The Indian Pharmaceutical Industry (IPI) is ranked third globally in terms of volume and thirteenth in terms of value. The lower market share in terms of value can be attributed to the predominance of IPI in generic medicines which command lower prices. As per estimates, the industry size is expected to grow at a compound annual growth rate (CAGR) of about 7-8% from around USD 42.78 billion in 2020 to about USD 80 to 90 billion by 2030 given the huge export potential coupled with steady growth in the domestic formulation market. Growth in the domestic Pharma market is expected to be driven by increase in the penetration of health insurance, improving access to healthcare facilities, rising prevalence of chronic diseases and rising per capita income. The export growth is expected to be led by increasing generic penetration in the regulated markets on the back of enhanced focus on the niche and complex product segments, patent expiries, medicine patent pool announcing licensing agreement with pharmaceutical companies and growing demand from semi-regulated Pharma markets. In the long term, growth in the export market will be sustained by emerging markets such as Russia, Brazil, and South Africa, etc.
R&D Scenario of IPI
In order to maintain the current growth rate and gain strong foothold in export market, it demands that the Pharma industry build a strong product pipeline through continuous investment in R&D. Opportunities arising from patent expiries, medicine patent pool announcing licensing agreement with pharmaceutical companies and growth of stiff competition in the international market has necessitated and accentuated the Indian Pharma companies to stepup their R&D expenditure. There exists strong correlation between the company’s current/proposed spending on R&D and the future growth rate. The top 25 Indian Pharma companies’ investment in R&D muted at CAGR of around 1% over the period of period of four years from Rs.11.52 bn (excluding one-time Rs 2.75 bn in R&D by Pfizer) during FY17 to Rs.12.23 bn during FY20. With continuously investing in R&D, the Indian companies were able to bag the lion share of approvals from highly regulated authorities such as United State Administration (USFDA). During CY2019, the Indian Pharma companies were able to grab about 40% of total Abbreviated New Drug Applications (ANDA) approvals granted by USFDA and the companies are now focusing on difficult to manufacture and the products where legal and regulated challenges are present.
Export scenario of IPI
India’s export market grew year-on-year by 8% during FY20 to US $20.59 bn from US $ 19.13 bn during FY19. North America continues to be the largest market contributing about 32.74% of the total Indian Export market during FY20 as against 30.4% during FY19, followed by U.K (2.71%) and South Africa (2.97%). Over the last three years on an average Indian Pharma cos have bagged over
one third of the total ANDA approvals. During CY2019 Indian Pharma companies have managed to secure US FDA final approval for 336 ANDAs out the total 836 approvals granted by the health regulator of the country. Despite the increasing competition in the U.S. generic market and the increased due-diligence by the health regulator, Indian Pharma Inc. has managed to secure the dominant position on the back of the R&D investment.
The share of the exports from India towards the highly regulated markets (Include USA and UK) has increased to 35.45% during FY2020 (FY19: 33.37%) which shows the competency of the Indian Pharma cos and the improving compliance aspects with highly regulated markets.
The R&D investment by the Indian Pharma cos primarily pertains to development of generic drugs to regulated markets. The R&D investment by the top 25 companies muted year-onyear by 1% to Rs.12.23 bn during FY20 from Rs.11.95 bn during FY19. Average R&D investment of Indian Pharma Inc. (Top25 companies’ revenue wise) as a percentage of total sales decreased to 5.95% for FY20 form 6.2% and 7.1% during FY19 and FY18 respectively
Notwithstanding the decreasing trend of R&D investment, Indian Pharma Inc. has still a long way if they have to venture into developing a New Molecular entity (NME). The global players in regulated markets spend on an average of 18-21% of the total sales towards developing New Molecule. Further the gestation period for developing and commercializing a generic product may vary from 2-4 years but in order to develop a NME, it takes about 12-15 years before it could get commercialized.
Out of the total 336 Final ANDA Approvals secured by the Indian companies during 2019, Aurobindo Pharma loses its dominant position - got only 24 approvals, While Sun Pharmaceuticals got.
The following are the inherent factors that propel the increasing R&D investment:
The increasing competition from the Chinese and Latin American countries the U.S. health regulator has started exerting pricing pressure on generic drugs. The effect of the same can be observed in the phenomena wherein the generic drug prices were trimmed from the prevailing market prices despite of generic drug price inflation of about 6% during the past three years. y The consolidation of the generic drug distribution network in U.S., distribution players can now exert stronger price negotiation power on the generic drugs manufacturers. The delay in conduct of inspections by the regulatory authorities on account of prevailing Covid-19 pandemic situation both for the new units and also for the units which have implemented remediation measures as suggested by regulatory authorities post to issue of warning letters or imports alerts could significantly delay the launch of new products. These developments are likely With the US President insisting on changing the procedures for bidding and encouraging the local US based Pharma manufacturers in order to reduce the cost of medicines would increase the focus of US based Pharma on generics, which in turn would intensify the competition for and between Indian Pharma companies.
Spot light on development of NMEs by regulated markets vis-à-vis India
As per USFDA, NME is a drug that contains an active moiety (part of a molecule) that has never been approved by the FDA or marketed in the US or to mention in simpler terms is totally an innovative drug. The challenge for the industry in developing NME comes in the context of amount of expenditure and long gestation time period. As per industry data, it takes about 12-15 years for a drug before it gets approved by USFDA
After going through drug discovery process and several phases of clinical trials and then gets commercialized. Successfully developing a molecule is a not only a time consuming process but also a costly affair, with zero revenue generation during the development period (about 12-15 years) and high risk of failure (about 90% of the failure). To develop an NME a company spends about $ 5-7 billion during the said gestation period. The side graph depicts the number of NMEs approved by USFDA during CY17-CY20*. Of the total number of NMEs approved by USFDA, more than 40% belong to US Pharma players. Further, India Pharma companies hardly have any NME approved till date.
Indian Pharma companies to start veering at developing the NME while leveraging their inherent capabilities. India has advantage of R&D and clinical trials cost.
Till now Indian Pharma Inc., through lower R&D investment had primarily aimed at maintaining their dominance over the generic space with sustainable earnings. Yearly R&D investment has resulted in bagging of larger share of generic approvals from highly regulated and emerging markets. Through high R&D expense, companies are trying to pace up the rate of ANDA Approvals, along with increasing the share of difficult to formulate complex drugs, thereby creating high entry barrier, which results to lower competition and higher margins. With the change in operational dynamics especially of global Pharma industry, the Indian Pharma companies which hitherto were concentrating on their R&D investment on development of complex generics, now have to shift on developing new molecular entities (NME). Further in view of decreasing number of drugs going off-patent and increasing competition in generic segment, it is imperative on Indian Pharma companies to focus on developing NMEs instead of mere copycatting the drugs developed by the counterparts from developed nations. Although development of NME may have longer gestation period along with high cost involvement, nonetheless the industry has to shift its gears by focusing on development of Innovative drugs even at the cost of narrowing margins, for it has to be inferred that the revenues generated from generics are circumstantial and would fade away with transformation of industry dynamics whereas revenues from patented innovative drugs is substantial and gives long term revenue visibility.