discovery and development costs, as well as increasing sales and marketing expenses.
Increasing spread of generics There is global shift towards use of generics as governments worldwide are under tremendous pressure to curtail steeply escalating healthcare budgets. The global generics market was valued at $ 77 billion in 2006, split 60:40 between emerging and regulated markets. The US market has a share of over 28 percent of the world's generics market and is still by far the largest generics market. In Europe, Germany and UK have the highest generics penetration rate by value, of around 23 and 20 percent respectively, whereas in Japan, generics accounts for only five percent of the total market by value
Increasing outsourcing Multinationals are increasingly outsourcing activities such as drug development and manufacturing to low cost destinations and are increasing their focus on core functions of drug discovery, sales and marketing and brand management.
The changing paradigmsDriven largely by the increasing and ageing population globally, prospering economies, increased life expectancy and significant demographic shifts, the global pharma industry is expected to record a healthy growth of around seven to eight percent over the next decade or so. This period will also witness a major shift from the developed markets to emerging markets, from primary care classes to niche therapies and from chemistry to biotech.
Until now, a major share of the demand for drugs has been coming from North American and European regions, the two largest pharma markets of the world. However, these markets have now maturing and with the economic shifts, rapidly changing demographics as well as the significant reforms in the Asian regulatory regimes, this region is set to surpass North America and Europe to become the most lucrative drug market in the world by 2020.
According to the Economist Intelligence Unit, Asia's share in world GDP will increase from 35 percent in 2005 to 43 percent in 2020. A significant portion of this will be contributed by the two fastest growing economies—India and China. The expected economic prosperity in Asia will trigger many positive factors for the healthcare industry such as higher standards of living, increasing per capita disposable income and the improving healthcare infrastructure directly contributing to the increased affordability and access-ibility of drugs.
Current industry scenarioAccording to Crisil Research, the Indian pharmaceutical industry was valued at $13 billion in 2006-07. Of this, the domestic formulation segment accounted for almost 48 percent, the formulation export market accounted for about 25 percent, while the bulk drug exports segment constituted for the balance 27 percent. Currently, India ranks 13th in value terms and fourth in terms of volume.
Indian pharmaceutical industry—in a sweet spot India is one of the fastest growing pharma markets in the world and has grown at a CAGR of almost 20 percent over the last five years. The introduction of the product patents regime in India has put the industry on a new growth trajectory. Indian pharma is making big strides in the global industry. No global company can any longer ignore India either as a competitive sourcing base for its global supply chain requirements or as a destination to capitalise on the rapidly growing domestic demand for drugs. Whether it is the potential in terms of capturing increasing generic market opportunity in the international markets, seizing a substantial share of the global outsourcing pie or building strong R&D pipelines, Indian pharma has already made its presence felt all the way and is increasingly spanning across the entire pharma value chain. Strengthening intellectual property laws and regulatory reforms are encouraging multi-nationals to take increased interest in this market and significantly increase scale of investments.
Crystal ball gazingEach sub sector of Indian pharma market is witnessing strong tailwinds and has varying degrees of growth potential. Focusing on each sub sector will enable us to have a consolidated view of Indian pharma market in 2020.
India's per capita GDP is expected to nearly quadruple by 2020, leading to higher standards of living and increased disposable income supported by a strong middle class population and rising urbanisation (nearly 130 million additional people are expected to shift to the cities). This will also translate into increased demand for high quality healthcare and improved affordability and accessibility of medicines. While tier I cities will remain the primary markets, tier II cities and towns as well as the rural areas will also substantially contribute to the growth.
The growth in domestic drug market will be further spurred by allocation of a larger share of GDP to healthcare sector, rising levels of investments in healthcare in both private and public sectors and improving healthcare infrastructure and distribution networks. By 2020, healthcare spending as a percentage of the GDP is expected to increase from the current five percent to around eight percent. Healthcare penetration is also expected to increase considerably from the current levels.
India has achieved a strong foothold in the global generics market. While in 2002 Indian companies accounted for less than seven percent of all generic drugs approved for marketing by the US FDA, they accounted for over 20 percent in 2006. India's share in the total DMF filings has increased from a mere 14 percent in 2000 to about 50 percent in 2007 (Jan-Jun). In terms of ANDA approvals as well, India's share has gone up from a mere 15 percent in 2005 to about 25 percent in 2007 (Jan-Jun).
The increasing spread of generics is opening up a stupendous opportunity globally. Most generics markets worldwide are set to report double-digit growth and going forward generics are expected to constitute a much larger share of the total pharma market. The focus on semi-regulated markets is also increasing gradually as these markets offer attractive opportunity with favourable demographics, strengthening healthcare infrastructure supported by a regulatory environment favouring generics. Indian companies have been one of the major participants in the consolidation process of the global generics market and have spread their wings across regulated and semi-regulated markets either through buy-outs or strategic alliances. It can be predicted that by 2020, India will become one of the top three generics drug makers in the world.
The Contract Research and Manufacturing Services (CRAMS) segment is gaining traction worldwide and Indian CRAMS industry has witnessed commen-dable growth in the last few years. Given strong growth prospects, inherent competencies and conducive regulatory environment India has, by 2020, India will have successfully managed to capture a principal slice of global demand for outsourcing and the number of international companies off-shoring their global R&D and manufacturing operations to India and setting up low cost facilities here will increase substantially. India will become one of the most important constituents of the drug discovery and manufacturing value chain of the global pharma industry. This segment will be driven by India's ability to compete and preserve its inherent competencies supported by the expected improvement in IP infrastructure and the compliance with international standards.
From no where in late nineties to approximately 50 molecules under various stages of development, at present, Indian pharma industry is rapidly scaling up its presence in the innovative R&D space. Though there is a long way to go for Indian pharma companies to achieve a vital position in the global R&D landscape, companies are adopting collaborative research strategies such as in-licensing, out-licensing and joint development with international companies to ramp up their NCE/NDDS pipelines. By 2020 Indian Pharma would have gained substantial experience and expertise in the area of new drug discovery and development and certainly would have launched some of its molecules globally.
ConclusionWhile growth oriented and inclusive policy regime will help sustain strong underlying growth drivers, the further strengthening of IP regime by policy makers and a forward looking regulatory regime will play a very important role in determining the success of Indian pharma industry.
2020 will definitely witness India's rightful place under the sun—being that of an important producer and consumer in the global pharma sweepstakes.
http://www.expresspharmaonline.com/20080131/indianpharmain202008.shtml
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