KPMG Reports India's Rosy Future In Pharmaceuticals

India's pharmaceutical industry is well positioned for sustainable growth and expansion, according to KPMG – CII Report titled, “Indian Pharma Inc. – A Continuing Success Story” released at the Pharma Summit 2007. The industry has grown at a CAGR of 13% from 2002-2007 and is expected to grow at a CAGR of 16% over 2007-2011.

Over the last couple of years, the pharmaceuticals industry has grown at approximately 1.5-1.6 times the growth of economy. The rise in disposable income has a positive impact on healthcare spend.

In 2005, 6.2% of disposable income was spent on healthcare as compared to 2.8% in 1995. This augurs well for the pharma industry, as the strong economic momentum is likely to continue with the Indian economy expected to grow by 8–9 percent in the next few years.

On the international front, Indian generic drug makers are playing an important role in the global consolidation process and are augmenting their market presence across regulated as well as semi regulated markets through their organic as well as inorganic initiatives.

In spite of increasing competitive intensity on account of continued pricing pressure, several significant opportunities are being leveraged by Indian generic players.

Contract Research and Manufacturing Services (CRAMS), is becoming one of the most promising opportunities for the Indian pharma industry. India, with its intrinsic competitive advantages, remains as one of the most preferred outsourcing destinations and is now playing a vital role in manufacturing as well as drug development value chain of various innovator pharma companies.

According to John Morris, Head, Global Pharmaceutical Practice, KPMG, “ The Indian pharmaceutical industry is at a critical juncture given its inherent strengths and its ability to be a dominant player in the global pharmaceutical industry.”

“It has become a strategic imperative for global pharma companies to make India an integral part of their manufacturing value chain to maintain lean cost structures and combat intense competition in the global generics industry”.

MNC pharma companies are increasingly focusing on realigning their manufacturing activities in order to concentrate on core activities such as R&D and brand building - thereby reinforcing the potential for cost savings through contract manufacturing.

At the same time, existing global CRAMS players are facing adverse business conditions, on account of increasing regulatory compliances on environmental issues and competition from low cost countries.

According to the report, pharma multinationals are also increasingly using India as a base for exports not only to the immediate neighboring markets, but also to other markets around the world such as Japan, South Africa, Latin America and Europe.

Pharma multinationals are also exploiting India’s competencies in the field of Information Technology and its strong and low cost IT skill sets; by setting up centers for their global clinical data management functions in India.

The report suggests the following growth drivers for CRAMs:

Contract Manufacturing. At present, the global manufacturing outsourcing opportunity is estimated at US$20 billion and is expected to reach US$31 billion by 2010,

Contract Research also offers significant opportunity to the Indian pharma industry which is becoming a global R&D hot-spot for innovator pharma companies. The global contract research opportunity was pegged at US$14 billion in 2006 and is expected to reach US$24 billion by 2010. Declining R&D productivity, coupled with an increasing number of products going off patent is expected to drive the growth of the contract research segment

Clinical Research. At present, a majority of clinical trials conducted in India are for Phase II and Phase III. The government is in the process of considering the recommendation of the Drug Technical Advisory Board (DTAB) to allow Phase I clinical trials for the drugs discovered abroad. If this happens, then it will enable the Indian CRAMS industry to provide a wide range of drug discovery services

Government Support. On the regulatory front, the government is also trying to promote the growth of this industry by providing a tax exemption on all services carried out by the contract research and clinical trials industry. This step is likely to further boost clinical trial outsourcing to India.

Following the patent product regime, many Indian pharma companies have embarked on R&D to achieve sustainable long term advantage. These companies are now adopting innovative funding models to advance their R&D activities.

Currently, as many as 10 to 12 companies have molecules under various stages of development. R&D investments by Indian companies have also increased significantly and now account for as much as 7-9% of sales for leading pharma companies.

New drug discovery is a costly and lengthy process. It takes anywhere between (approximately) 10-12 years, for a new drug to reach the market from the laboratory and costs approximately US$800 million to US$1.2 billion.

The government and other regulatory bodies can play a significant role in determining the success of drug discovery research in India. One form of government support, would be the PPP models that can give the much needed impetus to this segment.

Over the last few years, Indian pharma companies have been scaling up their presence in the non-traditional business segments such as drug discovery and development, contract research and manufacturing, etc., and are focusing on building their competencies in every area of the pharma value chain.

However generics continue to remain the mainstay of the industry. Globally, the generics industry is expected to grow at a compound annual growth rate (CAGR) of 11% between 2006 and 2010 and touch US$94 billion by 2010. At present, India has only 10% market share in this industry.

Says, Hitesh Gajaria, Head, Pharmaceuticals, KPMG in India, “The Indian pharmaceutical industry is now well positioned for sustainable growth. The domestic market also has strong underlying growth drivers such as increasing spends on healthcare, increasing penetration of health insurance and changing disease profile which should sustain the double digit growth witnessed over the last few years.”

“If government and industry act together to drive reforms that strengthen knowledge and compliance, enabling companies to follow different collaborative business models, India will be well-positioned to emerge as one of the main pharmaceutical growth markets of the world”.