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Pharma Summit 2007India Pharma Inc. A Continuing Success StoryNovember 2007
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Executive Summary & Acknowledgements 01
Domestic Pharmaceutical Market 03
Global Generics Industry 15
Contract Research and Manufacturing Services(CRAMS) 29
Research and Development 39
Growth Through Collaborations 47
Annexures 51
Table of Contents
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The Indian pharmaceutical industry has achieved significant momentum in the
last few years, making its presence felt in the global market primarily through its
focus on global generics markets.
It is now well positioned for sustainable growth and expansion and companies in
India are identifying diverse business models as a means to participate in the
global growth potential. The domestic market also has strong underlying growth
drivers such as increasing spend on healthcare, increasing penetration of health
insurance and changing disease profile which should sustain the double digitgrowth witnessed over the last year.
On the international front, Indian generic manufacturers are playing an important
role in the global consolidation process. They are also increasing their market
presence across regulated as well as semi-regulated markets, through organic as
well as inorganic means. 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. Global pharma
companies are finding pioneering ways to attain cost efficiencies across the value
chain. India, with its intrinsic competitive advantages, remains 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.
Enactment of patent product regime offers multiple growth opportunities for
MNC pharma companies in the medium to long term. India has not only become
an important market for launching their global blockbusters, but also a strategic
destination for conducting global clinical trials and making it a significant
component of their global drug development value chain.
Following the patent product regime, many Indian pharma companies have
embarked on Research and Development (R&D) to achieve sustainable long term
advantage. These companies are now adopting innovative funding models to
advance their R&D activities.
Strategic alliances have been one of the preferred routes adopted by Indian as
well as MNC pharma companies while foraying into new markets and
geographies, as well as in the development and sourcing of new products and
molecules. Such partnerships enable companies to capitalize on the associates
knowledge and understanding of the local market, technical know-how as well asprovide them with ready access to a strong distribution and supply infrastructure.
Executive Summary andAcknowledgements
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However, there are a few structural impediments and constraints that may affect
the future growth potential.
Ambiguity in regulations vis a vis patents and regulatory threat of extending the
span of price control may hinder growth in the domestic market and government
actions in different markets will be key considerations for generics players.
Strengthening the IPR infrastructure and culture will benefit the CRAMS industry
and new drug development and investment in research and development can be
further driven by access to funds.
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. If the government, industry and corporates can act together to drive
reforms that strengthen knowledge and compliance enabling companies to follow
differentiated business models, India will be positioned to emerge as one of the
leading pharmaceutical markets of the world.
This knowledge paper prepared by KPMG in partnership with CII, presents the
latest trends and insights on the Indian pharmaceutical industry. We hope this
report will be immensely helpful to key stakeholders of the pharmaceutical and
healthcare market and provide them with an in-depth analysis of the business
prospects.
A number of eminent industry stalwarts made time to provide valuable insights
for this report. We would like to acknowledge and thank the following people for
their contribution (in alphabetical order):
Dr. Brian Tempest, Chief Mentor and Executive Vice Chairman of the Board,Ranbaxy Laboratories Ltd.
Dr. Hasit Joshipura, Vice President, South Asia and Managing Director, IndiaGlaxoSmithKline Pharmaceuticals Ltd.
Dr. J M Khanna, Executive Director & President, Life Sciences,Jubilant Organosys Ltd.
Mr. Kewal Handa, Managing Director, Pfizer Ltd.
Mr. Pankaj Patel, Chairman and Managing Director, Cadila Healthcare Ltd.
Mr. Ranga Iyer, Managing Director, Wyeth Ltd.
Mr. Ranjit Shahani, Country President, Novartis India Ltd.
Dr. Swati Piramal, Director, Strategic Alliances & Communications,Nicholas Piramal India Ltd.
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Introduction
The Domestic pharmaceutical market is going through a transformation, led by
strong underlying growth drivers and has witnessed robust growth over the last
couple of years. While this growth was driven mainly by an increasing spend on
healthcare, on account of rising disposable income, increasing penetration of
health insurance and changing disease profile, regulatory reforms also provided a
significant boost. The industry has grown at a CAGR of 13 percent from
2002-2007 and is expected to grow at a CAGR of 16 percent over 2007-2011.
I think by and large, the market will grow in double digits giventhat the penetration level of modern medicine in the country is low and the fact that the health insurance sector is growing rapidly.Everywhere else in the world, economic growth is linked toincreased longevity. So that being the case, I would say that there will be growth. Healthcare in general will grow and therefore the pharmaceuticals market will grow. And this growth would be led by prescription and volume and not price, says Dr. Hasit Joshipura.
Domestic Pharmaceutical Market
Source: Crisil Research
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Growth Drivers
Strong Economic GrowthThe prospects of the Healthcare and Pharmaceuticals industry are strongly linked
to economic growth. 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
percent of disposable income was spent on healthcare as compared to 2.8
percent in 1995.
There is a view that if the GDP of a country grows by 1 percent the pharma industry grows by approximately 2 percent. So if you are going to have 8-10 percent growth in the GDP, the pharma industry will grow in double digits. This growth would primarily be led by expansion of healthcare services, says Dr. Brian Tempest.
This augurs well for the pharma industry, as the strong economic momentum isexpected to continue and the Indian economy is expected to grow by 89
percent in the next few years.
Improving Healthcare InfrastructureBoth healthcare delivery and infrastructure segments are going through a
structural change with the entry of corporates. Significant investments have been
lined up in the domains of organized pharmacy chains and private hospitals. In
addition to Metros even B and C category towns are witnessing sizeable
investments. Many pharma companies have expanded their sales force in order
to cater to these untapped markets.
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Source: CSO, IMS
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Following factors will drive the growth of the domestic market: Increase in disposable income, newer therapeutic segments, newer markets, and semi-urban and rural areas. Last but not the least is health insurance. Also, the growth in the domestic market would be based on volumes rather than price, says Mr. Ranga Iyer.
At present, organized players account for a meager 2 percent share of the
pharma retail market. It is expected that with the advent of modern retailing
in India, increasing investments in this space will multiply the availability
and accessibility of pharma products. The organized pharmacy chains will
not only capture an increasing percentage of the total market but will also
expand the market with value added services and enhanced offerings. The
culmination of all these factors is expected to further drive the growth of the
domestic pharma market.
Increasing penetration of health insuranceAt present, only 4 percent of the healthcare costs are borne by the insurers in
India as against 80 percent in developed economies. With increasing health
insurance penetration in India, this is set to change and going forward, a larger
proportion of expenses will be paid by insurers and consumption of sophisticated
drugs is likely to become more affordable.
Expansion Plans of prominent pharmacy chains
Company Expansion Plans
Apollo 1000 stores by 2008
Subhiksha 1000 stores by Dec. 2007
Medicine Shop 500 outlets by 2009; 700 by 2010
Dabur HealthWorld 1,000 HealthWorld stores in 400 cities in next five years
Guardian Lifecare 250 stores by Mar 2008 and 3,500 by March 2015
Frank Ross Limited 100 stores by 2010
Morepen Laboratories 8 stores in 2007 and 80 by 2011
Source: Credit Suisse Investment Report, April 2007; Press Articles
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At present, the health insurance penetration is estimated at approximately 10
percent in India and is expected to double in the next five to seven years. This
increasing penetration will help expand the pharmaceuticals market in two ways.
One, it will increase the access to more sophisticated and expensive drugs; and
two; it will also make basic drugs more accessible through wider coverage. This
augurs well not only for domestic pharma companies but for MNC pharma
companies as well; as increasing health insurance will also help expand the
markets for patented products.
The growth in the domestic market will be driven by volume. The small to medium size players are growing their presence inuntapped tertiary markets while MNCs are expected to grow through introduction of high value products. As Insurance gets more liberalized as in the west and further growth in health infrastructure in this country will be key factors to drive growth, says Mr. Ranjit
Shahani.
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Source: Industry
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Changing Therapeutic MixThe existing therapy mix is tilted towards acute diseases. However, in the
medium to long run the domestic pharmaceutical market will be largely driven by
the increasing prevalence of the chronic segment. Increasing urbanization,
changing lifestyles and ageing population will drive the growth of this segment.
In most cases, ailments in the chronic segment are recurring in nature, which
ensures regular consumption of medicines for the lifetime of the patient. Going
forward, therapies for treating cardiovascular diseases and diabetes are expected
to have one of the highest growth rates.
50 percent of the industry is still anti Infective plus metabolism and respiratory products. Standards of sanitation and hygiene in this country are low. As long as this issue is not tackled, you cannot expect acute disease to come down. CNS, CVS and other chronic disease are also growing along with this, says Mr. Ranga Iyer.
Source: Crisil Research
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Source: IMS
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Dr. Hasit Joshipura also feels that, both segments, anti infectives and respiratory will continue to grow. At the same time due tochange in Indian life styles in cities, which are getting more akin tothose in western countries, the disease profile will also change. Soyou will have chronic and life style disease such as CVS, CNS and diabetes also growing.
In terms of the geographical distribution of the Pharma market, 23 Metro cities
account for approximately a quarter of the market. Class I towns comprising
300 towns altogether account for about one-third of the market. Rural markets
which account for 21 percent of the total market have been increasingly
becoming an important market for big pharma companies. Though rural markets
are dominated by acute segments, chronic segments have slowly started making
inroads.
The domestic Indian pharmaceutical market is expected to grow at 11-12 percent and will primarily be driven by the launch of new products and market expansion strategies. Domestic companies will also continue to grow through acquisitions, joint ventures,leveraging low operational costs and outsourcing. However, price control mechanisms and ambiguity in the policy environment may constrain market growth, says Mr. Kewal Handa.
Source: Merck Presentation
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Mr. Kewal Handa also feels that, Though patented products will be introduced in India, the domestic market will predominantly remaina branded generics market. By 2015, it is estimated that the share of patented product will be about 10 percent.
Government InitiativesThe Government has introduced several development programmes to improve
the access to and quality of the healthcare services in the country. The National
Rural Health Mission (NRHM), introduced by the government to provide basichealthcare amenities in the rural areas, is expected to increase the access to
drugs in the rural areas. In Budget 2007-08, the budgetary allocation to health
was increased by 22 percent to INR 1,52,910 million.
Launch of Patented DrugsAfter the product patent regime was introduced in India in 2005, the domestic
pharma industry has witnessed the launch of around 11 patented products by
multinational companies.
This number is expected to grow, as MNC pharma companies are already
planning significant patented launches over the next few years. Various industry
estimates suggest that by 2015, patented drugs will account for 10-15 percent of
the domestic pharma market.
Key Patented Molecules launched in India (till March 2007)
Product Company Therapeutic Category Launch date Current Status
Vfend Pfizer Anti-Infective Feb-05 On Patent
Avandia GSK Anti-Diabetic May-05 On Patent
Viagra Pfizer Erectile Dysfunction D ec-05 On Patent
Lyrica Pfizer Neuropathic Feb-06 On Patent
Caduet Pfizer Cardiovascular Feb-06 On Patent
Carvedilol GSK Cardiovascular Mar-06 Off Patent
Genotropin Pfizer Endocrine Disorders Mar-06 On Patent
Tamiflu Roche Influenza Apr-06 On Patent
Pegasys Roche Hepatitis C May-06 On Patent
Avalide Sanofi Aventis Cardiovascular Jul-06 On Patent
Ambien Sanofi Aventis Insomnia Jan-07 Off Patent
Source: CRISIL Research
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However, ambiguities in the patent laws remain with respect to issues such as
data protection, pre-grant and post-grant opposition and patenting of derivatives.
When GSK introduced patented products in 2005, there were lots of sceptics. But we still launched the products. The interest of the government is to globalize the country and all the signs are there,and therefore I do expect that the steps will be such that they will not take India back but they will continue this path of integrating
India into global economy. And I think the one indicator that the global pharma players are sitting up and taking notice is the number of new entrants. Companies that were not present in India are now establishing businesses in India. So these are all indicators that the people are hopeful that these changes would continue in a directionthat would facilitate innovative companies to operate in this country with protection of their intellectual properties, says Dr. Hasit Joshipura.
The domestic market will continue to be attractive. The patent law today is not the best we have. But I think it will get better. I think it will become more positive, says Mr. Ranga Iyer.
The full impact of the patent laws will be felt only after 2010, says Mr. Ranga Iyer, because anything patented after 1995 only is eligible to be patented in this country and if it takes the normal cycle of 12 years to get a molecule out, then it will come out only in 2007- 08 inthe western countries. It will take another 1-2 years for it to come toIndia. I think all companies during the last 3 to 4 years have launched one or two products per year. This is a lot for MNC pharmavis a vis history.
Key Considerations
Need for PublicPrivate Partnership (PPP)At present, a principal share (almost 75-80 percent) of the total healthcare
expenditure by the country is incurred by the private sector, while the public
sector finances the balance. On the other hand, affordability and accessibility of
the latest and quality drugs continues to be one of the major issues for a large
section of the population and for the country as a whole. Both the public as well
as private sectors have recognized this as a serious concern and are looking at
PPPs as a sustainable model to cater to the growing demand of medicines
across all sections of society.
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70 percent people in this country do not have access to modernmedicine. 700 million people in a population of 1 billion. That is aproblem that the government needs to solve. There has to be apublic private partnership to reach medicines to these 700 people, says Mr. Ranga Iyer.
Mr. Ranjit Shahani also has similar opinion, according to him,Approximately 65 percent of the population does not have access to
medicines. The government should focus on improving access toimprove healthcare.
Spurious / Sub-standard drugsAt a time when India is moving towards becoming a preferred manufacturing
base for global pharma companies, the menace of spurious and substandard
drugs could give a negative image to the country. According to the Mashelkar
committee report, the industry faces a loss of around INR 40 billion due to
substandard drugs and a WHO report suggests that 35 percent of spurious drugs
of the world are being produced in India. Spurious and counterfeit drugs are a
major public health hazard.
Government needs to accelerate the legislative reforms to curb the menace of
counterfeit drugs. This is one of those issues that needs to be tackled as the industry comes of age. It is not just spurious drugs; it is pharmacovigilance per se. says Dr. Hasit Joshipura.
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Source: Edelweiss Investment Report, April 2007
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Price ControlsUncertainties regarding the Draft Pharmaceutical Policy 2006, which proposes to
bring 354 essential drugs under the purview of Drug Price Control Order (DPCO)
continues to be an area of acute concern for the industry. The pharma industry
feels that regulation should try to simulate the "effects of competition" and price
control should not be imposed on drugs where the "effects of competition"
already exist. The proposed policy would significantly increase DPCOs span of
control from the existing 25 percent to approximately 50-60 percent of all
medicines produced.
Some of the notable views from the industry as follow.
Artificially imposed constraints of any kind will hamper the growth.Industry is responsible enough to make sure that pricing will not spiral out of control. And again in this country where you have 50 brands for each molecule, there is an inbuilt mechanism to control prices. says Dr. Hasit Joshipura.
Dr. Hasit Joshipura also feels that, it is the concern of governments world over that the medical costs should be affordable. And if prices go out of hand then it is not desirable. Certainly some monitoring should be there.
By subsidizing and controlling prices, the government is actually subsidizing these for the rich also. Because they are the people buying it. Access is the problem in this country and not the price.You improve the access of medicines to the poor and lots of these problems could be solved, says Mr. Ranga Iyer.
The market is growing and it will continue to do well except for one thing and that could be public policy. If the government does not have a progressive policy then that perhaps could hamper the growth. Fundamentals are strong and if the policy is progressive then it will augur well for the industry. The industry needs good legislations and price monitoring by the government would be aforward looking step as compared to price control, feels Dr. Swati Piramal.
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Mr. Kewal Handa feels that, India needs a locally relevant healthcare policy. It is imperative that the government broadens the focus from controlling the price of medicine, which is just one element of the healthcare expense cycle, to investing in other critical elements such as improving primary healthcare infrastructure and availability of doctors. Investments in preventative measures will reduce the overall diseases incidences thus resulting in lower healthcare costs.
Price controls would constraint the growth of the market. However,price monitoring may be an effective way to manage prices, feels Mr. Ranjit Shahani.
High fragmentationThe domestic formulations market is predominantly a branded generics market
and intensely competitive, with the presence of several players, including small
scale companies. The top 10 companies account for only 37 percent of the
market. This shows the level of fragmentation in the industry. Given this
industry structure, brands franchise, field force strength and product innovation
become critical success factors to operate in this market place.
In a market that is only selling copied products, the importance of strong brands is very crucial and vital and the only way to grow inthe future. Otherwise how do you differentiate between 18 different molecules? All you can look at is the brands, says Dr. Swati Piramal.
A report by the Institute for Studies in Industrial Development (ISID), a national-
level policy research organization in the public domain, mentions that in 2000-01
there were approximately 2872 pharma units in India and out of these 91 percent
were small manufacturing enterprises.
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However, the amendments made by the government to the Schedule M which
deals with standard manufacturing practices, will help in establishing quality
standards and uniformity across manufacturing practices.
I dont see consolidation happening in a massive way in the near future. Many of them are family run businesses and they are doing well. They have no reason to give up their business. Its afragmented industry all over the world and why should it be different here, says Dr. Swati Piramal.
Mr. Ranjit Shahani feels that consolidation will happen in the longer term by 2010. However, current high valuation expectations and emotional attachments due to them being largely family runorganizations, are the key reasons why you do not see consolidationin the short term.
Conclusion
Indias domestic pharmaceutical market is at an inflection point. The strong
underlying growth drivers offer enormous opportunities for domestic as well as
MNC pharma companies. However, an inclusive and growth oriented public policy
regime will ensure that this growth is sustainable.
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Global Generics Industry
Introduction
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. Indian companies are
increasingly advancing beyond domestic boundaries and are aggressively
focusing on making their mark in the global generics space. In order to reducetheir dependence on the U.S. market, Indian pharma companies are now entering
new and under-served generics markets across different geographies such as
Japan, South Africa, European and Commonwealth of Independent States (CIS)
countries and Latin America. While the global generics industry continues to
remain under severe pricing pressure, the Indian generic drug makers continue to
spread their wings across different international markets.
Growth Drivers
Trend towards an increased use of genericsGlobally, the trend towards an increased use of generics is on the rise and isexpected to open up tremendous opportunities for generics players as
governments in many countries encourage the shift to generics on the back of
rising pressure on healthcare budgets. Globally, the generics industry is expected
to grow at a Compound Annual Growth Rate (CAGR) of 11 percent between 2006
and 2010 1 and touch USD 94 billion by 2010. At present, India has only 10
percent market share in this industry.
Regulated Markets
U.S. - The worlds largest generics marketThe U.S. market is still by far the largest pharma market in the world and
accounts for over 28 percent of the worlds generics market. 2
In spite of severe pricing pressure and declining profitability, the U.S. market will
continue to be attractive. Drugs worth USD 65-70 billion are expected to go off
patent in the next four-five years.
1 Crisil Research
2 SSKI Investment Report, March 2007
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Given the opportunity and challenges in this market, it is evident that the success
of Indian players in the U.S. market will largely depend on their ability to offer
value-added generics products and their specialization in business development
through partnerships, strategic alliances and joint ventures (JV).
European Union (EU) regulatory reforms to drive growthMost European markets such as France, Italy, Belgium, Spain and Germany are
highly regulated and have low levels of generics penetration. Rising healthcare
expenditures in these countries is becoming a key concern for most European
regulators. Several reforms and regulatory changes have been introduced in the
last couple of years to encourage an increased use of generics. These markets
are largely branded generics; hence pricing pressure is limited as compared to
the U.S. market.
These regulatory changes coupled with a significant number of drugs going off
patent over the next few years, has opened up a big opportunity for Indian
generics makers. Many Indian companies have already made their mark in these
markets while others are pursuing aggressive strategies to foray into these
markets, primarily through their inorganic initiatives.
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Source: Motilal Oswal Investment Report, April 2007
Source: Motilal Oswal Investment Report, April 2007 Source: Motilal Oswal Investment Report, April 2007
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Japan Low generics penetration and Government legislation to drivegrowthJapan, the worlds second largest pharmaceutical market, has lured many Indian
companies, in spite of its low generics penetration rate. The Japanese pharma
market was valued at USD 65.2 billion in 2006. 3 At present, generics account for
approximately 17 percent of the market by volume and 5 percent by value. It is
expected to grow to USD 14 billion by 2010. 4 The government is actively
introducing reforms and measures to encourage low cost-high quality generics
drugs, with the objective to cut the increasing healthcare spending.
Indian companies are looking at significant opportunities in the Japanese market.
The growth of the generics industry in Japan is expected to be driven by a rapidly
ageing population, increasing healthcare expenditure and government reforms.
Since 2002, the Japanese government has introduced several legislations to
promote the use of generics drugs. The generic substitution law which was
introduced in April 2006 is one of them. It is expected to be a key engine to
expand Japans generics drug market and enable medical institutions to dispensegeneric drugs.
Emerging Markets- gaining tractionEmerging markets such as Russia and the CIS nations, Eastern Europe; Brazil and
other Latin American countries and South Africa are increasingly being viewed as
highly remunerative markets.
Presence of Indian companies in Japan
Indian Company Remarks
Ranbaxy Entered into a JV with Nippon Chemiphar, a medium sized pharma companyfocused on generics, to strengthen its presence in Japans generics market
Lupin Acquired Kyowa, a Japanese generics company ranked amongst the top 10generics companies
Strides Arcolab Entered into a JV with SORM Co. for long-term supply of generic drugs, Over-the-Counter (OTC) and nutraceutical products
Zydus Cadila Acquired Nippon Universal to gain access to a manufacturing base anddistribution network
Source: Motilal Oswal Investmenr Report, April 2007; Company websites and Press articles
3 Datamonitor Report, December 2006
4 Motilal Oswal Investment Report, April 2007
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Many of these markets are primarily branded generics markets and have high
entry barriers, and are thus subject to lesser competition. As a result, these
markets offer better price realizations and stable margins. The demand in these
markets is further driven by favorable demographics, increased healthcare
spending and improving healthcare infrastructure.
Regulated Markets are the largest markets and their role will always remain important. But, as and when there are opportunities in other markets, people that have entered the regulated markets will also look at these markets. Some of the emerging nations and semi regulated markets offer better opportunities in terms of profitability than the regulated markets, says Mr. Pankaj Patel.
South AfricaSouth Africa is perceived as a very promising market for several Indian generics
makers. The South African pharma market was valued at USD 1.3 billion in 2006.
This market is expected to grow at a CAGR of 5.5 percent over the next five
years and touch USD 1,698 million by 2011. 5 It is predominantly dependent on
imports and the generics market accounts for around 40-45 percent of the total
market.
Hence South Africas pharma market has become one of the prime emerging
markets for Indian generics players. Several players have established their
presence in this market through subsidiaries, JVs, acquisitions, or marketing and
distribution agreements. Some of the leading Indian companies which have
already capitalized on the opportunities in this market include Cipla, Dr. Reddys,
Ranbaxy and Wockhardt.
5 Espicom Business Intelligence World Pharma Market, January 2007
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Source: Citigroup Investmenr Report, May 2007
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Russia and other CIS nationsThe Russian pharmaceuticals market was valued at USD 7 billion in 2006. 6 It is
one of the fastest growing pharmaceuticals markets in the world. Russias
generics market is around 30 percent of the total market. 7 It is a semi-regulated
market, offering high and stable returns. Other attractive CIS markets include
Ukraine, Kazakhstan, Belorussia, Uzbekistan and Azerbaijan.
The reforms in healthcare systems and the shift to generics, clubbed with
favorable demographics such as a large population base, high per capita income,
as well as low entry barriers compared to the U.S. is expected to augur well for
companies focused on this region.
JB Chemicals, Ranbaxy, Lupin, Lyka Labs, IPCA Labs, Plethico have established
their presence in Russia. Investments are in the form of JVs and manufacturing
facilities in Russia, Ukraine and Uzbekistan. Competition for Indian companies in
these regions is from the neighboring European generics players.
Brazil and other Latin American marketsThe Brazilian market has caught the fancy of many Indian companies in the
recent years. In fact, approximately 50 percent of the JVs and partnerships
between India and Brazil are formed in the pharma sector.
6 Economist Intelligence Unit
7 Espicom Business Intelligence World Pharma Market Fact Book
Source: Express Pharma
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Generics accounted for 14.2 percent of the estimated USD 11 billion market in
2006. Although Indias pharma exports to this market stood at only 3 percent of
the total pharma exports in FY07, this market is expected to generate significant
opportunities in the near future, driven by the recent de-recognition of the patent
for antiretroviral drugs and promotion of generics.
Other markets of Latin America which have attracted many Indian companies are
Argentina, Mexico and Chile. These semi-regulated markets offer stable returns
and higher margins as compared to regulated markets.
Indias competitive positionIndian companies have already proved their mettle in the fiercely competitive
global generics space. India has a share of around 23 percent in the total
Abbreviated New Drug Application (ANDA) approvals and 48 percent of the total
Drug Master Files (DMF) filings. 8 Indias cost advantage is highly compelling. This
fact, coupled with strong chemistry and regulatory skills and the largest no. of
USFDA-approved plants outside the U.S., makes India one of the most dominant
players in the global generics space.
Indian Company Presence in Brazil
Ranbaxy Formed a JV Ranbaxy S.P.Medicamentos (with local partners)
Dr. Reddys Established a subsidiary Dr. Reddy's Farmaceutica Do Brazil Ltda
Glenmark Established wholly-owned Brazilian subsidiary Glenmark Farmaceutica Ltd.Acquired Laboratorios Klinger
Zydus Cadila Established Zydus Healthcare Brasil Limitada to market formulations in BrazilAcquired Quimica e Farmaceutica Nikkho do Brasil Ltda (Nikkho)
Wockhardt Established a sales and marketing subsidiary Wockhardt Farmaceutica do BrasilLtda
Strides Has set-up two manufacturing units (Cellofarm Ltda)
Source: Company websites, Indo-Brazilian Commercial Relations Report, December 2006 and Press articles
8 Crisil Research
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In order to remain competitive and maintain their dominance, Indian players have
realigned and restructured their operating paradigms reflected in lean cost
structures, vertically integrated models, geographically diversified presence, vast
product baskets and increasing presence in niche segments.
Yes, the competition is rising; it took Ranbaxy 4-5 years to get established, so it will take 4-5 years for the Chinese to get established. China is incredibly strong in terms of intermediates and API but in formulations, Indias share is increasing. One out of every four ANDAs is from India. But competition from China will begin by 2008. And it will be very important to be competitive on costs. There are pricing pressures, but there are good profits to be made. The good thing not to forget is the branded generics, which is a growthoriented sector, says Dr. Brian Tempest.
Enhanced focus on niche specialtiesIndian players are now focusing on capturing emerging opportunities in certain
niche specialties. These segments offer higher and more sustainable margins
which can compensate for the intense pricing pressure in the generics segment.
Source: Merrill Lynch Investment Report, November 2006
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The table below shows some of the high growth-high profit niche segments
identified by Indian companies.
Building Para IV pipelinesAggressive Para IV filings and teaming up with innovator pharma companies for
launching authorized generics is also gaining momentum. Indian generics giants
such as Ranbaxy and Dr Reddys have already tasted the success of these
strategies and have reported significant gains by winning the 180-day
exclusivities. To give an example, Ranbaxy won the 180-day exclusivity for
Simvastatin 80 mg, an anti-cholesterol drug in the U.S. This exclusivity period
gave the company a share of approximately 56 percent of that market. Sun
Pharma and Glenmark are the latest entrants in the high risk-high reward Para IV
filings space.
Developing Niche portfolio
Ranbaxy Laboratories NDDS products, Branded Generics
Sun Pharmaceuticals Controlled Substances
Dr. Reddy's Laboratories Biologics, Dermatology
Nicholas Piramal Controlled Substances, Bio-fermentation-based products
Wockhardt EPO, Insulin
Biocon Immunosuppressant, Oral Insulin, Monoclonal Antibodies
Glenmark Dermatology, Controlled substances
Zydus Cadila Anti-Cancers
Lupin Cepharlosporins (Steriles and Oral)
Aurobindo Pharma Lifestyle drug formulations
Source: Merrill Lynch Investment Report, November 2006
Ranbaxy Dr. Reddy's Sun Pharma Glenmark
No. of filings with FTF position 20 18 6 3
Innovator sales for FTF (USD bn) 26 10 6 to 8 3
Source: Analyst Reports
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Global ConsolidationThe consolidation drive that has accelerated over the last two years continued
unabated this year as well a prominent one being Mylans acquisition of
Mercks generics business. Most of these companies have made it to the top
league by aggressively pursuing the inorganic route. Today, the top 10 global
generics companies collectively have a market share of over 50 percent of the
global generics market. This is likely to have a positive effect and reduce pricing
pressure in the global generics market, to some extent.
The enthusiasm for acquisition has been driven by a series of factors such as
attaining scale, geographic diversification by venturing into new markets,
expanding product portfolios, building new therapeutic specializations and
strengthening supply chain capabilities.
Acquisitions by Indian CompaniesThe augmented risk appetite of the Indian players is reflected in their aggressive
acquisition strategy and increased leveraged funding activity, over the last few
years.
In continuation of their strategy of growth through the inorganic route, this year
also, the pharma industry was buzzing with heightened Merger and Acquisition
(M&A) activities. This is driven by the growing ambitions of Indian companies to
strengthen their competitive position and consolidate their presence in the
generics space. The primary drivers that would sustain profits for generics
companies given the pricing pressure are market penetration and access to
diverse markets. Hence, growth through the inorganic route has been the most
sought after strategy for not just the large players but also the medium and small
companies.
While most of the acquisitions were focused on the European markets,companies have concluded deals in the emerging markets of South Africa, Brazil
and Thailand. One of the notable trends, is Indian companies are now increasingly
targeting front-end marketing and distribution companies, in order to strengthen
their position in the entire value chain.
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The table below explains the strategic rationale of some of the prominent acquisitions concluded by Indian companies in
the last one year.
Cross-border acquisitions by Indian companies
Date Target Name Target Country Acquirer Name Deal ValueUSD mn Rationale
Oct-06PinewoodLaboratories Ireland Wockhardt Ltd. 150
Entry into Ireland and to consolidate its positionin U.K. and Germany.
Leverage on Pinewoods marketing network andoffer a wider basket of products
Oct-06 CantabriaPharma SL Spain Wanbury Ltd. 62.6 Entry into the European generics market
Dec-06Be-TabsPharmaceuticals
South Africa RanbaxyLaboratories Ltd. 70
Strengthened Ranbaxys South Africanoperations.
Be-Tabs is South Africas largest penicillinmanufacturers and the fifth largest genericsplayer
Dec-06 Genemedix (74percent stake) U.K.Reliance LifeSciences 63.2
Access to GeneMedixs manufacturing andclinical research facilities to launch bio-similars
portfolio in European markets
Dec-06 PharmacinInternational NetherlandsAurobindoPharma Ltd. NA
Access to several key European markets andwiden product portfolio
Jan-07 BiosciencesCo Ltd. ThailandDabur PharmaLtd. NA
Access to the marketing and distributionnetwork for Thailands rapidly growing oncologymarket
Mar-07 MedicamentaAsCzech Republic(and Slovakia
GlenmarkPharmaceuticalsLtd.
NA Entry into the Czech Republic and Slovakiamarkets
Apr-07NipponUniversalPharmaceutical
Japan Cadila HealthcareLtd. NALeverage on Nippons manufacturing base andstrong distribution network to gain access to4,000 hospitals and clinics
Apr-07 Negma LeradsSas FranceWockhardtLimited 265
Entry into the French market and access toNegmas portfolio of 172 patents anddistribution network
May-07Disapa S.p.Afermentationfacility
Italy Strides Arcolab NA Access to a U.S. FDA and EU approved facilitywith strong technology and fermentation skills
May-07
Quimica eFarmaceuticaNikkho doBrasil Ltd
Brazil Cadila HealthcareLtd NA Entry into Brazils branded generics space
Aug-07Biomeda Group(51 percent
stake)
Bulgaria Elder Pharma 5Entry into the Bulgarian market and expansionof the product portfolio to other European
marketsNote: In May 2007, Sun Pharma announced the acquisition of Taro for USD 454 mil lion. The deal is pending closure. The Acquisition will expand Suns U.S.portfolio and strengthened its Research and Development (R&D) activity and add 170 scientists to Suns existing team. Taro has a strong focus on the U.S. and Canadian markets.
Source: Analyst Reports, Press articles, Company websites
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Acquisitions of Indian assets by international pharmacompaniesIt 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. Global generics
players such as Mylan and Actavis have acquired Indian assets to create a strong
back-end for their global supply chain.
Generics industry will continue to be very attractive. India's position is very strong. There are lots of products coming in, lots of governments worried about rising health costs. Pricing pressure is increasing and there is focus on the issue. If you don't have abusiness in India, I can not see the company surviving in the future. I really think that you need an Indian part of the business. So, you may be Indian or you are based outside of India but you require anIndian operational base or you will loose. So there is optimismabout the generic business which is still going to be there, says Dr.Brian Tempest.
Global pharma companies have been sourcing Active Pharmaceutical Ingredients
(API) and formulations from India through tie-ups with Indian manufacturers.
However, acquisitions provide them with greater control and flexibility and access
to the same resources available to Indian drug manufacturers.
Foreign companies areacquiring Indian assets Rationale
Actavis acquired themanufacturing facilities ofGrandix and Sanmar
Grandix provided Actavis access to low cost manufacturing facilities, to develop andmanufacture products for U.S. and Europe as well as re-launch older products atcompetitive prices from the facilities
The Sanmar acquisition provided Actavis a U.S. FDA approved facility and the ability todevelop and manufacture its own APIs
Mylan acquired a majoritystake in MatrixLaboratories
Matrixs acquisition is expected to significantly enhance the backward integrationcapabilities of Mylan and strengthen its supply chain capabilities
Provided Mylan an access to the emerging markets of India, China, Africa and also Europe(through the distribution network of Matrixs Docpharma subsidiary)
Teva acquired RegentDrugs Regent Drugs provided Teva access to API manufacturing facility for its global needs
Watson Pharmaceuticalsacquired Mumbai-basedSekhsaria Chemicals
The acquisition was part of Watsons strategy to expand its presence in India. It providedWatson access to facilities such as process R&D, contract manufacturing and development;and manufacture of API and intermediates
Watson acquired DrReddys Goa formulation
facility
Watson produces solid dosage generic products for the U.S. market from this plant
Source: Press articles, Analyst Reports
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Key Considerations
Pricing Pressure and Increasing Competitive IntensityThe global generics industry continues to reel under pressure with intense
price-led competition, and the entry of smaller players has further intensified the
competitive intensity. Though the generics segment continues to grow at a rate
higher than the global pharmaceutical market, the operating environment is
becoming increasingly competitive. U.S., the leading generics market, is
witnessing intense competitive pressure with several new players entering thisspace leading to price erosion to the tune of 95-98 percent in some instances
Given the fact that there are newer players entering the fray, inaddition to the existing players, we can expect the generics space tobecome a more competitive one, feels Mr. Pankaj Patel.
While the long term business drivers are intact, the near term prospects seem
challenging. However, Mr. Pankaj Patel feels that the generics market will expand. It is a growing market and opportunities still exist. The severe pricing pressure will continue and eventually it will become avolume game. The key factors that will become very important tosucceed in the generics business will be the ability to differentiate oneself in terms of technological development and cost optimization.Taking care of these two aspects would have a positive impact for companies.
Managing Growth in multiple marketsOne of the key issues to be dealt with while achieving geographical
diversification is to manage growth in multiple markets. Not only big players but
even mid and small sized Indian pharma companies have started foraying into
regulated as well as non-regulated markets. Each of these markets has uniquecharacteristics. It is a challenging task to develop a strong presence and acquire
scale in each of these markets. The success of companies in these markets will
depend on factors such as:
Entry strategy
Ability to comply with regulatory complexities
Building product portfolio based on disease profile of each country.
Its not just managing multiple markets, but the complexities interms of supply chain and regulatory requirements that make the task of managing growth a challenging one, says Mr. Pankaj Patel.
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Competition from ChinaIt is becoming increasingly difficult for India to ignore China. China is emerging as
a strong competitor on the back of its cost competitiveness, strong government
support (in the form of incentives), implementation of GMP norms, aggressive
focus on exports and the soaring consolidation drive to build large Chinese
pharma giants. In fact, China is thought to be the preferred contract research
destination over India.
In some aspects, however, China lacks the required specialization in some areas
such as finished formulations, regulatory compliances for regulated markets and
Intellectual Property Rights (IPR) development. In terms of U.S. FDA approved
plants, China is still far behind India. India is also leading in terms of the number
of DMF filings. While India has filed 1,155 DMFs between January 2000-June
2007, China has filed only 329 in the same period. In 2007 itself, India has filed
110 DMFs, which is nearly thrice that of Chinas 38 filings. 9
China has always tried to compete on price, so they could pose athreat to India in the Generics Market. However, they are still six years away from doing anything significant as far as generics are concerned. Apart from China there is no other country that could pose a serious threat to India, says Mr. Pankaj Patel.
9 Crisil Research
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Integration IssuesFinding a target and acquiring it is just one aspect of a deal, what is equally
important is the ability to successfully integrate the target with itself. Some of
the key concerns of the integration process involve people management,
managing cultural differences and aligning the goals and ambitions of the staff
members with the vision of the merged company. Going forward, the successful
implementation of planned growth strategies will also depend on how well
companies manage the integration process.
Conclusion
These are very exciting times for Indian generics players. On one hand, the
mainstay of the Indian players, the U.S. market, is experiencing intensely
competitive business environment, and on the other hand, semi-regulated and
emerging markets are expected to become new growth markets. While,
operational restructuring and realignment of business models will help Indian
players survive the competitive environment in the U.S. and European markets,
their increasing presence in other promising markets will further enhance their
market share in the global generics industry.
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Introduction
Pharmaceutical companies are increasingly realizing the benefits of outsourcing.
Until the late 1990s, companies developed their products in-house and only
shared select information with third parties. However, in recent times, increased
competition, weaker product development pipelines, fewer approvals, the need to
accelerate the time-to-market of new products, and pricing pressures have
compelled pharmaceutical companies to re-examine their priorities and
increasingly include outsourcing as part of their model structure for businessoperations.
CRAMS, considered as one of the most promising medium to long term
opportunities for the Indian pharma industry, is gaining momentum. In recent
times, the CRAMS segment has witnessed heightened activities on the back of
increasing deal flows, presence of global Contract Manufacturing Organizations
(CMOs) and Contract Research Organizations (CROs) and emergence of new
players. Global pharma companies are finding innovative ways to capture cost
efficiencies across the value chain and are resorting to outsourcing of core as
well as non-core processes. India, with its inherent competitive advantages,
stands as one of the most preferred outsourcing destinations for a range of
activities and is now becoming a critical component in manufacturing as well as
the drug development value chain of various innovator pharma companies.
Contract Research andManufacturing Services (CRAMS)
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Growth Drivers
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.
MNCs - leveraging on their Indian subsidiaries for globalsupportThe introduction of the product patent regime has opened up dual opportunities
for global pharma companies in India. While on one hand the regime has made
India one of the most promising pharma markets (on account of the favorable
demographics and increasing income levels), on the other, it has boosted Indias
capabilities as an emerging off-shoring destination for providing end to end
pharma outsourcing services.
India is already an attractive destination and to sustain this,building capacity is going to be a key factor. It is not just about cost arbitrage, because beyond cost arbitrage, it would be the ability tooffer large intellectual capital in numbers which no other country cando. We have to be competitive in terms of regulations and the speed at which we turn things around, says Dr. Hasit Joshipura.
Company Remarks
MerckReduction of the workforce by 5,100 people (47 percent frommanufacturing)
Eli LillyComprehensive restructuring package: greater reliance oncontract manufacturing
Sanofi Aventis Sells manufacturing plants in Puerto Rico and France
Pfizer USD 4 bn cost-savings plan: 25 percent reduction inmanufacturing plants by 2008
Source: Citigroup investment Research, May 2007
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India is an attractive choice for outsourcing. The attractiveness of demographics and cost advantage are key. However the ambiguity in patent law and bureaucracy can be inhibitors of growth. Key areas for outsourcing in India are bio informatics, lead optimization and clinical trials. Currently India is getting the lower end of these activities, however companies will slowly move to outsourcing higher end of their activities here once we demonstrate value through lower cost and also reduce the time to market, feels Mr.
Ranjit Shahani.
Global pharma MNCs are increasingly enhancing the scope for outsourcing of
their operations, related to research and manufacturing to their Indian
subsidiaries. Accordingly, they are increasingly leveraging on their facilities in
India.
Some of the key operations for which India is evolving as an important
outsourcing base include:
Support for global R&D functions
In order to improve R&D productivity and curb escalating costs, MNC pharmacompanies are capitalizing on their existing low cost facilities in India. ManyIndian subsidiaries are already playing a vital role in the global R&D programmesof the parent company.
Outsourcing of manufacturing operations to the Indian subsidiariesPharma MNCs that have renewed their interest in the Indian markets have set uplow cost manufacturing facilities in India that meet international standards. Whilethey continue to expand their presence in the domestic markets, many of themare simultaneously using these facilities as off-shoring hubs.
Using India as a export base for other countriesPharma MNCs are also increasingly using India as a base for exports not only tothe immediate neighboring markets, but also to other markets around the worldsuch as Japan, South Africa, Latin America and Europe.
Clinical Data Management for global drug discovery and research functionsPharma MNCs are also exploiting Indias competencies in the field of InformationTechnology and its strong and low cost IT skill sets; by setting up centers for theirglobal clinical data management functions in India.
The India pharma industry is positioning itself as the provider of value addedservices such as support for early phase discovery, research, clinical tests, and
synthesis of custom-made intermediates or even finished APIs, elaboration ofgenerics dossiers bundled with the supply of the formulated drug product, etc. ataffordable prices. Accordingly, many MNC pharma companies have alreadystarted taking advantage of this.
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The table below illustrates the various activities outsourced by MNC pharma companies
Company Remarks
GlaxoSmithKline (GSK)R&DIn 2006, GSK India was involved in 16 global clinical studies. Going forward, GSK India is
planning to play an important role in the parents global drug discovery programme. India has
been recognized as one of the prime centers for clinical research, especially for therapeutic
segments such as oncology, psychiatric disorders and infectious diseases. It is also involved inthe custom synthesis for drug discovery and research initiatives of GlaxoSmithKline R&D at
U.K., Italy, and U.S.
ExportsIndia is being used as a base for the export of bulk drugs to key markets such as Japan,
Mexico, France, Germany, Holland, U.K., South Africa and Denmark.
Clinical Data Management CenterIt has set up a center for clinical data services with Data Management, Biostatistics andScientific Writing functions to support the clinical R&D activities of GlaxoSmithKline Biologicals
worldwide.
Pfizer R&DConducts clinical research on behalf of Pfizer Global Research and Development (PGRD)worldwide development teams. Approximately 3/4th of the clinical research portfolio is related
to Phase II and Phase III studies, while the balance pertains to the research essential for the
local registration, launch and marketing.
Export BaseIndia is also used as a base for exports to other countries.
AventisOutsourcings of mainly APIs by the parent company as well as sales to Russia are the two keycomponents of exports.
AstraZenecaHas set up a process R&D facility focused on tuberculosis in Bangalore, the first outside
Sweden and U.K.
Novartis Novartis is increasingly using India as a base for exports to other countries.
Novo Nordisk It is planning to set up a global data management center.
Sanofi Aventis
Planning to make India one of its largest bases for clinical research. It set up a dedicated Indian
Clinical Research Unit (CRU) in April 2006. It has been assigned 17 studies in several
therapeutic areas till date. Sanofi is planning to send almost 100 percent of its feasibilitystudies for Phases II and III trials to the Indian CRU.
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Contract ManufacturingContract Manufacturing represents the largest opportunity within the CRAMS
space. India, with its efficient labor pool and large number of USFDA compliant
manufacturing plants outside the U.S., is expected to garner a major share of this
large opportunity. At present, the global manufacturing outsourcing opportunity is
estimated at USD 20 billion and is expected to reach USD 31 billion by 2010.
The four main components of the global outsourcing market are intermediates,
APIs, custom synthesis and formulations/dosage forms. It is estimated that
approximately 40 percent of outsourcing demand is for the manufacturing of
APIs.
Source: Citigroup Investment Research, May 2007
Source: Crisil Research
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Having a presence across various segments of the contract manufacturing space
is important and helps to capitalize on opportunities provided by this space.
Though Custom Chemical Synthesis (CCS) and the intermediates space offers
limited scale and volume but strong chemistry skills at this stage is a significant
step in getting increasingly involved with the overall drug development process
and developing relationships with MNC pharma companies.
Well integrated players certainly will have an advantage. The clients
will certainly prefer players who could be contracted for all the disciplines and segments, says Dr. J M Khanna.
For Indian contract manufacturing players, opportunities exist on two
fronts
- capture a larger share of the opportunities created because of the shift from
in-house manufacturing to outsourcing by innovator pharma companies and
- foray into western countries by acquiring existing contract manufacturing players
in the western countries.
Acquisitions are not new to Indian pharma companies. The success of the
generics players can very well be attributed to the large acquisitions they have
made to foray into western countries especially in the European region. Indian
contract manufacturing players have also opted for the inorganic route to growth
and have made strategic acquisitions to gain scale and strengthen customer
relationships.
Acquisition is also a philosophy. Ambition of the management togrow is an important factor. Acquisition is a quicker way of achieving higher revenues. Organic growth may also result in higher revenue growth however, it takes time and it can be slow. It depends on the
management, how they want to grow, feels Dr. J M Khanna.
Acquirer Target Country Deal Value (USD mn)
Nicholas PiramalAvecia
Pfizer Facilty
U.K.
Morpeth, U.K.
18
38
Shasun Chemicals Rhodias CCS business U.K. 5
Jubilant OrganosysTarget Research Associates
Hollister Steir Laboratories
U.S.
U.S.
33.5
122.5
Dishman Pharma Carboogen Amcis Switzerland 74
Dr. ReddysLaboratories Roches Facility in Mexico Mexico 61
Source: Citigroup investment Research, May 2007
Notable acquisitions in the CRAMS segment
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Considering that some of these assets were not doing well due to a bloated cost
structure and inadequate focus, Indian companies were able to acquire them at
reasonable valuations. With proper operational realignment and rapid scale up in
contracts, most of these acquisitions are now proving to be earnings accretive.
Contract ResearchContract 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 USD 14billion in 2006 and is expected to reach USD 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.
Besides manufacturing, outsourcing of discovery services will alsostart happening sooner rather than later. However, it would be afunction of the experience that some of the earlier innovators have
had and how competitive the country is as against other countries such as China, Singapore, Brazil, etc. says Dr. Hasit Joshipura.
Given the conducive regulatory environment, strong chemistry innovation skills,
large and diverse patient pool; and availability of players providing ancillary
services such as bio-informatics, clinical data management and bio-statistics; the
contract research market in India is expected to grow at a CAGR of 30-35 percent
during 2006-2011. At present, contract research for new drug discovery accounts
for 60 percent of the total market while the balance 40 percent is for generic
drugs.
Source: BiotechFinances.com
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Clinical ResearchAt present, a majority of clinical trials conducted in India are for Phase II and
Phase III. Further, Phase I trials are not permitted in India for new drug
substances discovered in other countries unless Phase I data from other
countries is made available to Indian authorities. However, 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.
The advent of the product patent regime in 2005 has provided the much needed
impetus to the growth of the clinical research and clinical trials segment. Many
MNC pharma companies have made India their R&D hub - especially for clinical
trials. India is also becoming a preferred destination for clinical trials given that it
offers a huge patient base afflicted by both tropical diseases as well as lifestylediseases. Patient recruitment in India is also faster than other semi- regulated and
regulated markets.
Following the move of their global customers, international CROs have also
forayed into the Indian market. Some of the prominent ones include Quintiles,
SBFC International, ICON Clinical Research and i GATE Clinical Research
International.
Source: acrohealth.org
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Government SupportOn the regulatory front, the government is also trying to promote the growth of
this industry by providing 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.
Key Considerations
Efficient execution of contractsGiven that the Indian CRAMS industry is still evolving, the industry experiences a
rather long gestation period due to a longer time taken for awarding contracts.
Further time spent on registration and other regulatory processes can extend
final delivery timelines by almost two additional years in the initial phase.
The Indian CRAMS industry also needs to focus on building strong and
sustainable client relationships and improving the quality of service with respect
to meeting delivery timelines, upholding ethics, and the ability to offer
value-added services.
Execution of CRAM deals also depends on how we exploit the technical capabilities and how we manage broader issues such as people and ethics. These things are still not in full control. We are holding back. The day we start it and demonstrate it, we will attract more business, feels Dr. J M Khanna.
Building a strong technology platform and long termpartnershipsConsidering the large opportunity and strong growth drivers, several Indian mid
sized companies have forayed into this segment.
The CRAMS segment is becoming commoditized with more number of players entering the segment and people constantly driving down prices. Therefore, even in this segment technology and research will play a part. Developing the best technology, focusing on a few large deals and building long term partnerships, will help inachieving success in this segment, says Dr. Swati Piramal.
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Training and InfrastructureEducation pertaining to contract research, including discovery services and
clinical trials, needs to be given high priority. An adequate physical infrastructure
coupled with specialized training and an industry wide accreditation system will
help balance the demand-supply equation in this rapidly growing industry.
IPR CompliancesIssues related to data exclusivity and confidentiality are still areas of concern for
most clinical trials sponsors. Stronger IPR compliances will instill greaterconfidence in MNC Pharma companies and will further boost the CRAMS
segment.
We need to speed-up the patent process, infrastructure has to be ramped up and more clarity on the data exclusivity factor needs tobe provided. If you were to bring more and more R&D into this country, then these are the issues one has to consider, says Dr.Hasit Joshipura.
Conclusion
Today, what was once considered a potential opportunity is now being translated
into real numbers. In recent times, the pharma industry has seen has seen an
emergence of significant opportunities in the form of increase in outsourcing
contracts. Indian companies are now witnessing increasing visibility in this
business from one-off contracts to becoming preferred vendors with assured
revenue streams.
One of the most notable trends is a formation of a proper eco-system that will
support the growth of this industry on a sustained basis. Emergence of domestic
players, increasing presence of global CROs, well developed IT infrastructure,encouraging regulatory environment and well established Knowledge Process
Outsourcing (KPO) industry. A combination of all these factors will take this
nascent industry to the next level.
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Introduction
Research on New Chemical Entities (NCEs) and New Drug Delivery Systems
(NDDS) is steadily becoming an integral part of the strategy of Indian pharma
companies, who want to build a sustainable long term advantage. Over the last
couple of years, the discovery R&D segment has gained significant momentum
and discovery R&D pipelines of several players have expanded substantially. At
present, as many as 10-12 companies have molecules under various stages of
development. R&D investments by Indian companies have also increasedsignificantly and now account for as much as 7-9 percent of sales for leading
pharma companies. It is expected that investment in R&D is expected to rise to
USD 500 million in 2010 and USD1.2 billion by 2015.10
I believe India will be recognized as a research hub, it may not happen very soon. There are tremendous opportunities for people toget into this innovative business, as the cost of conducting researchin India is significantly lower. But we still dont have great respect for innovation and this will take time to evolve. There has to be acultural change and societal change to make this happen. So Indiawould be the place for research, but perhaps in the long term, feels Mr. Pankaj Patel.
Growth Drivers and Trends
Indias competitive advantage in offering strong chemistry innovation skills at
significantly lower costs has lured many multinational innovator pharma
companies to make India a major component of their global drug discovery value
chain.
Key aspects of R&D initiatives of Indian pharma companies are the variouscollaborations and innovative funding models that are being adopted by each one
of them. Research on NCEs is relatively a new field for Indian pharma companies,
which have traditionally relied on their process engineering skills and is fraught
with uncertainties and demands considerable financial resources. Collaborative
research, through in-licensing and out-licensing helps in accessing the vast pool
of resource capabilities of MNC Pharma companies. This also allows Indian
pharma companies to build resources for expanding their research pipeline.
In-licensing and out-licensing transactions are gaining strategic importance with
MNC pharma companies making it an integral part of their business models. This
not only helps in boosting their weak short to mid-term growth prospects by
swiftly filling gaps in their pipelines but also helps in saving time for conducting
early stage R&D process.
Research and Development
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Prominent deals in collaborative research
IndianCompany Molecule Indication Nature of deal Global Partner Remark
Glenmark
GRC 3886 Asthma,COPD
Out-licensing Forest LabsOut-licensed to Forest Labsfor USD 190 mn for NorthAmerican markets
GRC 3886 Asthma,COPD Out-licensing Tejin PharmaOut-licensed to Teijin Pharmafor Japanese markets
GRC 8200Type IIDiabetes Out-licensing Merck KGaA
Out-licensed to Merck KGaA,Germany for the NorthAmerican, European andJapanese markets.
Dr Reddys
DRF 1042 Cancer JointDevelopment
ClinTec International Co-development andcommercialization agreement
DRF 2593 Type IIdiabetesJointDevelopment Rheoscience A/S
Co-development andcommercialization agreement
Ranbaxy RBX 11160 Anti-malarialJointDevelopment
Medicines forMalaria Venture(MMV)*
Co-development andcommercialization agreement
Nicholas Pre clinical drugcandidate NA In-licensing NA Global clinical development
AlembicNDDS forKeppra XR
Anti-epilepticdrug Out-licensing UCB, Belgium
Out-licensed for milestonepayments of USD 11 millionand royalty on futureworldwide net sales
Suven Pre clinical drugcandidate CNSJointDevelopment Eli Lilly
Partnering deal with Eli Lillyfor early phase research forDiscovery of NCEs in the CNSarena
*this joint venture has been discontinued
Source: Company websites, Analyst reports, Press articles
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MNC Pharmas quest for in-licensingFor MNC pharma companies, in-licensing is the most sought after strategy to
arrest declining R&D productivity. Over the last couple of years, many MNC
pharma companies have stepped up their in-licensing activities. Novartis has
more than 320 ongoing collaborations across 19 countries while Astra Zeneca has
in-licensing partnerships with more than 50 companies. Globally, leading pharma
companies are witnessing increasing dependence on in-licensed products to
augment sales. In 2005, revenues from licensed products accounted for 24.4
percent of the total sales of the top 55 pharma companies as against 20.7percent in 2002. Datamonitor estimates that by 2010, these companies will
derive as much as 29 percent of their total sales from in-licensed products.
Source: Datamonitor, April 2006
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Collaborative ResearchIndian CROs with advanced research capabilities and value added service
offerings are going beyond their pure service led models to an incentive based
structure. Advinus Therapeutics, a CRO promoted by the Tata Group, is one such
example. It has entered into an in-licensing cum joint development agreement
with Merck for the development of two drugs in the metabolic disorder segment.
In addition to the USD 75 million milestone payments, upon commercialization,
Advinus will also receive royalty on drug sales. In another example, Indias
biotech major, Biocon, has entered into a USD 300 million deals with BMS todevelop a new research center employing 400 scientists for providing discovery
and pre clinical support to BMS.
De-mergersDe-merging of R&D assets into a separate company is one of the most notable
trends among Indian pharma companies. The objective being to enhance the
focus on the drug discovery business and generate resources by roping in
strategic investors to take molecules to advance stages of development.
You take the R&D assets of all the Indian companies together and the market cap that the stock market is ascribing to them today. By 2015, these assets would have an approximate value of USD 65 billion. But, if you create a separate company specifically for research then value could be as high as USD 100 billion by that time.So the de-mergers would add significant value, says Dr. Swati Piramal.
Dr. Swati Piramal also feels that, Generics Discovery and CRAMS should be separate. You can't do both. In discovery, your scientist is asked to be creative and find a new innovation. The mandate of the
scientist is broad and ensuring that it won't infringe on anyone's patent. In CRAMS the mandate to your scientist is different. The mandate is to make an existing patent or innovation better. So the approach is different.
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Key Considerations
Need for partneringNew 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 USD 800 million to 1.2 billion. Indian playershave been funding their research pipelines through resources generated from the
generics business which is facing intense price competition. This makes it
particularly difficult for Indian pharma companies to drive the entire process of
drug discovery all the way to the stage of marketing. Indian pharma companies
are well placed to do early stage research but lack the financial strength to take a
promising new molecule to advanced stages of development.
Globally, the R&D business is becoming tougher with declining productivity and
spiraling costs. On the regulatory front, product approval norms are becoming
stricter. Both Indian pharma companies and global innovator pharma companies
realize the benefits of partnering.
Strategic R&D Demergers
Company Strategic Rationale
Sun
To provide scope for independent collaboration and expansion
To offer investors an option to separately hold investments in
businesses with different investment and return characteristics,
depending on what matches their risk and return expectations.
Dr Reddys
To rapidly advance the existing as well as future NCE assets throughPhase II trials and seek out-licensing, co-development or joint
commercialization opportunities
To aggressively accelerate new discoveries to clinical development in
the areas of Metabolic Disorders and Cardiovascular.
Nicholas Piramal
To enhance the focus on the NCE Business
Improve profitability of core business such as CRAMS and domestic
formulations
Funding flexibility to explore innovative financing mechanism
including strategic investors.
Ranbaxy
To create an independent pathway for Drug Discovery Research
Operational freedom and flexibility for new growth opportunities
Provide a platform for increased collaboration.
Source: Company websites, Analyst reports, Press articles
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Companies are investing, trying to partner with various companies to do testing of compounds and take it to a pre- clinical level. This will develop and will be more like an investment for the future. There are few companies that are already doing that. As an industry we can learn this testing of new compounds. This is a weak area and which we need and should build. When that is done, I think India will be benefit, says Dr. J M Khanna.
Partnering with a MNC Pharma company helps in taking new compoundsthrough all the phases of clinical trials right till the launch of the molecule. This
strategy considerably reduces payback period and helps Indian companies
develop specialization to consistently generate new innovative compounds
through in-house R&D.
Research and Development offers a lot of advantage to India and this is where India can create a priority structure and reorient the business.There is plenty of scope for R&D Collaboration. We could undertake research in full-scale therapeutic areas or collaborate in specific or partial research and development projects. Another area for collaboration could be for products that are not so important for large pharma companies,but still relevant for others. The MNC Pharma companies would not be interested in these products because of their limited market size but this could be an area of interest for Indian companies, feels Mr. Pankaj Patel.
Need for Regulatory ImpetusThe 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. The PPP model can help companies finance the
molecules across different stages of development, provide support forconducting clinical trials and get faster regulatory approvals. The public sector will
also stand to benefit by getting access to drugs of high therapeutic use meant for
mass distribution, at significantly low costs.
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Funding is the biggest constraint. It takes lot of money to develop anew drug and chances of failure are also high. If the prices of the drugs in the domestic market are controlled then there is very little money left for research. We are the only country in the world where this is happening. China, Korea, Israel, Taiwan, they all encourage research. If we dont do it, then the money doesnt go to research.But if it does go to research, then with much less cost we can domuch more because of our inherent advantages, says Dr. Swati
Piramal.
Conclusion
India is expected to play a vital role in the global R&D space and collaborative
research is expected to be the future of the new drug discovery process in India.
This is reinforced by the increasing collaborations between Indian and MNC
pharma companies. Going forward, this trend will continue to gather momentum.
However, success would largely depend on proper partner selection and well
structured alliances.
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The pharma industry is regarded as one of the most globalized industries. The
Indian pharmaceutical industry has the ability to exploit the opportunity inherent
in the global industry at various points in the value chain from raw materials,
intermediates and active pharmaceutical ingredients at one end, to generic and
outsourced formulations and drug discovery and development at the other end. In
order to rapidly integrate with the global pharma industry, Indian pharma players
have entered into various collaborations in almost every area of the pharma value
chain, be it drug discovery and development; manufacturing, sales or distribution.
Post the introduction of product patents in Indian legislation, the domestic market
has become even more attractive to pharma MNCs that have now started
collaborating with domestic players through in licensing deals and marketing
alliances.
For MNCs pharma companies that are augmenting their market presence (after
the new product patent system), by utilizing domestic industry's skills andinfrastructures to boost their research and manufacturing activities, partnerships
will be crucial to penetrate the tertiary and rural markets.
This enables the MNCs to utilize the vast marketing and distribution networks on
the Indian players while these alliances enable Indian companies to access a
wider knowledge base and a diverse product range.
Growth Through Collaborations
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Conclusion
Collaborations have played a very important role in the growth of the Indian
pharma companies. Be it the domestic market or international, the co-existence
of collaboration and competition has now become an inherent characteristic of
the Indian pharma industry. Companies have identified collaborations as a faster
growth tool than building their own infrastructure.
Today, pharmaceutical companies operate in multiple markets spanning multiplesegments and with varied business models. Collaborations will be critical to
success in such a dynamic business environment.
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Annexures - Profiles
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Educational Background
Dr. Brian Tempest has acquired his CSci, CChem, MRSC, BSc and PhD.
Professional Experience
Dr. Tempest has worked in the pharma industry for the last 36 years. During this
time, he has worked for several pharma majors, including Glaxo & Searle, around
the world and joined Ranbaxy 12 years ago. During this period, Ranbaxy has
transformed from a small company focused on the India domestic market, to a
top 10 global generic company. Dr. Tempest lives in New Delhi, India and has
been President, Managing Director & Chief Executive Officer and is presently the
Chief Mentor & Executive Vice Chairman of the Board. Dr. Tempest is one of afew westerners to hold a leadership position in an Indian blue chip MNC, and has
an unusual insight into India.
Dr. Tempest is also a Honorary Professor of the Management School at Lancaster
University, U.K., and he sits on the Editorial Board of the Journal of Generic
Medicines.
Dr. Brian W. TempestChief Mentor & Executive Vice Chairman of the BoardRanbaxy Laboratories Ltd.
Brian Tempest
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Educational Background
Dr. Joshipura is a graduate in Electrical Engineering from VJTI - BombayUniversity and a Post Graduate from Indian Institute of Management -
Ahmedabad. He has completed his Doctorate programme at the School of
Management at IIT Mumbai.
Professional Experience
After having spent about three years with the Tata Administrative Services, Dr.
Joshipura has spent about 16 years with the Unilever Group of companies in
India and held positions of increasing responsibility in commercial, sales,
marketing and business management functions. He joined the pharmaceuticalbusiness of Johnson & Johnson Ltd., as President & Executive Director in
October 2001, a position he held until August 2006. Dr. Joshipura was also the
Chairperson for the Corporate Contributions Programme, as well as the lead for
Government Affairs for the Johnson & Johnson group of businesses in India.
Other Achievements
Dr. Joshipura brings considerable management experience in both consumer
healthcare and pharmaceuticals and is ideally placed to lead GSK India in the
patent era. He is also an Executive Committee M