Frost & Sullivan Market Insight   Published: 27 Jul 2012
Indian Generic Pharmaceuticals Market - A Snapshot
Date Published: 27 Jul 2012

By Aiswariya Chidambaram, Senior Research Analyst - Healthcare

Branded Generics Dominate the Indian Pharmaceutical Market

India is primarily a branded generics (molecular copy of an off-patent drug with a trade name) market. However, it is important to note that generic versions of molecules which still had patent protection in the rest of the world were produced (by reverse engineering) and marketed in India by domestic market participants until 2005, since India did not follow any patent protection laws up to 2005. Hence, the Indian generic market size includes the sales value of generic drugs sold by both big pharma companies (generic copies of the innovator's molecule sold under a different trade name) as well as Indian generic companies like Ranbaxy, Lupin, and Sun Pharma and so on. The Indian pharmaceutical industry, which is the third largest globally in terms of volume, had a total production output of $23.24 billion in 2010, and was the thirteenth largest, in terms of value. The domestic Indian pharmaceutical market was worth $12.24 billion in 2010, and grew at a significant rate of 17.0 percent per year.

India, a global market leader in the export of generic drugs to countries such as the United States and Japan, as well as to countries in Africa and Europe, had a market share of $11.00 billion in 2010, registering a growth rate of 22 percent. In 2010, the Indian pharmaceutical companies produced 20-22 percent of the world's generic drugs in terms of volume and offered 600 finished medicines and nearly 400 bulk drugs in formulations. Indian firms manufactured products for nearly 60,000 generic brands, covering 60 key therapeutic areas. Approximately 80 percent of this domestic production consisted of formulations, while the remaining 20 percent comprised bulk drugs. The Indian pharmaceutical market is a highly-fragmented one, with more than 20,000 registered units, as of 2010. The top ten participants accounted for nearly 37 percent of the market share, and the top five participants for 22 percent of the market share in 2010.

Chart 1 depicts the share of domestic sales versus exports in the Indian pharmaceutical market in 2010.

Generic Pharmaceuticals Market: Breakdown by Domestic Sales and Export Values, India, 2010

What Drives the Growth of Generics in India?

Inherent Competencies and Low-cost Manufacturing Capabilities

India's strength lies in its excellent reverse engineering skills, price competitiveness, and its profusion of inexpensive but well-qualified English-speaking scientists and engineers. Indian pharmaceutical companies function on a much lower profit margin than their Western counterparts. Labour costs are between 50.0 per cent to 55.0 per cent cheaper than in the West. The cost of bulk drug production in India is 60.0 per cent lower, while the cost of setting up a production plant in India is 40.0 per cent lower than in the West.

Increasing Consolidation Through Co-operative Alliances

Mergers and acquisitions are common, and have helped Indian companies gain global market presence. Overall, generic companies with Indian headquarters have spent over $2.70 billion on mergers and acquisitions, since 2000. Sun Pharmaceuticals acquired Caraco for $42.0 million in 2004 and gained a major stake in Taro, while Dr.Reddy's acquired Betapharm Arzneimittal GmbH for $571.0 million, in 2006. Likewise, Indian generic companies have always held the special interest of innovator companies as is evident from several acquisitions, which include Abbot acquiring Solvay and Piramal Healthcare in 2010; Daiichi Sankyo acquiring Ranbaxy in 2009; and Pfizer entering into collaborative agreements with Aurobindo Pharmaceuticals and Strides Arcolab.

Conducive Regulatory Environment

India currently has 75 United States FDA approved plants, enabling contract research and manufacturing services, and drug production as per the compliance requirements of developed countries. In the beginning of 2009, India had close to 1,000 WHO clinical good manufacturing practices (cGMPs) approved plants and 153 European Directorate of Quality Medicine (EDQM) approved manufacturing facilities, of which 32 sites have Certificate of Suitability (CEP) approval. According to the WHO, more than 90.0 per cent of active pharmaceutical ingredient (API) approvals for anti-retro virus (ARVs), antituberculosis treatments and antimalarials were granted to India. As of January 2009,of the total 4,942 prequalified approvals granted by WHO, to 12 countries, India has 621 approvals for six companies.

Key Industry Challenges

Highly Fragmented Market

The Indian pharmaceutical market is a highly fragmented market, with more than 20,000 registered companies competing on price. Of these, the organised sector accounts for only 5.0 per cent of the market with 95.0 per cent comprising the unorganised sector. Stiff competition among the domestic participants in the Indian market has led to margin pressures in most therapeutic areas and product categories. Leading participants in the Indian market are continuing to expand on a large scale, thereby fuelling the competition in the market, which in turn restricts the profit margins of small participants.

Corruption and Red-Tapism

The Indian pharmaceutical market is fraught with malpractice and unethical activities resorted to by pharmaceutical companies in order to survive the intense competition. It is likely that, in a market like India, consumers are not the decision-makers; doctors and medical representatives play a major role in the decision making process. Therefore, patients are forced to buy expensive or inferior quality medicines owing to doctors' commitments to pharmaceutical companies. This has resulted in India being branded as a highly corrupt market by the developed nations, raising quality and safety concerns.

Drug Price Control Measures

The National Pharmaceuticals Policy, 2006, intends to bring 354 drugs under price control, besides the already notified 74 bulk drugs. This new policy is expected to cap margins on generic drugs at 15.0 per cent for wholesalers and 35 per cent for retailers. It is also likely to bring 50 to 60 per cent of the drugs on the domestic market under price control. This policy is set to affect the industry margins significantly, especially for companies that have restricted their trade to local operations.

FutureDirections and Trends

  • With the re-introduction of the Patents Act, 2005 and given the current fiercely competitive scenario, the Indian pharmaceutical industry is expected to gradually shift from vanilla generic drugs to become a regional hub for research and development (R&D), drug discovery, contract research and manufacturing services (CRAMS), and technology licensing.
  • Multinationals are expected to expand extensively into the Indian markets - by as high as 60.0 per cent by 2015- through acquisitions, which will gradually neutralise the cost advantages enjoyed by the Indian pharmaceutical majors.
  • The foreign acquisitions of Indian companies will enable the Indian companies to gain a foothold in the Western regulated markets, diversify their portfolios, acquire recognised brands, and gain R&D capabilities.
  • The United States appears to be the major hub for the export of generics. However, severe price erosion due to the intense competition from other low-cost generic manufacturers and the domestic generic manufacturers in the United States make it crucial for India to look out for alternative export destinations like Western Europe and the Middle East.
  • It is equally important for the Indian-based generic companies to branch out into the speciality and difficult-to-produce therapeutic segments, from just commodity generics, in order to sustain themselves in the market.

Conclusion

With best-selling patented drugs worth $67.5 billion losing protection in the United States in 2010, Indian companies such as Sun, Lupin, Aurobindo, Dr.Reddys, Cipla and Ranbaxy have been aggressive with regard to Drug Master Filings (DMF) and Abbreviated New Drug Applications (ANDA) filings over the last few years, representing 25.0 per cent of the total approvals granted in 2007 and 30.0 per cent in 2008. Consequently, the future of generics in India seems to be extremely promising.With domestic participants entering into strategic alliances with foreign companies, the doors are opening wider for India, not only at home but also in the developed nations.

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