Still attractive after all these up’s & down’s

A number of reports by such names as PriceWaterhouseCoopers and the India brand equity foundation (Ibef) have recently pointed out the Indian pharmaceutical market is slowing down also due to uncertainties which affect the national regulatory landscape; but it still offers opportunities

Roberto Carminati

Commentators and editors at The Hindu showed no doubt in stating that «the Indian pharmaceutical market isn’t going to be that rosy» and indeed the national scenario has recently shown some controversies that players in the drugs development and distribution arena will necessarily have to take into account. But the numbers and the growth rate it still manages to display witness the fact the sector is still interesting, especially if we consider the importance and quality of local research and development initiatives and facilities; together with the width of the potential and constantly expanding customer base. Besides newspapers and media, a number of reports from specialized multinational market analysis firms have described how the pharmaceutical industry in the region is at present struggling with a series of challenges and has had to face a series of up’s and down’s. Nonetheless, foreign companies and investors can still look at the country as to one of the most interesting among the so-called Brics and worldwide as well. For instance, a recent study that the Confederation of Indian Industry or CII has conducted and published together with PriceWaterhouseCoopers (Pwc) has pointed out that the pharmaceutical market in India has slowed down to a 9,8% growth rate in 2013 while last year it had been growing at a +16,6% pace. Moreover the number of new drugs and products that were launched on the market was declining too between 2011 and 2012 to 1,700. Three years ago the total number would reach some 1,900 units at least. What happened, then? According to PriceWaterhouseCoopers and the CII a number of regulatory interventions and institutional actions aimed at changing India’s pharmaceutical pricing policy have influenced the business in the region over the last year, in first place. But besides that analysts at Pwc and CII managers noted that «the local industry is also experiencing other challenges such as delays in clinical trial approvals, uncertainties over India’s Foreign Direct Investment (FDI) policy, a uniform code for sales and marketing practices; compulsory licensing».

DPCO: an efficient strategy in the long run

Some of these issues were debated by Glenmark Pharmaceuticals Group’s president, Glenn Saldanha, whose company is mainly focused on generics and manages an export-oriented business driven by dermatological, oncologic and respiratory drugs in the quoted interview at The Hindu. Whilst noting that regulatory changes have impacted on that new product approval arena that used to contribute to India’s growth by a 4-5% annual rate, Saldanha also considered the market is becoming highly competitive in the country and first-rank companies «are now global in nature», having completely diversified their portfolio whereby India does not contribute more than 30% of revenues». Glenmark Pharmaceuticals Group’s president foresaw a rush towards mergers and acquisitions among small and medium-sized players and commented on recent government moves such as the new Drug price control order, also known as DPCO, by the means of which National authorities are trying to strictly monitor the retail prices for pharmaceutical products. « Government intervention or involvement has gone up significantly in the recent past, whether it is by way of DPCO, new product approvals or clinical trials. But in my view, it is something essential to bring India up to global standards. From that perspective, it is the right move but in the near-term, there’ll be pain. To get to global standards in the long-run, it is the right step. Challenges will continue». Back to Pwc and the CII, their study reported that «treatments for chronic conditions now account for 30% of sales, from 27% in 2010, outperforming the market for the last four years and, with annual growth averaging 14%, growing faster than therapies for acute conditions such as respiratory, pain and gynecological disorders; and anti-infective, rising around 9.6% annually».

Plunging margins for retailers and distributors

Also due to India’s 2012 National Pharmaceutical Pricing Policy retailers’ margins plunged from 20% to 10%, while distributors’ margins have also fallen from 16% to 8%, thus generating, according to analysts and Indian entrepreneurs «significant uncertainty among many stockists regarding the feasibility of staying in business due to lower profitability post the margin reduction». As we saw, Greg Saldanha, whose company’s investments in research, development and innovation have been climbing up continuously in the last few years up to 9% of overall revenues, mentioned there are challenges and struggle ahead for the clinical trials’ sector too and his opinion is somehow confirmed by PriceWaterhouseCoopers and the Confederation of Indian Industry. Underlining the attractiveness of India as an ideal location for clinical trials, researchers at Pwc noted these activities were recently «marred by genuine concerns». The suggestion is then that labs and research centers should have to «work closely with the government to create a regulatory mechanism that allows scientifically sound and ethically correct trials to be conducted, so that the benefits of clinical trials can be brought to patients in India». Yet, the Pwc and CII report states that all Indian drug-makers and providers are still heavily investing in the research and development field and are also making great efforts to enhance their technological infrastructures, in order to drive a widespread innovation. Information and communication technology is a key driver for this entire process which has social networking, mobile and/or cloud computing at its very heart. The already mentioned India Brand Equity Foundation wrote in fact in a recent report that a number of local players are looking forward to providing or are already offering a wide portfolio of services in the data management, health information, clinical and database management services. This is also an effect of the regulatory efforts to speed up the new drugs-approval process by also adopting an innovative approach both based on risk management strategies and the introduction of the Electronic Health Records or EHRs. Additionally, IBEF would not completely subscribe Pwc and CII’s point of view when it comes to research and development although it has to be noted that figures shown by the Foundation were not quite as updated as Pwc’s. In fact, IBEF calculated that R&D investments in the country have risen from 52.5 million dollars in 2000 to 646.5 million dollars in 2010 and that most part of that expenditure would come from Indian firms (80% or 505 million USD). But besides that, IBEF reported that Contract research organizations represent an important emerging phenomenon in the Indian pharmaceutical arena, as a result of the operational outsourcing that many foreign companies set up in the region. Revenues for Contract research organizations or Cro would amount to 1.2 billion Us dollars in 2010; surging from 22 million dollars only in 2002. «Clinical development, discovery and non-clinical services costs», the Indian Brand Equity Foundation wrote in a recent press release, «account for 85% of R&D budget, which can be reduced by leveraging CROs. Besides the cost advantage, multinational pharmaceutical companies benefit from staying closer to schedule. It also contributes to their abilities to expand speed and capacity of R&D operations while maintaining high levels of quality resulting in a much required boost in R&D productivity. Additionally, India, with a large population of doctors and scientists and representing the largest English speaking talent pool in some disciplines, attracts global pharmaceutical companies for contract research works».